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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Krsnaa Diagnostics Limited Q4 FY '23 and Full Year FY '23 Earnings Conference Call hosted by Equirus Securities Private Limited. We have with us today, Mr. Rajendra Mutha, Chairman and Whole-Time Director; Ms. Pallavi Bhatevara, Managing Director; Mr. Yash Mutha, Whole-Time Director; and Mr. Pawan Daga, Chief Financial Officer.
Before we begin, I would like to remind all participants that some of the statements made on today's call may be forward-looking in nature and are based on the company's current expectations, projections and beliefs regarding future events as on date of this call. These statements should not be considered guarantees of future performance and involve risks -- and it may involve risks, uncertainties and assumptions, which were difficult to predict. For more details, please refer to Page #42 of Investor presentation. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Pallavi Bhatevara. Thank you, and over to you, ma'am.
Thank you, and good evening, everyone, and welcome to Krsnaa Diagnostics Q4 FY '23 Earnings Call. I thank each one of you for joining us today. We've already circulated our investor presentation, which is available on our website as well and all the Stock Exchanges website. I hope you all have had the opportunity to go through the presentation.
I would like to address the current landscape of the diagnostic service industry and our company's position within it. As we all recognize, high-quality and affordable diagnostic services are essential components of the health care industry. Playing a crucial role in disease diagnosis management and prevention in India in the diagnostic market is valued at approximately [ $15 ] billion, with the projected compound CAGR of 11.5% in the coming years.
Several fundamental drivers propel the diagnostic industry, including a large population of nearly 1.4 billion people, rising per capita income, increased affordability, increased acceptance of point-of-care testing, home collection, critical and precise clinical needs and the growing demand for better health care services. Higher life expectancy and changes in life side and health-conscious population and improvement in testing services could directly contribute to the growth of the diagnostic company. Lifestyle diseases are on the rise, creating a need for heightened awareness of preventive health checkups. Additionally, insurance penetration and government initiatives have definitely contributed to the industry's growth.
Considering the Indian demographic, there exists a vast and under-penetrated market for diagnostic services, offering significant opportunities for both organized and unorganized players. The government of India has undertaken multiple initiatives to make high-quality health care and diagnostic services accessible and affordable to the masses, in line with sustainable development goals of good health and well-being for all.
Various trade governments are actively exploring PPP as a viable and optimal approach to achieve their goal of providing quality health care and diagnostics at affordable prices. As a leader in the PPP diagnostics space, Krsnaa has expanded its presence across India, ensuring that the high-quality diagnostic services are available at affordable even in the most remote corners of the country. We take immense pride in announcing that our tele-radiology hub in Pune has recently obtained accreditation from the prestigious National Accreditation Board of Hospitals and health care providers, that is the NABH. This remarkable achievement marks a significant milestone in the Indian health care industry as we became the first tele-radiology hub in the country to receive such esteemed recognition from the NABH.
This accreditation serves as an additional testament to our unwavering dedication to quality. It will not only reinforce our commitment but also enhance the quality of our radiology report that are transmitted to our centers through the NABH accredited tele-radiology hub. By obtaining this accreditation, we aim to strengthen and improve the delivery of our report, ensuring the highest standards of quality throughout the process.
This accreditation underscores our unwavering commitment to delivering health care services of the highest quality while embracing cutting-edge technology. It is a testament to our dedication to excellence and patient-centric care of which we are incredibly proud.
Furthermore, in the past 12 months, we have achieved notable success by securing 9 tenders across various states. These projects encompass 53 CT and MRI centers; 158 pathology labs; and 2,281 pathology collection centers, significantly strengthening our growth prospects for the future. During the year, we have added 26 radiology centers, 50 pathology labs and 556 collection centers. Currently, Krsnaa stands as a leading PPP diagnostic player with 133 radiology centers; 1,528 tele-reporting centers; 99 pathology labs; and 1,090 pathology collection centers.
Looking ahead, we are confident in our ability to expand our geographical footprint and penetrate deeper into the Tier 2 and Tier 3 cities, offering high-quality diagnostic services at affordable prices. With recently installed centers, new tender wins and ongoing evaluation of pipeline projects, we have a promising growth trajectory ahead.
I will now hand over the call to Mr. Yash Mutha, our Whole-Time Director, who will discuss Krsnaa strategic plans and future growth prospects. Thank you, and have a great evening.
Thank you, Ms. Pallavi. Good evening, ladies and gentlemen. I'm pleased to share with you the strong performance of Krsnaa Diagnostics in fiscal year 2023. We achieved core revenues of INR 486 crores, representing a remarkable 15% year-on-year growth. Our EBITDA stood at INR 124 crores with a margin of 25%. Additionally, we reported a net profit of INR 62 crores with a margin of 13%. While recognizing our achievements, it is important to acknowledge that our margins were impacted during FY '23 due to the necessary costs associated with establishing new centers. As we move forward, we look forward towards a positive trajectory in our margins as our recently launched centers start reaching maturity and contribute more significantly to our overall performance.
On our patients front, I am delighted to announce a significant achievement. In this fiscal year, we have successfully served over 1 crore patients, surpassing a crucial and a noteworthy milestone. This achievement not only highlights the sheer number of patients we have attended through, but also signifies the confidence and trust that patients have placed in our exceptional high-quality services provided at disruptive prices.
Further, as regards the growth pipeline, I'm delighted to share that as part of our growth trajectory, we have successfully increased the number of our pathology labs from 49 to 99 and our pathology collection centers from 534 to 1,090, aligning with our expansion plans.
Furthermore, in the field of radiology, we have achieved an impressive 24% growth rate in establishing new centers, resulting in our expansion to a total of 133 centers by the end of FY '23. The doubling of our labs, collection centers and radiology centers will significantly enhance our capacity to cater to a large number of patients in the coming years and allowing us to sustain the growth momentum. To support our future growth and expansion, we are also actively pursuing an extensive pipeline of projects focusing on pathology labs, collection centers, CT and MRI centers across various states, which presents significant opportunities. This allows us to expand our presence into new regions as well as expand our operations deeper within some existing states.
In line with our commitment to serving the B2C segment, we have introduced affordable wellness packages that cater to the diverse needs of our customers. Our Ayaksham wellness packages covers both basic and special tests ensuring comprehensive health care solutions for individuals.
Furthermore, we continue to prioritize technology adoption within our operations. As part of Phase 1, we are also implementing technology-led initiatives, including digital pathology and integrated lab management to enhance our efficiency and service quality. With our ongoing initiatives and the implementation of existing projects, coupled with the recent wins, we hold a strong outlook for the future. We are confident in our ability to capitalize on the considerable opportunities that lie ahead and drive sustained growth and value for 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. A very good evening to all the attendees. I will present the financial highlights for the year ended March 2023. In FY '23, the company registered total revenue from operations of INR 487 crores, an increase of 15% on a year-on-year basis, from INR 456 crores. The growth is made by the core business comprising of Radiology and Pathology, which registered a revenue growth of 15% year-on-year.
Operating EBITDA for the year at INR 124 crores, EBITDA margin were 25% in FY '23. The impact on the EBITDA margin was attributed to the additional costs associated with the establishment and onboarding of things for the newly launched center. The margins are expected to improve in upcoming quarters with the maturity of the centers.
Profit after tax for FY '23 was INR 62 crores. For the year, PAT margin was 13%. In the quarter 4 of FY '23, the company registered total revenue from operation of INR 133 crores. Our core business comprising of the Radiology, Pathology, which registered a revenue of INR 133 crores, a growth of 25% year-on-year.
Operating EBITDA for the quarter 4 FY '23 stood at INR 35 crores with a margin of 26% for the quarter. And profit after tax for the quarter 4 FY '23 at INR 19 crores with a margin of 14%.
On the receivable front, I am happy to share that through our consistent effort and our well-established system and processes, we continue to maintain our receivables well with control and have been successful in collecting majority of our receivables. Our receivable days of 56 days are marginally higher compared to previous year receivable days of 46 days, which is largely attributable to the new projects in voice processing getting streamlined as well as operational delay on account of large amount of year-end transaction being conducted on Public Financial Management System, PFMS.
Further, as regards to operations, Krsnaa generated strong cash flow from operation of INR 89 crores, with EBITDA-to-cash conversion was around 72%. The EBITDA to cash flow conversion exhibit a relatively lower trend compared to previous year, primarily attributed to the increase in the inventory level; increase in debtors; and payment to vendors necessary for the operationalization of a new center, especially considering the existing implementation at the state level. However, the centers mature, we look forward to normalize -- normalization in the EBITDA to cash flow conversion.
From a balance sheet perspective, the company continue to be net debt free with the net cash position of INR 240 crores as on 31st March 2023. In the light of a strong performance, the Board of Directors has recommended a final dividend of INR 2.75 per share, a payout of 55% on the face value, which is subject to the shareholders' approval.
We can now open the floor for question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Bala Murali Krishna from Oman India Join Investment.
Congratulations on the great set of numbers. So when I refer to this stand-alone results, there is a slight drop in revenue. So could you please throw some light on that on net profit?
So basically, there is no impact in the stand-alone number. So what we have did, we have derived the [indiscernible] for revenue sharing between the holding and the subsidiary on the basis of FAR, function, assets and risk analysis and economic analysis, it was conducted through a transfer pricing.
Okay. And could you please give some timeline on this -- execution of this pathology contracts of Rajasthan and Odisha? In which quarter, we may expect it to operational?
Yes. The Rajasthan tender that we currently have won, we expect that to get operationalized by Q3 of FY '24. And Assam, we are working aggressively to get it completed by Q2 of this year.
Odisha? Can you...
The Rajasthan contract, we are expecting it to get operationalized by Q3 of FY '24 and Assam by Q2 of this year.
I'm asking about the Odisha, Odisha contract.
So Odisha -- sorry, it was Odisha, by Q2 of this year, not Assam.
Okay. Yes, and any big pipeline tenders which are quoted and expected results in the coming quarters?
So currently, there are a couple of tenders which are in pipeline, but it will be too early for us to give any indication. Whatever has been announced, we have declared it, but the work is in progress.
Okay. And lastly, on this BMC contract, I have seen some news regarding this delay in the reporting time of the test, and that they ask you to so called they've issued a show-cause notice whether it is settled? And could you please share some light on that?
So that matter has been settled. These are typical [ teething ] problems in PPP contracts, but now the matter has been settled and the services are continuing.
Yes. And it's -- and just to clarify, it was not a show-cause notice. They had -- they have indicated that they will issue show-cause notice. But based on the response, things were settled and operations are now smooth and working well.
Next question is from the line of Jainil Shah from JM Financial.
Congratulations on a good set of results. My first question is on the revenue guidance. I mean, what is the revenue guidance for FY '24 and FY '25? And also, what will be your CapEx outlay for both these years?
So in terms of the revenue guidance, we continue to focus on maintaining our CAGR growth rate. And in FY '24, we expect to achieve double-digit growth for the year. And assuming that all our new centers will eventually get operationalized and implemented by fiscal end of FY '24, we expect a higher growth rate in FY '25.
In terms of CapEx, the CapEx that we expect for this year is in the range of about INR 200 crores to INR 250 crores, considering these projects that we have. For which, again, our existing cash flow, the internal accruals and some vendors credit, we are comfortable to get this CapEx implemented.
Okay. And we are also entering into the specialized test segment at disruptive prices. So I wanted to know your strategy here and where will we be implementing these tests and your thoughts on that?
Yes. So on the specialized tests, we already had been providing these tests at various of our projects, including Rajasthan and some other states. With these various states that now we won the tenders, we are thinking of exploring where we also offer the specialized tests, either through the home collection services as well as offering it to a wider network, leveraging these labs that we will be establishing.
In terms of pricing, the prices are at the similar rate that we are already comfortable with. So there won't be any impact on margins, but we will be able to provide these at prices, which will be significantly lower compared to the market trades that are there today.
Okay. And just on the gross margins, they have dropped quite significantly this quarter. So is it due to higher share of pathology centers that we have operationalized in BMC? Or what is the reason for that? And what should be our sustainable gross margins?
So you correctly mentioned the increase in the pathology contribution in the current quarter. And this will be in this similar range going forward because of the pathology projects are fully operated and activated in Himachal and Punjab.
So around 81% is what we should work with, because even the upcoming centers are all mostly pathology, so Rajasthan is predominantly pathology. So 81% is what we should work with, right?
Yes.
Next question is from the line of Ritesh Parikh from [ Rockstud ] Capital.
Sir, my first question is on the guidance sectors. Because previously, we used to give FY '24 guidance. Now we have changed our stance as such. So can you just throw more light on it? And also on the EBITDA margin side, how one should we be looking at it?
Yes. So in terms of the guidance, as I mentioned, we are continuously maintaining or trying to focus on achieving the target that we had set out for earlier. But having experienced some of these operational delays in [ Punjab ], we just want to ensure that whatever guidance we give are also realistic. And we are confident of achieving those guidelines, achieving those guidance that we are in terms of double-digit growth. Whatever we have communicated, we will continue to focus to achieve those targets. It is only in terms of -- because there are some big projects or tenders that we have won. Again, these are large state-level implementation, so implementing them across the various states and considering some of these are operational or procedural delays. That is the reason why we've calculated, but all our efforts are to achieve those numbers.
Likewise, in terms of the EBITDA margins, and as we've discussed, the EBITDA margins will continue to improve as the centers start maturing, which you've also witnessed in this quarter as well; and as more and more centers start becoming mature of the recently won tenders, including Himachal Pradesh, Punjab, the EBITDA margins should improve going forward as well.
What sort the range we should be looking at EBITDA margin for current and next year indicative range?
So the EBITDA would be in the similar range. We'll probably expect a couple of 1 or 2 percentage improvement depending on how the business goes.
Okay. Second is on Page #30 or Slide #30, we operationalize the [indiscernible] of the PPP implementation track, [indiscernible] BMC collection center of [ 347 ], but the agreement has not been executed. So how can that be issued?
No. The reason is in the agreement, there were smaller numbers. But after the discussions happened, they asked us to also increase the numbers. So there are just some final -- smaller changes to be implemented. But both the government, if you see the kind of communication that has been going on between the authorities and the project is live. There are some final modalities to be completed. That is why we've just stated the plan.
Lastly, in terms of Rajasthan contract, that means now we have been awarded as such. But we suggested in the previous that we will be implement once Q3 [indiscernible] already has the effect on ground and it has to be just operationalized. So getting executed on Q3 onwards is like almost a 1-year loss in between transition as such?
So the Rajasthan agreement, basically, if you see, it's a pretty wide scope. There are almost 150 labs and almost [ 1,500 ] collections to be established. The previous scope had only 60 collection centers and 2 labs. So while some of the equipment could be utilized, but for the new project, there is also a new requirement because the test [ menu ] is different. And therefore, the establishment of labs and considering the number of labs to be established it will take some time. And hence, we have considered around Q3 by when all these labs will be established.
Okay. And just to add that we could leverage our existing labs and build upon it to start with and over the period of time, get the other labs implemented.
Next question is from the line of Gaurav Gandhi from Glorytail Capital Management.
Yes. Congratulations on a good set of numbers. My first question is...
Gaurav, sorry to interrupt you. You're sounding a bit distant.
Hello?
Yes, thank you.
Sir, my first question is, do we provide test at subsidized rates in private hospital also? Or is it just in the government facilities?
So Gaurav, our model is where wherever we enter into partnerships [indiscernible] or on the private hospital side, our rates are significantly lower. Most of the hospitals where we partner are either [ trust based ] hospital or medical colleges. And given it's a captive customer base, we are able to offer these rates, which are significantly lower than the market rates.
Then in that case, sir, in private hospitals if we are providing tests at lower rates, do the economics work there properly? The margins and everything because we are not getting anything like when we bid for government contract, we get something at subsidized rate maybe land, maybe area or we don't have to share fees with them. So in private hospital, that is not the case. So how do the economics work there?
Yes. Again, Gaurav, in terms of private hospital partnerships, our rates would be higher than the government rates to the extent of revenue share that we have to give to the hospital. Rest all, in terms of space and everything else we get from the hospital partnerships. So to the extent of revenue share that we have to offer, the rates will be higher. But even if you consider that, they'll still be significantly lower than the market rates.
Okay. Okay. And how do we see the walk-in patients coming in our government facilities? What is the traction there? I mean if you understand, yes.
Yes. So again, as we -- over the years and what we also -- [indiscernible] lot of our centers now becoming live and the kind of branding and awareness that has been created, we are seeing an increased footfall of private walk-ins, as we call them, coming to our government centers. In fact, in some of the centers, the walk-ins could be as high as 50% to 60%. And this also benefits the government because as more and more people are utilizing the services, they're getting this quality health care at affordable rates. It creates more mouth-to-mouth publicity, and we're seeing the traction building upon.
I mean, we are not restricted to market such facilities, right? I mean the government doesn't restrict us to do marketing of such facilities and availing such services.
No. In fact, the more these services are promoted, it basically showcases that government has also implemented these various initiatives and created the infrastructure for creating access to quality health care. And you can also see this resulted in the number of patients that we've serve during this year, crossing the 1 crore milestone, which again reposes the faith and confidence that both the patients have in our high-quality services as well as the support that the government receives when patients come and avail these services.
Next question is from the line of Cyndrella Carvalho from JM Financial.
So just want to understand if we are finally [ furrow ] with the [ teething ] issue with BMC contract?
Yes. All those teething issues have been resolved now.
Okay. And in terms of we have successfully almost achieved 130 plus top line on a quarterly run rate basis. How should we see this over coming quarters, given that we have projects coming in Q2 as well as Q3. Are there any other tenders that we should build in or wait for FY '24 at this point in time? Or how should we see this?
So in terms of the run rate that we've delivered for Q4, we expect to continue the momentum and build upon it. As regards to the new tenders that we've already won, which we have disclosed, they will start getting implemented from the respective periods. And then the revenue contribution initially, it will be a [ trickle ] and then eventually they start building up.
Apart from this, there are a couple of tenders, almost 3 to 4 tenders that we are currently working on. But in terms of the timelines, it will be too early for us to talk about it. Maybe in the subsequent quarters, as and when we get updates, we will share it with you all.
And if I try and see our trend, you did mention that you want to maintain the double-digit growth guidance that we have been talking about. But is there any -- like any delays that you envisaged in the existing pipeline at this point in time, like how we experienced in terms of Punjab? Is there anything in near-term that you see any risks?
Yes. So the 3 states that -- currently, for example, if you take Rajasthan or Odisha, the states where we have won, we already have enough experience of working out there. Rajasthan we already were the incumbent players. So we don't expect significant delays in operationalizing these centers. However, considering that these are large projects in terms of size and scale, we're just being cautious when we are considering the guidance. But our full effort is to ensure we maximize and get the centers operationalize, at the earliest.
Like even in Odisha, currently, we had some prior experience with a couple of our centers being there. So that gives us an advantage compared to Punjab, which was an absolutely virgin territory for us. So as of now, we don't expect any significant delays in terms of the timeline that we have established. And of course, we'll keep you updated as time goes on.
Okay. And overall, do you see any change in terms of our annual run rate for pathology and radiology combination? Because you did indicate that gross margin may look a little [ off-sided ]. Did you envisage any overall change in terms of radiology share toward annual run rate?
Well, if you see considering that we won most of these pathology contracts, and that is something we've also been maintaining that we would like to have a good healthy split between radiology and pathology at 50-50, this is something we believe it eventually should pan out. But again, since we are -- the projects are yet to be implemented. It would be too early to comment on how the numbers will shape up.
But yes, I think directionally, pathology share will continue to increase as these projects get implemented as well as the existing centers start contributing more and more revenues to the overall pie of revenues and thereby pathology share will increase.
Now gross margins, of course, at a gross margin level, because consumables are normally -- the cost of consumables in pathology is slightly higher than radiology. But overall, I think the metrics will still help us achieve the growth guidance as well as the EBITDA number that we are talking about.
Okay. This is helpful. And 1 more, if I may, can you help us understand the overall like the upcoming contracts growth or the new center growth for FY '23 versus earlier years or the mature growth, whichever one you can share.
Sorry, if you could just repeat that question, please?
The new center growth, can you help us with that number, new center growth or the existing project growth, whichever one you can share.
So in terms of the new centers, I think we've already disclosed that we've grown both in terms of radiology as well as pathology, the number of centers we've added. That's part of our presentation as well as we've discussed. I don't know if there's anything else beyond the set you were asking?
No, no, I was just trying to understand like the portion of new growth coming from the new centers. If that is what I was trying to understand. If it is there, I'll refer to it. No problem.
Hello?
Yes, I'm here, Yash.
Yes. So basically, if you see the contribution of growth that is coming from the new centers currently, like it's about single-digit in terms of percentage-wise as overall contribution. But as these centers start maturing that share will also continue to grow. So our same center, our existing centers are also growing. And at the same time, the new centers will also contribute. Currently, while we are at -- in terms of, let's say, a single-digit percentage contribution to the overall revenue, as the centers start maturing, they'll start contributing more and more.
Next question is from the line of Aditya Khemka from InCred PMS.
Yash, in the slide deck, I saw a slide where we have given the ROC from top center semi mature centers there -- new centers where the mature center ROC seems to be 32%. I just wanted to understand, are these at the unit economic level? Or are you -- or are these numbers derived after allocating [indiscernible] other overhead expenses in these center?
Aditya, this is at the level of center level.
Okay. So this is at the unit economic level? Understood. And the second question I had was that which centers do you consider mature? As in is it to consider center as matured center is it time that has given [indiscernible] and so on. So this a define what you're calling on the [indiscernible] semi-mature and new center?
So for the mature centers, the age is more than 3 years; and the semi-mature, which is in the range of 1 to 3 years; and the newly launched centers which is less than [ 1 year ].
Last question I have is on the pathology versus radiology debate that we're having in today's call.
I'm sorry, this is not coming here. Can you come in a better reception area, please?
Yes, I'm sorry. So is -- so my question was at -- sorry. My question was if -- so the pathology versus radiology debate. So in terms of margin, would -- while radiology is a better margin business, I guess, compared to pathology. But in terms of ROCE, which of the 2 would you consider a better business? Or are they similar in terms of their ROCE profile?
Aditya, in terms of ROCE, of course, pathology will be better in terms of ROC given that the investments are lesser compared to radiology, which is a very CapEx-heavy business. And as you rightly pointed out, radiology does have better margin profile, but the ROC gets a bit suppressed because of high CapEx. But when we look at it from an overall project perspective or a cohort of these various mix of radiology and pathology centers, we try to ensure that the ROC overall looks in the double digit that we are expecting, and that is how the combination of these various projects are being considered.
Next question is from the line of Ankur Kumar from Alpha Capital Advisors.
Hello? Am I audible?
Yes, we can hear you, but there's some static from your line.
Hello, sir?
Slightly better.
Sir, one question is, as in last year, we had a reduction in EBITDA margins because of new centers. But over the coming year also, we have a couple of new centers coming in like Odisha. So what makes us confident that our EBITDA margins will continue to go up from here?
So there are 2 aspects. One is the new centers. Last year, we had -- again, some large project that was just getting implemented wherein the -- like, for example, Punjab, there was a significant manpower that had to be deployed and the revenue got delayed. Whereas in the current way, and based on the experience, we are also planning to ensure that the deployment of these manpower resources or the projects is aligned to how the business is coming up. And that is also why we've said that the centers will take time to operationalize between Q2 or Q3.
Considering this and that the existing centers are going to ramp up, so if you take a combination of both the existing centers, the new centers that got implemented, their EBITDA contribution and at the same time, scaling up of these new projects, we believe that we'll still be able to maintain the EBITDA levels or rather improve, have a better EBITDA margins as we go along.
Got it, sir. And sir, on the guidance side, earlier, we were talking about INR 700 crores. When these things will reach like good utilization? So even next year, we are not giving guidance -- concrete guidance, but -- or say, over FY '25, do we expect this number to reach when these things were when Odisha, BMC, et cetera, will reach the full utilization?
Yes, absolutely.
So INR 700 crores, we can expect by '25?
Yes. In fact, as I said, we are targeting to cross that number significantly. And given the various contracts that we have signed, we are confident of crossing that benchmark or the number as well.
Got it, sir. And last question on the B2C side, how is that going? And what are your thoughts on that?
See, from a B2C side, as we've discussed in the earlier calls as well, B2C market, we have already placed. We are trying to leverage our lab networks or the existing networks, but it will be a gradual grow and not a certain.
And also to add, currently, if you see the number of projects that we already have in hand, we'll also be focusing on expanding or installing these projects. So hence, priority wise, we'll be focusing on the PPP while B2C will take its own steady progress.
Next question is from Nitin Agarwal from DAM Capital Advisors.
Yash, on the contracts that you've outlined, we won across pathology and radiology in FY '23, would you be able to give a broad sense of the peak revenues for all of these cumulative tenders that we won in FY '23?
Can you just repeat the question?
I'm saying the tenders that you've outlined for -- in FY '23 that we've won across pathology and radiology businesses, can you give us a sense of the potential peak revenues as and when they come for all of the business that you've won in FY '23?
Yes. So if you consider, Rajasthan, Assam, Odisha all these tenders and Mumbai, we expect it to be almost about close to INR 400 crores as the baseline revenue that we should expect from all these projects put together.
And this is the pathology and even for the -- this includes the radiology contracts also?
No. This is only the pathology business I'm talking about.
And the radiology contract that we've won this year, how much will that sort of add up to that...
So radiology, if you consider the Maharashtra project, that should be about INR 70 crores, INR 80 crores we can expect once the centers are implemented.
Okay. So all in all, about -- give or take about INR 500 crores if the value of the business at peak whenever these contracts are fully sort of rolled out?
Yes. Just to correct, the Rajasthan, we would -- sorry, the Maharashtra CT scan project, we are expecting about INR 30-odd crores. So if you take INR 400 crores plus INR 30 crores, it would be about INR 430 crores of overall revenues that we can consider.
Okay. And in the project that we're currently doing like Punjab and some of the existing contracts that were still rolling out, is there still scope for a meaningful growth on some of these contracts? Or all of them are reasonably in a mature state? I mean, contract that you've won prior to FY '23.
Yes. So if you see Punjab and Himachal put together, we expect, again, good growth there in terms of the overall growth we are expecting in double digits. So that also will continue to grow as the other mature centers continue to grow. So we are also expecting growth in these 2 projects as well.
Okay. So if I want to just sort of paraphrase that, so barring the Himachal and Punjab contracts, other contracts are reasonably mature. They will grow at whatever rate new and maybe single-digit growth at single-digit rate. These 2 contracts still have some scope to grow it at the time they reach their peak. And then you've got the whole new contract that we won in FY '23, that will scale up over the next 2 or 3 years, does that hit -- still the time to hit maturity?
Correct, absolutely.
And over this period of time, as you mentioned earlier also, the mix will start probably slightly skewed towards pathology, when we win all of these contracts are completely rolled out.
Correct. Because if you see, these are again -- even if you just consider the revenue that I have mentioned, they're almost close to about INR 430-plus crores. So if you take that in the existing revenue, the split should be about 50-50 in radiology and pathology, what we expect in the years to come.
Okay. And what does -- okay, fair enough. And from a margin perspective, obviously, you've been even the radiology, pathology businesses are reasonably profitable, while slightly lower than radiology, but they're reasonably profitable businesses.
Yes, yes.
And sir, lastly, INR 250 crores is the CapEx for the project that you won in FY '23? Or you'll be required to do something beyond that in FY '25 on these projects also?
No. So this is something we expect to be -- for the entire these, Rajasthan and the Odisha project. Of course, Assam might require a bit, but that we can consider maybe in [ FY '25 ].
And sir, the last one, in terms of the visibility of further contracts in terms of the various contracts that you likely see steady floated and rolled out in FY '24, '25, I mean, qualitatively, how is the visibility? Are you seeing a larger volume of projects on the offer versus what you've seen in the last year or so?
Well, it will be difficult to predict right now. But yes, there are conversations going on. We are also hearing a lot of government discussions going on, on some large PPP contracts as well. And like Pallavi also mentioned in the call with the SDG goals that have been announced, we expect more and more states to adopt PPP. Some of the states which have never adopted PPP are also having discussions. So we do look forward to some more bigger opportunities for us to come in the coming months.
Next question is from the line of Punit Mittal from Global Core Capital.
Can you hear me fine?
Yes, we can hear you.
Thank you. I've got one question. I see there is a significant drop in the prices of your MRI scan and CT scan that you have listed compared to last year, versus vis-a-vis the peers whose prices have not declined that much. Can you throw some light on that, please?
Well, I don't know where you're referring to the prices. But typically, just to give you, our prices are linked to the tenders, and these are, again, contractually embedded. These prices are what we quote when we bid for a particular PPP project. And these prices are considering the investments that we have to make in that project, the size of the tender. And accordingly, these are priced.
Having said that I don't think so there have been a significant decline in the prices of our MRI and CT scan. They are definitely lower than the market rates. But again, these are linked to the contract as a concessionary that we signed with various authorities. And once these rates are embedded into the contracts, there is no decline in the prices as such. In fact, we have price escalation embedded into our contracts, which allow us to increase our prices, as and when the clause gets triggered.
I was referring because I think on the Slide 21, you have listed the price of Krsnaa compared to the peers. And the same slide, I think last year FY '22, the prices were much higher. I think you had listed CT Brain scan at [ INR 2,000 versus INR 973 ] now and MRI at [ INR 3,500 versus INR 2,200 ] now.
We held the line for the management reconnected. Sir, go ahead.
Yes. So the prices that...
I don't know if you heard the question.
Yes, yes. I heard the question. The prices that you're referring to the slide is basically what we showcase as the average prices that we see across a combination of various projects. And as I mentioned, as the various tenders that we participate, considering the scale and the size and the volume that we expect, the prices are accordingly provided at the tendering stage. So these are a reflection of those prices and not necessarily decline. Because in some projects like, if I have to. Hold on. Can you hear us?
Yes, sir, we can.
Yes. Yes.
So if you see, for example, in Punjab, which was again a big project, there were certain -- the prices that we had quoted were lower compared to all the other projects that we had, given the size of the state and the scale. And thereby, the overall prices, you are seeing a decline. But we are not under any pressure to reduce the prices. It is based on the overall -- which tender we are participating and what are the metrics of that particular tender.
Sure. Just 2 related questions to that. One is when you participate in the tender, naturally price, price element is a big factor in it. So is there a specific ROCE or margins that you factor in are the minimum level that you need for these tenders and projects.
So yes, we have certain thresholds when we consider for bidding for any project. Typically, from an EBITDA perspective, if you ask, we look at the EBITDA levels at the center level to be anywhere in the range of 35% to 40%. And the overall IRR or ROC is at double digits that we consider for each of these projects. So these are some of the baseline or benchmarks that we have in our system before we bid for these projects.
Okay. And you just mentioned that you have price escalation clauses in these tenders. What are the typical price escalation levels for these tenders?
So the price escalation varies between 3% to 5%. In some of these contracts, it could also be 7%. Again, it depends on each authority and how they have structured the tender. But it ranges between 3% to 5% if you take an average.
And this is -- this escalation happens annually especially or where the market is for those -- the prices of the market for those?
Yes. These prices are -- they're part of the contract. They are embedded into the contract, and they basically happened by default because that is part of the tender when it was published. So neither the authorities can deviate from it because it is part of the contract. And that is on the basis of which you would have made our assumptions and plan for the investments.
Next question is from the line of Ashwin Agarwal from Akash Ganga Investments.
Hello? With Rajasthan coming in by, say, FY '25, we understand, as you have alluded previously, you said revenues will be in the range of INR 700 crores plus, but what we understand it can be about INR 900 crores or something of that sort, right? Is the understanding right?
Correct. There is a possibility for the upside as well. But just to be prudent and conservative, we are giving kind of a baseline expectation.
Okay. And what about the EBITDA margin guidance?
So see, from an EBITDA perspective, as I mentioned earlier, we will continue to have -- focusing on EBITDA increasing it from what the level that it is today. But as I said, depending on how the overall project gets implemented and how much the numbers grow, if, of course, the numbers do increase, the EBITDA will definitely have to increase.
Okay. Any ballpark number or guidance that you are providing?
So as of now, our focus is to ensure continuing the existing levels of EBITDA and of course, also improving it as the time goes by.
So for Punjab, we have incurred a total CapEx of INR 120 crores. Is any more left to incur?
No. I think the entire project -- I mean, we've also communicated, the entire project now stands implemented.
Okay. And sir, congratulations on getting this accreditation. Can you talk about the potential of this tele-reporting business and all? And what is the current contribution? And how do you see the future prospects of this business?
Yes. So in fact, it was a proud moment for us to get the NABH accreditation for a tele-radiology hub. I think it's the first in India and even the authorities took time to go through all the process in [indiscernible]. In terms of -- unfortunately, it certainly gives us an edge in terms of demonstrating that our hub now has a certain level of standard in terms of accreditation. It also allows us to look into other private verticals where there are radiology centers who might now leverage our tele-reporting hub to get their reports done and reported as well. So yes, it is certainly exciting, and we look forward to how we could leverage this accreditation to further augment additional revenues as well as look at new tender opportunities that might also come up our way.
Ashwin, I'll request to join back the queue for a follow-up question. The next question is from the line of Manoj Dua from Geometric Securities. Mr. Dua, there's a lot of background noise as well.
Is it much better?
Yes, sir. Thank you.
Okay. As I see, most of the profit in Punjab will go in the subsidiary. What's the plan? How we will take that reserve into the stand-alone as we go forward? By dividend or something? What's the plan regarding that?
So we will continue to be doing a similar nature of the group, being it's a part of agreement. And we adopted the [indiscernible] price between the holding and subsidiaries based on the [indiscernible] in the [ starting statement ]. So it will continue to be maintained in a similar fashion.
Next question is from the line of Jainil Shah from JM Financial.
Yash, I just wanted some more clarity on the guidance. So you mentioned that we'll be growing at our historical rates in FY '24 and also that we'll get some immediate benefits from Rajasthan tender. So like the previous one, there would be some overlap, and we start getting benefits immediately. So is it fair to assume that FY '24, you're guiding for 30% to 35% growth rate? And when will the benefits start flowing in for Rajasthan?
Well, Jainil, to be honest, that's the growth rate we are also aspiring to grow. But in all [indiscernible] are being conservative, I would expect that to grow at about -- between 25% to 30% to give -- considering some of the projects might get delayed. But of course, if you consider FY '25, given these all these projects would be implemented, this growth rate that we have been demonstrated in the past, we are confident that we should be able to achieve it or we might even surpass it.
Because, Yash, Rajasthan contract, if I remember correctly used to contribute somewhere about INR 70-odd crores. So that benefit, we should get immediately, right?
Yes, but the Rajasthan tender will take time to implement, right?
Okay. Okay. So 25% is what we should work with? Hello?
Sorry, if you could repeat that?
Yes. Sir, 25% to 30% is what you're guiding for?
Yes. And we are -- of course, our endeavors and efforts will always be to cross the threshold in terms of the overall CAGR guidance that we've been -- or the CAGR growth that we've been achieving or maintaining over the last so many years.
Next question is from the line of Ritesh Parikh from Rockstud Capital.
Just wanted to know, about our B2C strategy, since we have not mentioned anything about written presentation. So what is in the progress and how it is shaping up?
So see in terms of B2C, like you mentioned, though, we've started focusing on the B2C as well, either through our [ KBA ] that we have planned as well as leveraging our existing network of labs and diagnostic centers across various states. So we look forward to further increase our offerings on the B2C space. But at the same time, given that we have these large PPP contracts on hand, which again needs to be implemented in time, our focus will be to complete the PPP projects. Because once they're implemented, then the centers start scaling up and revenues will start coming through and then parallelly the B2C approach will continue to go on.
But we had a dedicated manager for the B2C strategy appointed [indiscernible]? And then I think a number of centers also were identified. So any rollout for the status on it?
Yes. So we already have a team which is currently working on the B2C strategy. We have hired individuals from various experienced levels, and they are currently working on building up the B2C strategy. At the same time, since if you -- like we mentioned earlier, the PPP contracts that we have on hand, they are the most huge significant in size. And hence, the primary focus will be to complete these PPP projects, while the B2C runs its parallel [indiscernible], and we are equally focusing on that.
And lastly on this, any major contract which is coming up for renegotiation, which if you can quantify in [ FY '24 ]?
So as of now, there are no significant contracts which are coming up for renegotiation.
Next question is from the line of Aditya from SIMPL.
Sir, my question was regarding...
Aditya, may I request you to speak a little louder, please?
Yes. Am I audible now?
Slightly better.
Yes. So my question is regarding the ROE in the company. So even if I adjust the excess cash that the company is carrying from the net worth of the company, you are making around 20% ROE. And you are making similar ROEs even before pre-COVID period. So just wanted to understand, is this the normal ROE of the company? Suggesting government business makes around 12% to 13% ROE, there are levers for us to increase ROE in the next few years.
Yes. So if you see the reason why the ROE looks suppressed today is because we have been continuously investing in the various projects, and they are not yet mature. As the centers start maturing, and as I mentioned earlier, they will be contributing to better revenue and therefore, better margins. So as the profile improves, the ROE also look -- ROE will start improving or increasing. Since the company has been in a high growth phase, and we continue to increase our capacity. So whilst the revenue and the EBITDA margins increase, but at the same time, equally, there has been investments made in the center.
So once we come to a stage where these investments do not happen, and you'll see an immediate share of the ROE increasing significantly.
Sir, just one follow-up. So in your Slide 31, where you mentioned the ROC profile of matured, semi-matured and newly launched centers. So I just wanted to know what kind of EBIT margins they make in the different centers?
So typically, at the center level, as I mentioned earlier, our EBITDA margins are in the range of about 35% to 40% depending on the [ 2 ] projects.
Okay. So I was basically asking about the average EBIT margins you make in the matured, semi-matured and the newly launched centers.
So see, again, from a maturity perspective, matured centers would contribute about 35% to 40%. If you consider semi-matured centers, they would be in the range of between 20% to 25%. And the newly launched centers will probably be negative EBITDA because the expenses will be higher compared to the revenue. They will not be commensurate to the revenue that we are generating.
Ladies and gentlemen, we will take that as the last question. I'll now hand the conference over to the management for closing comments.
So thank you, everyone. Thanks for your time as well attending this conference call. Wishing you a pleasant evening ahead. Thank you.
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.
Thank you, everyone. Thanks.
Thank you.