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Ladies and gentlemen, good day, and welcome to Krsnaa Diagnostics Limited Q1 FY '24 Earnings Conference Call hosted by Equirus Securities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Bharat Celly ] from Equirus Securities. Thank you, and over to you, sir.
Thanks, Siva. Hello. Good evening, everyone. Pleasure to have you all on the call. We have with us today, Krsnaa Diagnostics Management [indiscernible] by Rajendra Mutha, Chairman and Whole Time Director; Ms. Pallavi Bhatevara, Managing Director; Mr. Yash Mutha, Whole Time Director, Mr. Pawan Daga, CFO. We will start this call with opening remarks from the management side, followed by a Q&A session. Thanks, and over to the management.
Thank you, Bharat. Good evening, everyone, and welcome to Krsnaa Diagnostics Q1 FY '24 Earnings Call. I thank each one of you for joining us today. We have already circulated our investor presentation, which is available on our website as well as on all the stock exchange's website. I hope you all have had an opportunity to go through the presentation. I would like to address the current landscape of the diagnostic service industry and shed light on our company's position within this dynamic environment. As we all acknowledge the provision of high-quality and affordable diagnostic services stand as a fundamental pillar within the healthcare industry, it also plays a pivotal role in disease diagnosis, management and prevention. In the Indian context, the diagnostic market is projected to reach approximately 1,360 billion by FY '26, with a compelling compound growth of 14% anticipated in the years ahead. The diagnostic industry in India is being driven by various interesting factors, including a large population of around 1.4 billion, a growing elderly population, increased prevalence of chronic illnesses, higher individual income, improved insurance coverage, government initiatives, greater health awareness and a focus on preventive care. The demand for accurate clinical solutions and better healthcare services is driving the adoption of point-of-care testing and home collection. India's demographic profile presents an untapped market for diagnostic services offering opportunities for both organized and unorganized players. Governments at the central and state levels are exploring public-private partnerships to enhance healthcare and diagnostic services. Krsnaa Diagnostics as a fore fronter in PPP diagnostics has established a strong presence across India and our efforts ensure access to advanced [Technical difficulty] feasible diagnostic services even in the remotest regions of our country. Turning to recent developments, I'm pleased to report a positive shift after encountering initial challenges in the new fiscal year. The esteemed High Court of Rajasthan has ruled in favor of Krsnaa Diagnostics and TCIL, mandating compliance with stipulated conditions related to additional performance security. Aligned with this judgment and as per the ruling, we have submitted additional performance guarantee required for the project, and we are hopeful to execute the agreement by end of this month. In the past 3 months, we have secured a significant tender in the state of Assam. This project encompasses a network of 10 laboratories and an impressive 1,256 collection centers, significantly bolstering our growth prospects in the northern-eastern region of our country, where government healthcare holds an 80% share. Presently, Krsnaa takes pride in its leadership role as a PPP diagnostic entity, boosting 134 radiology centers, 1,370 teleporting centers, 105 pathology processing labs and an extensive network of 1,336 pathology collection centers. Our unwavering commitment to serving the B2C segment remains at the heart of our efforts. We have thoughtfully introduced affordable wellness packages tailored to meet the diverse needs of our esteemed customers. I'm honored to share with you a momentous occasion marked by progress and commitment to accessible healthcare. Krsnaa Diagnostics renowned for its innovative healthcare solutions proudly introduces its home sample collection services, inaugurated by Punjab's Health Minister, Dr. Balbir Singh. This forward-looking initiative enhances diagnostic service accessibility and promotes community health. The event, which was held on August 14th, 2023 at Patiala, Punjab marks a pivotal advancement in improving healthcare access across the region. This inauguration symbolizes not only convenience, but also unwavering dedication to quality, precision and affordability. We have not only launched this service, but also established an efficient call center to streamline logistical, operational, extending support to patients in 6 locations at Punjab, where in Amritsar, Bathinda, [Technical difficulty] Mohali, Jalandhar and Ludhiana. As a respected partner of the Punjab Health Systems Corporation, our commitment of providing state-of-the-art diagnostics and comprehensive healthcare solutions at discounted rates have significantly benefited Punjab's healthcare ecosystem. Furthermore, our dedication to embracing technology within our operations, knows no bounds. In the first phase, we are actively implementing technology-driven initiatives, including digital pathology and integrated lab management. These endeavors are designed to augment our operational efficiency and elevate the quality of our services. Looking ahead, our confidence soars in our capacity to expand our geographical footprint and penetrate further into Tier 2 and Tier 3 cities. We are resolute in our commitment to provide high-quality diagnostic services at extremely affordable costs. Our recent centre installations, triumphant tender wins and our ongoing evaluation of pipeline projects, all point to a future of promising growth. I will now hand over the call to Mr. Yash Mutha, our Whole Time Director, who will discuss Krsnaa's strategic plans and future growth prospects. Thank you, and have a great evening.
Thank you, Ms. Pallavi. Good evening, ladies and gentlemen. I'm delighted to present the impressive performance of Krsnaa Diagnostics during the first quarter of fiscal 2024. It brings me great joy to announce that our total revenues have surged to INR 140 crores, demonstrating a remarkable 24% year-on-year growth. In terms of our normalized EBITDA, which has risen significantly to INR 35 crores, showcasing an outstanding 22% year-on-year growth with a substantial margin of 25%. Equally remarkable is our normalized net profit, which stands at INR 17 crores, representing a striking 19% year-on-year growth, accompanied by a corresponding margin of 12%. In addition, our regular EBITDA has reached INR 32 crores, reflecting an impressive 13% year-on-year growth, accompanied by a margin of 23%. Our regular net profit has also shown growth, reaching INR 15 crores, a 3% year-on-year increase with a margin of 11%. However, it is crucial to acknowledge that our profitability margins have faced some influence, deviating from the previous quarter's performance. This shift can be attributed to our ongoing expansion endeavors. These encompass various projects that despite incurring higher expenses are yet to contribute proportionally to the revenues. Nevertheless, we remain optimistic about a positive shift in the margins as these initiatives mature in the upcoming quarters. On an exciting note, I am thrilled to share updates about our growth trajectory. Over the last 3 months, we have successfully integrated 6 new pathology labs and established 252 pathology collection centres, all aligned meticulously with our expansion strategy. To propel our future growth and amplify our presence, we are deeply engaged in a comprehensive pipeline of projects. These ventures encompass pathology labs, collection centres and even CT and MRI facilities across diverse states. The strategic approach empowers us to explore new frontiers and fortify our operations within existing states. We'd like to inform all our investors and stakeholders that based on the upcoming projects, including Maharashtra, BMC, Assam and Odisha, along with the retail expansion, we expect to maintain our CAGR growth rate for the next 2 years. And with Rajasthan project being finalized, we expect that this growth rate for Krsnaa will be much higher than the CAGR growth rate. As we persevere with our ongoing initiatives and execute existing projects combined with recent accomplishments, our outlook for the future stands strong and resilient. We possess unwavering confidence in our ability to harness the substantial opportunities that lie ahead. Through these endeavors, we are poised to drive sustained growth and create value that resonates deeply with all our stakeholders. Now I would like to hand over the call to Mr. Pawan Daga, our Chief Financial Officer, who will provide further insights into our financial performance. Thank you.
Thank you, Mr. Yash. Good evening, ladies and gentlemen. I will be presenting the financial highlights for the quarter that concluded in June 2023. In the first quarter of FY '24, our total revenue from operations surged to INR 140 crores, showcasing an impressive 24% year-on-year growth. Turning our attention to the operational aspect, our EBITDA reaches to INR 32 crores, signifying a commendable 13% year-on-year growth, and we maintained a margin of 23%. Furthermore, our net profit also demonstrated positive growth touching INR 15 crores, indicating a 3% year-on-year increase, along with a margin of 11%. During Q1 FY '24, we have added more than 500 employees, and by the year-end, we will be adding more than 3,000-plus employee pan-India, creating employment opportunity with our let's do good mission. On the efficiency front, we have seen a reduction in receivable days going from 86 days in Q1 FY '23 to 79 days in Q1 FY '24, indicating improved management of our receivable. Taking a closer look at our balance sheet, we have a gross debt of INR 50 crores while holding a cash and cash equivalent worth INR 225 crores as on 30th June 2023. It's important to note that our company continues to maintain a net debt-free status, noteworthy achievement. We can now open the floor for question-and-answer session. Thank you.
Thank you very much. We'll now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [ Jainil Shah ] from JM Financial, please go ahead.
Hi, thank you for the opportunity and congratulations on a great set of numbers. My first question is on Rajasthan tender. We were earlier expecting Rajasthan to start contributing 3Q. So any update on the timelines now? And also, if you can call out what was the contribution of our earlier Rajasthan tender in our 1Q base?
Hi, Jainil. So, with regards to the timeline of Rajasthan, the new tender contribution, we had anticipated Q3, I think that should just move on to Q4. Whilst we are trying our best to see if we can get this pushed by end of Q3 or earliest Q4. In terms of the contribution for Q1 of Rajasthan, was it this year you are asking or for the previous year?
Previous year, the earlier tender that expired.
INR 20 crores. Yes, it was about INR 20 crores in Q1 FY '23.
INR 21 crores?
INR 20 crores.
Okay. And the new centers that we've opened this quarter, just a clarification, how many have we opened and what is the cost and the impact on EBITDA?
So if you see, we have added 6 pathology labs, 1 radiology centre, and 300-plus collection centres have already started functioning in Q1 and further 200 will be added in the July month. So approximately INR 2.6 crores is estimated cost, which we incurred, for that their proportionate revenue has not contributed in the Q1.
Okay. And what was our CapEx outlay this quarter?
So INR 31 crores is the CapEx for the Q1.
Okay, okay. That's very helpful. I will get back in the queue if I have more questions. Thank you so much.
Thank you. [Operator Instructions] Next question is from the line of Darshil Zaveri from Crown Capital.
Hello, good evening. Thank you so much for taking my questions. So, I just wanted to know, so now with Rajasthan, I think finally, I think all problems have been solved. So, what kind of additional revenue would it kick in, in maybe Q4 or next year? And what would be our growth for FY '24 and '25, we would be expecting? And what would be the margin range that we can expect by '25 and '24?
So Darshil, two questions that you've asked. First is what is the expected contribution in Q3, Q4 of Rajasthan? That we expect about INR 25 crores, which we expect in Q4 if the centres go live. If you could just repeat the next part of the question, please?
Sir, next part is, how would our FY '24 as a whole look for in terms our revenue and margin as what kind of growth will we have due to our new Rajasthan thing coming up? So how would FY '25 look, will we be able to do our stated INR 700 crores revenue? Or at what kind of margin can we expect during that?
So Darshil, in terms of the FY '24 numbers, like we mentioned in our call today, we are confident to achieve the CAGR growth of almost around 30%, 35% in this FY '24, and that is excluding Rajasthan. This is currently considering the 3 to 4 projects that are live. And for FY '24, with Rajasthan coming up, of course, the growth rate will be much higher compared to what we'll be demonstrating in this year. The margin profile for this year will be a bit impacted because there are implementations going on. But like we've been maintaining, we will continue to focus on maintaining the existing levels of EBITDA margins and not have them impacted severely. So pushing that the revenue is more in line with the expenses that have been incurred. The reason for, again, as we mentioned, the margins would be impacted is because by end of the year, we'll be adding almost 3,000-plus workforce and whilst we add them, but the revenues will not be commensurate. So we expect a slight impact on the EBITDA margins on a quarter-on-quarter basis as we keep on adding these employees. But we are equally trying to also ensure that the revenue ramp-up is being pushed further to ensure that the dent or the impact on the EBITDA will be lower. However, on an annualized basis, if you see, we expect the EBITDA margins to be about the same 25%, we'll try to improve from here on. I hope that answers your question.
Yes, it helps. Sorry, just for clarification, we said 30%, 35% growth, right, sir?
Yes.
Thank you. [Operator Instructions] Next question is from the line of [indiscernible] from [indiscernible] Investment Group, please go ahead.
I just wanted to understand, so, for the previous participant, you responded that you expect a 30% to 35% growth this year and probably a bit of higher growth, maybe 35% to 40% for the next year. Am I correct? Then I can go on to the second question.
Sorry, we lost you in between, if you can just repeat the question.
So for the previous participant, you responded that this year, the growth would be 30% to 35% over the last year and FY '25 will be another 30% or 35% over FY '24. Is my understanding correct? The revenue growth. [Technical difficulty]
So this year, we are expecting 30% to 35% growth year-on-year. And next year, of course, with Rajasthan being added up, then the growth will also be much higher.
Got it. So now leave this year apart because I understand that you would be hiring few employees. So, what would be the margin for the next year, like FY '25 when everything has stabilized, what would be the margin levels, like from our current margin level, what will be your margin level in FY '25? Annualized I mean.
Yes. So, on an annualized basis, we expect to hover around the range of around 25% to 30%. And I would expect to settle on somewhere about 28% is what we expect it to achieve. But of course, our efforts will be to maximize the contribution from an EBITDA perspective with these projects stabilizing, and like we mentioned, we try to aspire bring it to 30%.
Okay. And what is the current margin right now just for [indiscernible] numbers?
Currently, it's about 25%.
Okay. So, you expect slight improvement, if possible, or maybe maintaining these sorts of levels for the whole FY '25?
Yes.
Thank you. I will return back to the queue.
Thank you. Next question is from the line of [ Bhagwan Chodhary ] from Sunidhi Securities and Finance, please go ahead.
Thanks for the opportunity. Just one question. When you say that Rajasthan comes into play. So technically, what the hurdles is still remaining there to come this project online?
Yes. So, see, Rajasthan, what is pending is only executing the agreement, that is basically both the parties will sign. Now since there has been a High Court order, the government has to follow their new internal processes to issue the agreement and get that executed. And like we said, we're hoping to get this executed by end of this month. I think after that, then we just basically go into the implementation phase. I hope that answers the question.
Yes, just one extended into [indiscernible] that, do you think that will there be any impact on the both parties' agreement and in the operations going forward based on this?
Absolutely not. See these, typically in tenders, as we've seen, these are basically contractual commitments; both the sides try to negotiate and also ensure that there is compliance. So likewise, both we, along with our consortium partner, TCIL, have kind of indicated that we are ready to comply. At the same time, there were some technicalities in terms of interpretation of various sections and provisions, which led to this kind of situation. But I don't think it impacts anyway our relationship with the authorities or the government, and neither does it impact because at the end of the day, this is in the public interest, right? And considering our past experience in successfully delivering PPP across the country, this is also a testament that Krsnaa does deliver, and I don't see that should anywhere impact our relationship.
And then one more thing. The initial whatever work were doing there, all that is on the same style or we doing some work or some revenue contribution is there from the Rajasthan ongoing in the current Q4?
As of now, from Rajasthan, there is no revenue contribution. What we continue to do is in terms of, let's say, evaluating the various sites that have to be deployed, hiring the initial leg of, let's say, managers. So those kinds of activities are ongoing. We know these are part and parcel of the tendering process. So, we don't just put a full stop to it. Until as I said, we were confident and hopeful of the order coming in our favor, which has happened recently. So, we are continuing our activities and looking forward to get this contract live as soon as possible.
And lastly, when you say that INR 25 crores kind of contribution can be in Q4, so, what kind of revenue contribution can be in FY '25 from Rajasthan?
So FY '25, we expect Rajasthan to contribute about close to INR 300 crores based on the Q4 numbers and our sizing of the project. So that is the number we expect.
Okay. Thank you.
Thank you. Next question is from the line of [ Amrita ] from Wealth Managers.
Thanks for this opportunity So, I have 2 questions. First is regarding the page 15 of the presentation, you have mentioned the monthly capacity and the annual volumes. So, if you could just clarify how is the headroom calculated there?
I believe you're referring to the tele reporting slide, right?
Teleradiology slide on page 15 of the presentation.
So this is basically about the installed CT scan and MRI based on the last financial year FY '23. Based on that, the headroom is calculated. We have an internal benchmark where every machine based on their size or Tesla, we have calculated our internal capacity. Based on that, we drive this headroom over there.
Okay. So...
Okay, just to add, basically, it's a faction of the installed equipment that we have. And at the same time, we have capacities in teleporting hub, including the number of radiologist as well as teleradiologists. So, a combination of all of this allows us to ensure how much capacity or headroom we have for further growth in terms of getting these scans reported through our teleporting hub. More so now the tele reporting hub, as we mentioned in the previous quarter, is India's first and foremost, NABH acted teleradiology hub. So, we look into all these facts and aspects in determining the current scale of operations and the headroom for growth that will come based on these either new project wins or new tender wins that will be coming in the near future.
So for example, the CT scan, you've mentioned 2 lakh monthly capacity. So, the annual capacity will be around 24 lakhs. And whereas FY '23, the volumes are 917,656 . So that means around 38% utilization. Am I right?
Yes.
All right. Then my second question is regarding like what is the kind of CapEx that is envisaged for each of these, let's say, a collection centre or a pathology processing labs or the CT or MRI centres? And in the PPP models, how does it work? I mean the centre is set up by the company and then do we get a grant for it? Or it like totally financed by the company, whereas it is a revenue sharing model with the hospitals and all?
So see, basically, in any public private partnership tender, the government publishes a tender laying out the specifications of the equipment to be deployed, the number of collection centres. And once we participate and win the tender, the government will give us a space which is typically like a [indiscernible] space where then Krsnaa goes and does the investments in terms of the interiors, the ambience as well as the collection centres, setting up our collection centre, including deploying the resources, printers and the necessary equipment and furniture. So, the investments or the CapEx involved varies from project to project and location to location. So, it's not one answer that would fit. But of course, we look at all these various metrics when we decide to participate in any tender.
So then this is set up by the company, as in, does the company received a grant for it or it is totally financed by the company itself?
No, no. Everything, the entire investment is done by the company. We don't receive any grants from the government. The government only gives us space basically where we go and deploy or establish these collection centres. At times, there are electricity that is provided by the government to the site from the site, and there are submeters, so per se there are no grants or subsidies that we received from any government.
Okay. And what is the kind of a patient profile that we have, the number of walk-ins versus captive patients?
Could you just repeat that question, please?
What is the kind of patient profile as in I believe we have a normal walk-ins, also in the -- like the government hospital centres where Krsnaa Diagnostics has set up the lab, so as in, what is the kind of captive patients as in the patients, which are admitted in the hospital and they're coming in and getting the test done versus any normal walk-in that they have?
Yes. So typically, initially, you'll always have captive patients, which are coming to the government hospitals. And the reason why government publishes these tenders is because there is absence of these diagnostic facilities or services. And once they are there, then you get a steady stream of these patients coming through. Over a period of time, because through our marketing efforts and when people get to know these are the kind of quality diagnostic services available at highly disruptive rates, you have even normal people coming in, walking into the centres. In some of our centres, we have even HNI patients coming in. In some centres, the walk-in ratio could be as high as 50% to 70% compared to the government walk-ins. So, it varies to state and as we've seen over the years, as the centre matures, you'll have a healthier contribution coming from the walk-in patients as well.
So currently, what could be the rate if you say, company-wide, at this stage?
At a company-wide it could be about 30% would be private and government would be about 60% to 70%.
Okay. Thank you.
Thank you. Next question is from the line of Aditya Khemka from InCred PMS, please go ahead.
Yes, Yash, just a clarification. I thought originally when you were discussing Rajasthan tender, at least our impression was it was a INR 450 crore contract over 3 years, equating to INR 150 crores revenue each year. But you just said on the call that in FY '25, you expect INR 300 crores from Rajasthan tender. So just wanted some clarification there.
So Aditya, what we stipulated was based on the tender. Now if you see the overall tender size, the number of collection centres that have increased, based on that, we are assessing that this could be the potential size of the tender on an annualized revenue basis. Of course, as normally government, when they quote the tender's quantum, they do it based on a conservative basis, whereas when we've done now our initial surveys as well as the number of collection centres, we believe this could be a good number to achieve and a realistic number to achieve. Also, considering that the number of districts that have been added, those have also been substantially added. 36 districts are being currently [Audio Gap]. So, I hope that answers your question, where it's a combination of number of centres that have increased as well as a number of collection centres that have increased, which gives us the estimation of the value of the tender.
Yash, what was the original number of districts to which 33 were added?
So if you see Aditya, recently, the government of Rajasthan where the earlier districts are 36 only, so which has increased to further 50 districts now in total. So based on the districts, the government will increase their infrastructure or improve the labs or the big lab, maybe proposed out there. So that is under discussion. Post our agreement we'll be to answer your detailed answer on this front.
Understood. No, that's fair enough. Just on the second part, your guidance is a little confusing, so I just want some clarification there also. So, in terms of -- and this is just the top line, margins I know as it's a PPP tender, the operating leverage is low. But on the guidance standpoint, excluding Rajasthan FY '24, we are indicating anywhere between 30% and 35% of top-line growth. And then in FY '25, another 30%, 35% growth, again, not including Rajasthan.
Correct. If we add Rajasthan, the growth CAGR growth or the growth will be much higher. Without Rajasthan only, next 2 years, we can see a CAGR growth of 30% to 35%.
Understood.
So between the projects already in hand of Assam, Odisha, BMC in Maharashtra, or if we add Rajasthan, the growth rate much higher.
Understood. So, 30%, 35% growth for the next 2 years is ex-Rajasthan, and then in FY '25, we need to take Rajasthan over and above the 30%, 35% growth in FY '25 on the FY '24 sales number, correct?
Yes, correct.
Okay. Awesome. Just another question. So, you said you're adding a lot of people now. This is something that confuses me about your business model. So, these tenders that you get, these are 3-year, 5-year, 10-year tender, but you hire employees on your rolls. We know many other companies who do similar government businesses, and they try to cut corners by taking contract employees and keeping the model so-called ‘asset light' so that they don't have the obligation of the employee's future and his welfare and then retrenchment in case they lose the contract. So just talk to us about how you manage this. I mean, this is something which is really, really commendable because it does well for the economy but I'm just confused as to how it serves the purpose of our company. So, can you just talk us through this?
Yes. So, Aditya, basically when we spoke about adding this manpower, these are basically a part of the tender requirements as well, where we are supposed to deploy these resources, whether it is a lab technician, collection boy, whatever. Now typically, when we participate in these tenders, we understand that the government is looking both not only from a service delivery perspective, but also to generate employment opportunities for the people of that geography. And when we consider these tenders, now even if you consider 3-year horizon, the employees who are also onboarded know that this is from a tender perspective. And given that tenders get renewed or we have an extension, so I don't think so from an employee perspective, they do see this as a continuum. From a cost perspective, yes, we also try to see how do we optimize the resources. Now just to give you a very ballpark number, if you see, we have about 1,500 collection centres to be deployed. Even if I could just depute one person there, that itself means about 1,500 people to be added and which is required because for a collection centre, you need resources to collect the samples and then do the rest of the processes. So, it is part and parcel of the overall business metrics or the financials that we look into. And of course, from a process perspective, we'll try to like you suggested, whether it is contractual employees or not, that we decide based on the merits of the tender requirements and as well as our optimization or these efficiency initiatives that we drive across the company.
Got it. Just one last question from my side, and then I'll turn over to the other participants. For FY '24 and '25, what is your expectation in terms of CapEx? So how much capital expenditure do you expect to incur in FY '24 and '25, given the current contracts that you have?
So the CapEx requirement for '24, '25 will be in the range of INR 120 crores to INR 130 crores.
INR 120 crores to INR 130 crores. But that, I think, more or less, we'll be able to meet your operating profit, given the growth that you are alluding to. So, the current INR 220-odd crores of cash on the balance sheet, what do we intend to do with that? How do we intend to utilize it?
So which will be for our working capital requirement, which likely we will be deploying. Last year, we deployed 2 major projects. So, this year, if we consider the full fledge or the state level projects like Assam, Orissa, total 5 big projects we are deploying this year. This year or maybe continue part in the next first 2 quarters in the next fiscal.
Okay. I'll get back in the queue. Thank you, Pawan. Thank you, Yash.
Thank you . Next question is from the line of [indiscernible] from SG Securities, please go ahead.
Hi, good evening. I just had one question. So, this is regarding just -- I'm trying to understand the business model. Like for example, we have a contract which is for a certain period of time and then it renews. So, what kind of operating leverage do we see? And for example, if it does not renew, like what are the business implications for those? And how do you model the equipment that you need to purchase or work with that? And also, like, for example, the Assam contract, we already had one in place. So, I'm assuming that you would get quite a bit of operational efficiencies because right now, you mentioned there's a lot of setup cost going into the new centres, but the ones where you're able to renew contracts, like what kind of benefits do you see in terms of financials in your contracts?
So there are 2 parts of the question. The first one is how do these contracts consider, I mean, if you're thinking from a renewal perspective, typically, these contracts have clauses that the contract can be extended for a further period of 2 to 3 years or for a similar term. So, these clauses are there, which allows us to extend the tenure of the contract without any additional investment that is required, we continue to update. Now in the case if the contract does come for, let's say, retendering after expiry of the period, like in the case of Rajasthan, given that we've already have an experience there, we've been there., so that gives us a certain edge over our competitors in terms of understanding the landscape as well as knowing the nitty-gritty of getting these contracts operationalized. The Assam example that you quoted, there were 2 different tenders. Assam were doing telereporting tenders whereas now we've got the pathology tender. The leverages that we have there is, of course, when we are there and if such tenders come, we have deep insights in terms of the operational metrics, the logistics that is involved, and that helps us to, basically, when it comes to quoting these prices, it helps us a bid better for these tenders. And that is the advantage that we normally consider. Otherwise, per se, these are different contracts, their specifications are different. So, it wouldn't be on an apple-to-apple comparison to say that we get these operating leverages.
Okay. Understood. So, actually, I meant retendering. Like, for example, it ends like there's a contract that ends like retendering, there has to be certain continuity, right? So, if you win the contract, you don't have to go and set up the lab again or have something absolutely new. That is what I was trying to understand.
It depends on project to project, because sometimes if there is a -- as you mentioned that if there is a retendering and if we won, yes, it definitely adds a lot of value to our previous work what we've already done. However, whenever there is a new tender, what we've seen in the history of Krsnaa, either the centres are added or the locations are added or number of tests are added. So, a little bit of revamp is definitely needed even if it's retendering for the same similar kind of project.
Understood. And lastly, for the machinery, how do you account for that in terms of like depreciation? Do you -- is it fungible for different projects or like how is the MRI machines and how do you look at that?
Yes. So typically, for the radiology projects, these are long-term projects, almost 10 years. So, the depreciation also follows the estimated useful life, which is prescribed by the accounting standards, and accordingly, it is depreciated. For the pathology projects, depending on, again, the project size, the nature of the equipment that have to be deployed, we also depreciate over the period of the 13 years.
Because the equipment life are much higher than what we expect compared to project life. But the same equipment can be deployed at other locations. So same can be used. So, the depreciation allows to carry up to 13 years.
Thank you Shreyansh, sorry to interrupt you. I will request you to join the queue again for a follow-up question. [Operator Instructions] Next question is from the line of Manoj Dua from Geometric Securities, please go ahead.
Okay. Sir, what would be the tenure of this Rajasthan tender?
It's about 5 years. 3 plus 2 years. So, it's about 5 years.
Okay. And as you said, you would be doing CapEx of INR 120 crores to INR 130 crores in next 2 years, what would be that for Rajasthan tender alone?
Rajasthan, the total CapEx is envisaged to be about close to INR 200 crores.
INR 200 crores. And total CapEx, you said was around INR 120 crores, INR 130 crores.
For each year, it will be in the ranges of Manoj ji, it is in each year in the range to INR 120 crores, INR 130 crores.
Each year. Okay. And normally, when you say that when the tender is over, it goes for renewal or renegotiation of the contract. Is there any scientific matter given in the tender itself, whether it will go for renewal or retendering or any initially mention is there or we see at that period of time, what happens?
So basically, it is all depending on different contracts. Now for example, Rajasthan, it is early mentioned that will be 3 plus 2 years. Some contract says mutually extendable. Basically, they evaluate the project. But if it is coming to a renewal, there is also, according to the government law, they cannot extend it for a more tenure than prescribed. So then eventually, they go for a retendering.
Okay. And for Rajasthan tender, is there any specific mention on the receivable days or something like that in the contract? Or it is a part of the normal process as it goes?
There is no specific mention on the receivable days, but there are conditions wherein the equipment, let's say, the government purchases, then we get it at the WDV value. So even the amount can be refunded back to us. So those are some of the conditions that are there in the Rajasthan contract.
Okay. My last question is, can you tell me about your 2 initiatives or one main initiative of B2C? How it is going planning or going up?
Yes. So, on the B2C initiatives, we have 2 streams of initiatives. One is, of course, the wellness packages, which we've started. And happy to say that we are seeing a lot of traction there. Krsnaa has always been focusing on the so-called B2G business or the B2B, but with this focus on packages and the kind of successes we have seen month-on-month, the numbers are increasing. So, it gives us confidence and that is the reason why we've also launched our home collection services in Punjab, which is another initiative, which is also blessed and approved by the authorities of Punjab wherein the health minister that came and launched these services, which allows us to go through the doors of the citizens of Punjab and provide them home collection services, which is over and above the patients who come to the government centre. So, I think from both these initiatives, we believe these so-called B2C initiatives are taking good shape. And based on the success in the learnings, we will be expanding this to other states, including Maharashtra, Orissa and Assam, where we already have pathology labs. So, like we've been maintaining, we want to leverage our existing network of labs and centres and spread them more through these various initiatives.
Okay. Thank you, I'll join back the queue.
Thank you. Next question is from the line of Rikesh Parikh from Rockstud Capital, please go ahead.
Yes. Thanks for the opportunity. [Technical Difficulty] what is the status of our Punjab contract and [Technical Difficulty].Sir, can you just guide us through what is the status of the Punjab project? And is it scaling up in terms of margin or the scale as we envisaged?
We see a good improvement in Punjab where the month-on-month or the volume and the revenue, all the fronts, we are getting a good pickup, and we see we can deliver what we have estimated for the Punjab project.
But are we at the peak revenue, it's reaching that level, or we are still year or that away as such now?
So we still not achieved our peak revenue, but we see a good improvement in the numbers, volumes and the response we are getting from all the fronts as the government also initiating a B2C where home collections and other factors are already taken care by the authority. They are appreciating our services. So, we see the peak revenue will be achieved very soon.
And in terms of BMC project, what we just recently won, so -- and I think for the handover has been pretty fast in deployment happening. And I understand there was some initial teething issue as such. So how is it ramping up? And how do we see that contributing to the overall numbers as such?
If you could just repeat the question, please?
I just wanted to understand what this BMC contract, what we received janta dawakhana or something like that, where initially, there was some teething issue in terms of the rolling out. And I think immediately, the revenue has -- it seems to have started since we have started operating a lot of centres. So, when it will scale up and how is it shaping up now?
So on the BMC front, like you mentioned, there were initial teething problems, which happened in any PPP project. Now those are behind the backs and the revenue streams are also increasing. We are also in the process of stabilizing the operations, given that there are a number of centres. And we expect BMC to stabilize in the next quarter or so, where even our labs will start supporting these extended number of collection centres, which the government has added. So, I believe it's a matter of time once these collection centres that the government has added over and above what was initially planned in the tender, and with the labs coming up, these will stabilize the operation and we start seeing a mature level of revenues coming from the BMC tender.
Okay. And the last question on the B2C side, how much it would have contributed in this quarter as such, B2C?
On the B2C, you're asking?
Right. Yes.
So B2C would not be a very significant contribution in this quarter. As I said, since we've just started these initiatives, it won't be a very meaningful contribution, but we expect this to grow along with now the call centre coming up in Punjab, collection boys being deployed and the government also blessing it. So, we'll see a gradual uptick in this B2C model. As I said, we are also testing various hypothesis when we are going into the B2C model. But whatever the initial successes we had in this quarter, it seems very promising, and we look forward to more contribution coming from this segment going onward.
Thank you. That's it from my side.
Thank you. Next question is from the line of Amol Rao from Kitara Capital, please go ahead.
Hi, Yash, Pawan. A couple of questions. One is good quarter's performance. But since Rajasthan dropped off to the extent of INR 20 crores year-on-year, what contributed to this growth? So, INR 140 crores, could you break it down a... [Technical Difficulty] Yash, Pawan, could you account for how this growth came about, which orders are contributing to this growth in this quarter? Because Rajasthan has dropped off year-on-year to the extent of INR 50 crores. So how have you got this growth? Which orders have ramped up for us really well?
What has contributed in this quarter in spite of the Rajasthan dropping off is our projects in Punjab, Himachal Pradesh, which are ramping up and they have started contributing more mature revenues, which has compensated for the loss in Rajasthan as well.
All right. And going forward, if I got it correctly from you, you said the ramp-up will continue in Assam, Orissa, the BMC contract and the Maharashtra government contract, which should drive growth from here on with this base. Is that -- is my understanding correct?
Correct. So, Assam, Orissa are yet to get operationalized in the fullest extent. So, as they start operationalizing and the ramp-up happens, they will contribute additionally to whatever we are doing as of today and along with BMC and other centres as well.
Got it. And just in a very quick action, this CapEx that you mentioned of INR 250 crores, this is all accounted for through our cash hoard right now, right? So, we have no funding requirement, no debt requirement as of now unless some new tender comes up, which we decide to [indiscernible] right?
Yes. So whatever CapEx that we plan, currently, we envisage it for our internal accruals and some of it coming through vendor financing where they give us equipment on a deferred payment or like you know the lease. So those are the sources of financing, but it is majorly predominantly only through the internal accruals. We don't expect to raise any debt or unless a new tender warrants it so.
Got it.
Thank you. Next question is from the line of Punit Mittal from Global Core Capital, please go ahead.
Thank you. Just 2 questions. One is when you say our ROCE on matured centres is 32%. What -- how do you define matured centre or at what stage do they mature?
So mature centres are having their respective age life more than 3 years, which we call as a mature centre.
Yes. But as you mentioned before, that most of the contracts are 3 plus 2, so, is there a very short period of majority of these centres?
No, no. So, what we referred to 3+2 is largely for pathology projects, whereas what you see in the existing ROCE are predominantly our radiology business that we've been doing for the past many years. And the majority of our business today still is radiology driven, which contributes to the overall almost 60%, 65% of our business comes from pathology, where the contract period is about 10 years.
Okay. Got it. Makes sense. Second question is on the operating cash flows. Last year, your operating cash flows were a little subdued because of the higher working capital. For next 2 years, given the revenue and EBITDA margin that you highlighted, what would do you expect to be operating cash flows for the next 2 years, FY '24, FY '25?
So operating cash flow for this year, we see precisely in a similar line what the last year because the CapEx requirement in terms of some internal accruals, where we're going to deploy for new projects of Assam, Odisha and later for the Rajasthan pathology. So, we see this year at least the similar kind of working capital requirement.
You mean in percentage terms, not been absolute, right?
Sorry. Could you repeat that?
I mean, when you say the operating cash flow to be similar as last year, naturally your EBITDA would be much higher this year given the growth. So, your operating cash flow would be conversion of operating cash flow to EBITDA would be similar as last year. Are you saying that?
Yes, yes.
Okay. Great. Just one last clarification from what you spoke to previous participants. If you look at the revenue growth, the top-line growth that you suggested of 30%, 35%, and then you add on Rajasthan, it goes almost up to INR 1,100 crores by FY '25. Is that the right understanding?
Yes. See, we aspire to be there. And based on the projects in hand, we believe those are some of the estimates or expectations we could achieve. And we've been consistently saying that, that is a target we are set out ourselves for. And now with the projects in hand, we have a certain level of certainty towards achieving those numbers.
Okay. Great. Just one last one, do you -- is there any new bigger tenders in pipeline that you have or currently focused on just these ones?
So there are a couple of projects or tenders that are in pipeline. And as and when, of course, we will participate or they come to further stages, we will keep you all informed. But we continue to seek opportunities over and above existing project that we have signed up for.
Thank you so much, and all the very best.
Thank you.
Thank you. Next question is – next follow-up question is from the line of Aditya Khemka from InCred PMS, please go ahead.
Yash, so on Rajasthan, you said total CapEx will be INR 200 crores. And in the next -- and FY '24, '25, the CapEx guidance is INR 120 crores to INR 130 crores each year. But in FY '25, you're saying Rajasthan will contribute INR 300 crores of revenue, which means that the entire INR 100 crores of CapEx for Rajasthan should be done before FY '25. So, I'm slightly confused as to how much CapEx have you already incurred for Rajasthan? Could we just clarify at what time would you incur how much CapEx for Rajasthan? And is my understanding correct that if you get INR 300 crores of revenue from Rajasthan FY '25, then all the CapEx for Rajasthan has to be done before FY '25.
So Aditya, if you see the project deployment will start once the agreement executed. So, in the Q3 or Q4, we'll see some amount of CapEx to be incurred for Rajasthan and balance will be incurred in first quarter of next year, FY '25. So, this is an expected timeline and the projections which drive the project further.
So Pawan, sir, that means that within second half of FY '24 and let's say, first quarter of FY '25, we would spend total INR 200 crores of CapEx and all of it will be on Rajasthan?
Yes.
Okay. So, in projects excluding Rajasthan, over FY '24, at '25, we are spending only INR 50 crores or INR 50 crores of CapEx?
Yes.
Okay. And this number seems the low, is it low because we are taking more equipment finances? Or is it because most of that CapEx is behind us for the other projects, other than Rajasthan?
Sorry, Aditya, could you just rephrase the...
Yes, I'll rephrase the question. So, 2 years which is FY '24 and '25, we are spending total CapEx of INR 250 crores to INR 260 crores, right? It's INR 120 crores to INR 130 crores each year. So over 2 years, the cost comes INR 240 to INR 260, right? Now of this INR 200 crores will be Rajasthan. So, the CapEx on the other projects, which is, let's say, Odisha, Assam, Punjab what have you. so, on those projects, we are spending literally just only INR 40 crores to INR 60 crores in addition to what you have already spent on this project. So, what I wanted to understand was that for the… Yes, go ahead.
No, sorry, I think that's a fair question. If you see, like in this quarter, we've already invested about INR 30+ crores. So, some of the investment has already been incurred. And considering that these are pathology projects, some of the equipment we are also trying to see if become on a deferred payment basis, as I said. So those are the ways we are trying to look into it, where it close in terms of how the project gets implemented on the cash flows. But what we've spoken is these are the projects like Rajasthan, where you have to deploy the equipment entirely, and hence, that is the outflow in terms of CapEx that we'll have to do.
I got it. Thanks so much for the clarification. Secondly, on the -- Secondly, on the tenders that you keep getting renewed, I think one of the concerns that [indiscernible] investors have is that because tender lives are between say 5 and 10 years depending on whether they are pathology, radiology and which state, could you talk to us about you have been doing the business now for more than a decade. So, for more than a decade now, how many tenders have you got successfully renewed or you have won in the rebidding versus how many instances have been where you have actually lost the tender or the tender has not been renewed by the state government? If you were to give me a certain percentage about 0.5 percentage to this percentage of our tenders, we keep getting renewed or we keep winning in the rebid and [indiscernible] percentage of tenders, we try to rebid it, but we couldn't win or they didn't float the tender again.
Aditya, out of the tenders that have come for renewal, if I have to just give some recent, we have probably won all of these tenders, whether it was the HP or Assam, Teleradiology, even if you take Rajasthan. So, whilst I don't have the exact number in terms of how many tenders, but broadly, given our experience and like I mentioned, since we already have a lot of information and insight there, we have the ability or an edge of the competitors to win these tenders and continue. So as of now, most of the tenders being radiology so they have not yet completed their tenure. But wherever these tenders were there, whether it was pathology for Rajasthan or Teleradiology, we have won these tenders and we continue to have an extended period.
Understood. Thanks, Yash.
Aditya, just clarifying your CapEx query. So, INR 31 crores, we already spent in the Q1. So further in the next 3 quarters, we will be spending around INR 120 crores to INR 130 crores. And next year, the CapEx requirement is INR 120 crores to INR 130 crores. So, if we go precisely INR 290 crores or INR 300 crores of CapEx, out of that 31 is already spent and balance can be spent, as I mentioned, the breakup.
Understood, Pawan. This is helpful, thank you.
Thank you. The next follow-up question is from the line of [indiscernible] from [indiscernible] Investments, please go ahead.
Hey, I just had a couple of 2 questions. So basically, for the B2C side of business, what is the pricing model, like how much do the customers need to pay? Like is it the same CGHS rates? Or like is it higher than what is defined in the contract with the government? So, what is the pricing that customers pay in B2C?
Yes. So, in B2C, again, there are differentiated models. But predominantly, what we are coming out is where our prices will be slightly higher than these government rates because of -- of course, there are marketing research, there are franchises in between. So, to the extent of 10% to 20%, they'll be higher than the CGHS, but they are significantly lower than the existing market rates. And that gives us what we've seen initial successes on the B2C model as well.
Okay. And I suppose there is a private walk-in like someone comes to your centre, so is it same like the rates are like 10%, 20% higher? Or in that case, you follow the government rate?
So see, there are 2 schemes. If the patient comes to a government centre, they have to stand in the queue, submit the necessary documents and they'll be charged the government rates. But as they go to, let's say, a facilitation centre or like a franchisee or a home collection, there they have to pay a slightly higher amount, which is because of the services that they're getting at their doorsteps.
Okay. Got it. So okay, one last. And one more thing on the similar line of question. So basically, if a customer is going and walking to your centre, so he or she makes the payment? Or is it like you keep a mark of it and government finally does the payment? Like who is doing the payment in this particular case?
So if a customer comes to a government centre and if he avails under any government scheme and if, for example, certain states provided under the free diagnostics scheme, then entirely free for the patient and the money gets reimbursed to us by the government. In states like Punjab or other states where it is purely cash, the patient comes and pays us the cash and we collect the cash and account for it accordingly. So, it varies project to project and state to state. Even after that, if the person who is not -- a patient who is not availing any free diagnostic scheme or he don't want to wait into the queue, so patient has to upfront pay at a centre and avail the services with the same pricing. And for B2C, it is purely cash collected as of now.
Got it. This helps. So, I understand this side of the business. Now I just have a bit more on the B2C side of the business. So, do you operate in a franchise model or like how do you do it? Like do you give franchise to someone or is it like your old stores?
So we've started to franchisee model. Like we said, there are already established franchise players in the market. We studied them and we came with our own unique, what we call as Krsnaa Business Associate, which is essentially a franchisee with certain differentiations. So, these franchisees basically help us collect samples in the periphery of our labs or help them get patients to our centres. That is something which is already in process or being implemented. Along with this, we started home collection services in certain of the geographies where we have [indiscernible] footprint. Punjab is the recent case where now we have a dedicated team as well, including a call centre and that will allow us to further [indiscernible] the assets and get more samples processed at a lab and contribute to the revenue. Also, we have started our home collection services in Maharashtra, where Pune, Mumbai, Nasik, Ahmednagar, Kolhapur locations.
Okay. So, all of the -- so basically franchises helps you to collect the sample, right? All of the labs are owned by Krsnaa itself. Is my understanding correct?
Correct.
Okay. Got it. And lastly, you could introduce some apps or something so that people can start ordering like, for example, Thyrocare or Dr. Lal Pathlabs try to do it through a mobile-based kind of infrastructure. So -- but I didn't find anything like those kind of interface were not available for Krsnaa. Do you think you might be thinking on those lines like developing an app so that you can get the bookings, at least the app should be live in those locations where you already offer the collections, like B2C collections?
So if you see, first of all, we have an app, both on the Android and iOS. But bulk of our target audience is segment is where they don't use the app. But now considering the B2C, we already have started the app. In fact, we have many features which are not there in the peers, including having reports available for 6 months and for the entire family. So, we have an app and people are using it. And as and when -- as we said, we start having more of these B2C model, you'll have more visibility of the app as well.
Okay. Got it. And just the last thing. So once the tender is like between renewal and between stopping a tender, for example, the Rajasthan case, do you need to dismantle all of your stores and then create a new fresh lab when you rewind the tender?
See, when it is a transition period, normally, the government allows us to continue providing services and until the tender process is completed. Now if the tender process is completed, this equipment are owned by us, and we can transfer the equipment to wherever we believe they can be put to use. The rest of the -- whatever investment would have been anyway which was recovered over the duration of big contract considering our payback period whether it is for radiology, pathology. And if we, let's say, rebid and we win the contract, then we can leverage the existing infrastructure that has already been put in place.
Thank you. Next question is from the line of Manoj Dua from Geometric Securities, please go ahead.
Okay. I have 2 questions which are connected together. Like you -- what are your filter criteria for the tendering process, which kind of tender you process or which do you leave it? Because one of the biggest problems in pathology, what I am saying is we have a great model that we have acquired customers, like lock-in customer, but the mature period is 3 years. And we see that tender tenure is 3-plus 2 or something like that. So, when we tender -- when you are bidding for the tender, what are our criteria's? And what are our learnings from last 2, 3 years?
Yes. So, in terms of criteria, I would just probably split that. For radiology, if you see, we normally participate in tenders, which are through NHM, National Health Mission and the state. We do not participate in any tender, which is just driven by the state. And of course, there will be financial metrics in terms of EBITDA, the profitability, the tenure, the investments, all of this is being seen. Pathology because the investment is low and you have -- the revenues are multiple of investments. And therefore, even if they are for a lesser duration, but we are able to recover the investments and hence, they are seen differently.
Also, Manoj ji, if the maturity for the pathology centre is started lesser compared to the radiology, which we correlating, if you're correlating with the presentation where we talk about the mature centres in the range of 3 years, so where majorly fall under the radiology centres, if we consider our sediments or matured, so, it will now see a significant change over a period of time because of the pathology contribution has slightly increased compared to earlier.
And in terms of the second part of the question, in terms of learnings. So, we've seen this overall PPP space evolving over the years and differentiated models coming up as well as -- as I mentioned, we really focus on NHM driven tenders. And at the same time, Krsnaa was earlier strong on radiology. We are also now equally and which we've been maintaining we want to be strong on the pathology as well, which is a well-diversified business, if you see from a split perspective. So those are learnings have been deployed across these various projects. And of course, we would want to continue this momentum going forward as well. I hope that answered the question.
Yes, perfectly. My last question is regarding vendor financing. I think it was mainly for radiology. Any vendor financing you are using for pathology or something like that? Can you give more color for that?
So like we have done for radiology equally for pathology, especially for these large projects, we are currently in discussions with the vendors as well, where we could procure this equipment on a deferred credit basis, on a deferred payment basis as well as some of -- like on leasing, there are already established like reagent renting models, but we are trying to come up with some more or better models to suit our line of business.
Thank you. Ladies and gentlemen, we'll take that as the last question. I will now hand the conference over to Ms. Pallavi Bhatevara for closing comments.
Thank you. Thank you, everyone, for joining our Q1 FY '24 earnings call. I hope we've been able to answer all your questions. In case any questions remain unanswered, please feel free to connect with our Investor Relations Head, Mr. Vivek Jain, and team at Churchgate Partners. We look forward to interacting with you in the future quarters. Thank you, and have a great evening ahead.
Thank you very much. On behalf of Equirus Securities Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.