Krsnaa Diagnostics Ltd

NSE:KRSNAA

Earnings Call Transcript

[Operator]

A very warm welcome to the Q3 FY '25 Results Conference Call of Krsnaa Diagnostics Limited. Before we begin, I would like to remind all participants that today's call may contain forward-looking statements that are forward-looking statements, including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to Krsnaa Diagnostics' future business developments and economic performance.



While these forward-looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties, and other unknown factors could cause actual developments and results to differ materially from our expectations. [Operator Instructions] Please note that this conference is being recorded.



I now hand the conference over to Mr. Raghav Vedanarayanan from JM Financial. Thank you, and over to you, sir.

[Raghav Vedanarayanan, executive]

Thank you, Sagar. Good afternoon, everyone, and welcome to the Q3 FY '25 Results Conference Call of Krsnaa Diagnostics Limited.



Joining us today on the call are Mr. Rajendra Mutha, Chairman and Whole-Time Director; Mr. Yash Mutha, Joint Managing Director; Ms. Pallavi Jain, Executive Director; Mr. Mitesh Dave, Group CEO; Mr. Pawan Daga, Chief Financial Officer; and Mr. Vivek Jain, Head of Investor Relations.



I would now like to hand over the call to Mr. Yash Mutha for his opening remarks. Thank you, and over to you, sir.

[Yash Mutha, executive]

Thank you, Raghav. Good afternoon, everyone. I am pleased to welcome you all to Krsnaa Diagnostics Limited's Q3 FY '25 Earnings Conference Call.



Before I take you through our performance, I'd like to extend my gratitude to the Board and our Chairman, Mr. Rajendra Mutha for their trust in recommending me for the post of the Managing Director. Moving on to business.



The union budget of 2025-'26 has reinforced health care as a national priority with a 13% rise in allocation for the Ministry of Health and significant investments in PPP models, cancer care, and digital health infrastructure. The budget 2025-'26 marks a transformative leap for India's healthcare sector, introducing key reforms aimed at enhancing accessibility, affordability, and equity. In this budget, healthcare has received enhanced funding. The Ministry of Health and Family Welfare has been allocated INR 90,958 crores for the fiscal year 2024-'25, marking a 12.96% increase from the previous year's revised estimate of INR 80,517 crores.



The National Health Mission's budget has been increased from INR 31,550 crores in 2023-'24 to INR 36,000 crores in '24-'25, aiming to bolster the healthcare services across the nation. Pradhan Mantri Jan Arogya Yojana or PMJY, has risen from INR 6,800 crores to INR 7,300 crores, enhancing financial protection for health services to the economically vulnerable populations.



There has been also movement in the cancer daycare centers where the government plans to set up day cancer centers in all the district hospitals over the next 3 years with 200 centers to be established in the fiscal year 2025, '26. This initiative is expected to add over 4,500 cancer daycare beds across the district hospitals to bring cancer treatment closer to the patient's homes and reduce the burden on tertiary care centers.



Also, the budget extends health insurance under the Pradhan Mantri Jan Arogya Yojana to 1 crore gig workers, providing financial protection against major health expenses. With a strong emphasis on public-private partnerships and the ease of doing business, the budget highlights the pivotal role of private-sector collaboration in shaping healthcare as a cornerstone of developed India.



At Krsnaa Diagnostics, we are uniquely positioned to capitalize on these reforms given our strength in the nationwide reach where we have a presence in over 18-plus states with more than 3,000-plus centers, making us one of the largest diagnostic service providers in India. We are a leader in PPP-driven diagnostic services, ensuring affordable high-quality diagnostics across urban, semi-urban, and rural India. We offer a full suite of radiology, pathology, and teleradiology services across our network. Our hub-and-spoke model allows us to maintain operational efficiency while expanding our footprint. We also invest in AI-enabled diagnostics and digital health solutions, which are improving service efficiency and diagnostics accuracy. These initiatives reflect a comprehensive approach to improving healthcare accessibility, affordability, and quality across India.



In the first 9 months of FY 2025, Krsnaa has achieved an impressive 17% year-on-year revenue growth, reaching INR 5,311 million. Increased awareness of our high-quality service offerings, combined with competitive pricing has significantly boosted patient volumes and test counts. On the financial front, the EBITDA surged 39% year-on-year to INR 1,416 million with margins improving to 27%. I'm delighted to share that your company has achieved a remarkable profit of INR 569 million in the 9 months ending FY '24, equaling the full-year profit of the previous year, demonstrating our continued focus on operational efficiency through strategic initiatives. We are confident in maintaining this positive trajectory in the coming quarters.



However, in this quarter, our revenue was impacted by a combination of seasonal variations and temporary operational factors. The earlier conclusion of the Mumbai BMC project, along with a delayed ramp-up of our Maharashtra City and Madhya Pradesh MRI installations due to site handover delays led to this temporary dip in the revenue.



Additionally, there were certain operational challenges in select states, including Karnataka, Assam, which have also contributed to short-term volume moderations. These factors have affected the quarter's performance. However, with our ongoing site activations underway and operational efficiencies being reinforced, we remain positive in continuing our momentum in the upcoming quarters.



I would like to now hand over the call to Ms. Pallavi to walk you through the developments in our PPP domain. Over to you, Pallavi.

[Pallavi Bhatevara, executive]

Thank you, Mr. Yash. Good afternoon, everyone. At Krsnaa, we firmly believe that our employees are the backbone of our success and we are committed to fostering a work environment that prioritizes their well-being, growth, and professional development. As part of this commitment, we have launched several initiatives aimed at enhancing employee engagement, upskilling, and overall job satisfaction. We have introduced comprehensive training programs designed to equip our workforce with the latest advancements in diagnostic technology, ensuring they remain at the forefront of the industry standards. I am delighted to announce that Krsnaa Diagnostics has been honored with the Leading Human Resource Transformation award by the esteemed India HR Summit & Awards.



Let me just brief you about the recent developments in Krsnaa. We are proud to announce that 12 of our laboratories have been accredited by NABL this quarter, bringing our total to 49 laboratories, one of the highest NABL-accredited chains in the industry. In the case of Jharkhand, we have successfully executed an agreement with the authorities. The implementation of 2 centers is expected to be completed by the first quarter of FY '26. In Maharashtra, we have successfully commissioned 40 CT scan machines. The remaining 50 CT scans and 17 MRM machines will be operational soon with the revenue projections expected to materialize from the first quarter of fiscal year 2026.



Over the last 3 months, we have expanded to further 284 collection centers nationwide.



Now to take you ahead on our retail expansion plans and strategy, I would like to hand over the call to Mr. Mitesh. Thank you, everyone. Over to you, Mr. Mitesh.

[Mitesh Dave, executive]

Thanks, Ms. Pallavi. A very good afternoon to everyone. At Krsnaa Diagnostics, we are entering a very exciting and transformational phase with a strong emphasis on expanding our retail footprint and positioning ourselves as a household name in diagnostic healthcare. While our PPP business continues to be the cornerstone of our success, our retail expansion is unlocking new avenues for sustained growth. The momentum in our retail segment is truly exciting. We have successfully launched retail operations in 4 of our states, Maharashtra, Punjab, Assam, and Orissa under the brand RPL by leveraging our existing PPP infrastructure. The response has been encouraging with the strong demand towards wellness packages and steadily expanding network that is driving brand recognition.



With best-in-class quality, affordable pricing, and 24/7 accessibility, RPL is set to redefine convenience and trust in diagnostics. Our asset-light model ensures rapid scalability allowing us to expand aggressively without heavy capital investments.



Retail. In our vision which is very clear to becoming a go-to brand for diagnostics in India, the diagnostic industry is witnessing a paradigm shift with consumers prioritizing preventive health care and digital-first solutions, where we are well positioned to capitalize this trend by strengthening our B2C presence, expanding our retail footprint in metro cities and high-growth tiers, Tier 1 and 2, along with Tier 3 markets where there is a huge vacuum as well.



Technology and AI-enabled diagnostics, enhancing service efficiency and AI-powered digital pathology, automation, and seamless online bookings. Wellness and preventive health care offerings, customized health screening packages to cater to rising demands for early disease detection, and proactive health care management. Certain strategic collaborations and partnerships helping to expand our tie-ups with the hospitals, corporate wellness programs, and the many digital health platforms.



With our expanding retail network, digital transformation, and unwavering commitment to quality, Krsnaa is poised to become a leader in India's high-growth diagnostic retail market. At Krsnaa, we are focused on expanding our home collection services to provide convenient, high-quality diagnostics at patients' doorstep. We are strengthening our network of trained phlebotomists across urban and rural areas to ensure wider accessibility. Our digital platforms, including the website and mobile app, enable seamless appointment bookings and real-time tracking.



By optimizing logistics and lab processing, we ensure faster sample collections and quicker report deliveries. We are also collaborating with the corporates, insurance providers to integrate home collection into the wellness programs. Additionally, we are [indiscernible] education and awareness campaigns to promote proactive health care. With a strong commitment to quality, hygiene, and reliability, our home collection services bring accurate and affordable diagnostics directly to people's homes, ensuring better health outcomes for all. Moreover, Krsnaa Diagnostics is proud to be a trusted partner for more than 50,000-plus doctors across 18 states, working tirelessly to ensure world-class diagnostic services reach even the most remotest in the underserved regions in India.



Through our cutting-edge technology state-of-the-art laboratory and commitment to excellence, we empower healthcare professionals with accurate, timely, and reliable diagnostics insights. By bridging the gap between advanced medical diagnostics and accessibility, we contribute to improving patients' outcomes and strengthening the nation's healthcare ecosystem. We are energized by the potential ahead and look forward to delivering strong, sustainable growth in this space.



At Krsnaa, under RPL, our aim is to be the doctor's preferred partner for anytime, anywhere, affordable and assured diagnostic service provider.



With that, we'll take you through our financials and the operational highlights, and I'm handing over further to Mr. Pawan to take a deeper insight into the quarter 3 performance. Over to Mr. Pawan. Thank you.

[Pawan Daga, executive]

Thank you, Mr. Mitesh. Good afternoon, everyone. Let me just brief you about the Q3 and 9 months financial performance. Revenue for Q3 FY '25 stood at INR 1,745 million, a 10% year-on-year increase, driven by high volumes in both radiology and pathology segments. Other income for the quarter primarily comprises interest income from fixed deposits, along with gains from strategic capital reallocations and structured financial initiatives.



EBITDA for Q3 FY '25 stood at INR 466 million with a margin of 27%, reflecting a strong operational efficiency. Net profit stood at INR 194 million, registering a 50% growth year-on-year. In 9 months, we have achieved revenue for the first 9 months stood at INR 5,311 million, a 17% year-on-year increase. EBITDA stood at INR 1,416 million, registering a 39% year-on-year increase.



Net profit stood at INR 569 million, registering a 49% year-on-year growth. Our diluted EPS stood at INR 17.26 registering a 47% growth year-on-year. Our company continued to maintain a net debt-free status, a significant achievement. Our receivables for 9 months FY '25 are on the higher side, primarily due to a delayed payment from Himachal Pradesh and Karnataka.



Currently, our receivable days average around 60 to 65 days, except for a project in SPN Karnataka where they extend to 120 days. As a result, management has decided to moderate operations in these regions. However, we are confident that by the year-end, our receivable days in HP Karnataka will reduce to 90 days, and by next year, our overall receivables for the company will normalize to 65 to 70 days.



With this, we conclude our opening remarks, and we would now like to open the floor for questions and answers. Thank you.

[Operator]

[Operator Instruction] Our first question comes from the line of [indiscernible] Advisors.

[Unknown Analyst]

Regarding execution this quarter to [Indiscernible]. So what about the Q4, how we can see Q4 panning out in the [Indiscernible]?

[Pawan Daga, executive]

Yes. So in terms of implementation of our PPP projects where there were certain delays due to site handovers, which is typical of the PPP business, we have now identified certain areas and the team is working on it. So we expect the rollouts to happen in Q4 and therefore, the business coming back in Q4.

[Yash Mutha, executive]

So Pawan, just adding to the point, 6 centers are already targeted to be operational in Q4 and certain sites and work completion as progress, we accordingly give updates on more centers to be operationalized by the end of March or maybe the first month of the next financial year.

[Unknown Analyst]

[Indiscernible]. In the retail segment. So what is the contribution in this current quarter? And what is the expectation from the next year FY '26 from the retail segment?

[Pawan Daga, executive]

Yes. So the B2C, we have started the B2C recently. So the contribution is not very significant. But in the 4 states that we've seen the results are very encouraging, and we expect going forward as the business scales up, the contribution will be significant towards the next financial year.

[Unknown Analyst]

And can you put some light on the pipeline we already awarded or still waiting for the pipeline [indiscernible]?

[Pawan Daga, executive]

Yes. So for example, we had participated in Jharkhand tender, which we won 2 centers. Some of the tenders are in the pipeline where work is going on and when we [Indiscernible].

[Operator]

[Operator Instructions] The next question comes from Raman Kevi from Sequent Investments.

[Raman Kevi, analyst]

Congratulations on a good set of numbers. Sir, I just wanted to understand what are the revenue from radiology and pathology and what are the margins?

[Mitesh Dave, executive]

Yes. So our -- for the Q3, radiology contribution was 49% and pathology contribution was 51%. So this is the first quarter where we have surpassed the ratio which we previously mentioned, we want to be a 50-50 modality where we want to achieve the revenue 50-50, so which we have already achieved it. Radiology always gets a higher margin EBITDA at a center level somewhere around close to 40% and pathology is close to 25% to 30% margin at a center level or project level.

[Raman Kevi, analyst]

And sir, from the PPT, you said in the PPT, you mentioned that existing centers had 36% margin and new centers had 17% margin. So how long will it take for a new center to contribute that 36% margin?

[Mitesh Dave, executive]

So typically, from a PPP project perspective, depending on whether it is radiology or pathology, the maturity stages vary. But normally, it takes for pathology around 1 to 2 years to become mature, and -- sorry, pathology could be around 1 year and radiology could be about 1.5 years where they can come to the mature level of revenues.

[Raman Kevi, analyst]

Pathology 1 year and radiology is 1.5?

[Yash Mutha, executive]

Radiology, for example, it ranges between 1 to 3 years in achieving the matured level of revenues and pathology comes in around 1 year.

[Raman Kevi, analyst]

Sir, one last question. I just want to understand your retail expansion, like the business model of RGL, what are we doing there? How are we planning to expand our radiology and pathology business through this year?

[Mitesh Dave, executive]

Okay. So having said that the overall retail, we would like to position ourselves as one of the most affordable, accurate, and 24/7 service provider as a holistic service provider or integrated service provider considering radiology and pathology both. Radiology adds a cutting edge to positioning in total as a retail space across India. And in that, we will be taking traditional as well as the new edge route both. It's kind of a hybrid wherein there will be the collection centers followed with the new edge digital and AI platforms for patient convenience. So it's going to be a completely different positioning than what is there today with any of the existing players.

[Raman Kevi, analyst]

Sir, basically, it's like instead of a pharma retail outlet, you're opening a radiology and pathology center, right?

[Pawan Daga, executive]

Yes. Basically, if you see we already have a network of our PPP centers and our labs. As we mentioned earlier, we are trying to leverage the existing infrastructure into the PPP, where we would be utilizing these labs to process the samples that we'll be collecting through the home collection services as well as trying to get patients to come and avail the imaging services that we have, which are already serving the PPP customers. And like Mitesh said, since our business is operational 24/7, that makes us a differentiator from the market perspective. And looking at all these different attributes or variables is how we are looking to foray into the B2C segment.

[Operator]

The next question comes from the line of Dhwanil Desai from Turtle Capital.

[Dhwanil Desai, analyst]

So my first question is, you mentioned various reasons for kind of slightly lower revenue growth this quarter. But from your earlier answers, the Maharashtra rollout also will probably start contributing only from Q1, plus it was mentioned that the states where our receivables are high, we are kind of seeing moderation in terms of operations. So at least next quarter, the growth should pick up from Q1 of next year. Is that how we should look at it?

[Mitesh Dave, executive]

So we are expecting Q4 also to demonstrate some growth. As we said, there were certain decisions we had taken because of the states as well as certain operational challenges. But now both from a -- if I talk about from the Maharashtra projects, we are gearing up to ensure faster implementation of our centers like what Pawan also mentioned. So in Q4, we are also expecting to see some of these benefits come through. And the larger benefit will, of course, come from Q1 of the next financial year.

[Pawan Daga, executive]

And Pawan this side, last 1 year, we have already deployed 40 CT scan centers in Maharashtra and other locations. So these centers have also started maturing. But Q3 where the seasonality impact and other and other parameters. So Q4, the 40 centers, we see a significant spike in the revenue, this also going to contribute in Q4. And the new centers which are going to be in Q4 and plus in Q1 of next year, which slightly in the next financial year, but the centers which already deployed in last 1 year will start contributing or already started contributing the revenue, we'll see a spike in the revenue this quarter.

[Dhwanil Desai, analyst]

And this receivable issue from a couple of states, I think, from HP, it's been quite sometime even before the election, it has persisted. So anything to read into that? Where is this -- why the receivable is still not getting normalized? Any color on that could be helpful.

[Mitesh Dave, executive]

So we already received -- as Pawan just said, we already received INR 30 crores of collection in this month from January to till the date. Certain receivables already had discussed with an authority, which already at a final stage to getting released by end of the February or maybe the first week of or mid of March.

[Dhwanil Desai, analyst]

So on the B2C side, can you help us understand the unit economics both for COCO and FOFO, and what are the typical revenue levels, breakeven points? Since now we have 4 state operational with some proof-of-concept centers also operating. And how do we see scale-up next year in terms of numbers? That would be helpful.

[Mitesh Dave, executive]

So as we said, we started our operations starting in quarter 3, and we are just into the beginning of quarter 4. So it's too early to give out any heads-up on to the unit economics around COCO or FOFO. But however, as a company, as a strategy, we have looked upon or we will be branching on mainly on the asset-light model. But what it would be differentiator considering the market, we will be not just competitive, but rather will be pretty affordable as compared to any of our peers.

[Dhwanil Desai, analyst]

And next year scale-up plans, can you indicate?

[Mitesh Dave, executive]

Yes. So next year, we are looking to have at least 500 touchpoints in the states where we have launched our operations for now. Further to that, there are multiple business models that we will be rolling out to adding up to not just the network, but even to the revenues.

[Operator]

The next question comes from the line of Kashish Thakur from Elara Capital.

[Kashish Thakur, analyst]

Just wanted to know what is your outlook for the diagnostic sector as a whole for FY '26 going ahead. Post-COVID, things have been quite drastically changed around, right? So just wanted to know that first thing.

[Pawan Daga, executive]

Yes. So if you see considering the budget announcements as well the way Krsnaa has been growing, we are certainly positive about the outlook from the overall diagnostics perspective. Also with the foreign retail and the early results that we've seen, which are very encouraging. So we do look at a positive outlook in the next financial year as well.

[Kashish Thakur, analyst]

Second question will be on -- can you just quantify the test performed and the patient footfall for the quarter?

[Pawan Daga, executive]

The details will be provided to you offline. You can reach out to our CFO or they will reach out to you.

[Kashish Thakur, analyst]

And one last bookkeeping question. So during the quarter, we have elevated other income. So any specific reason for the same?

[Pawan Daga, executive]

No. So as you mentioned, there were certain capital reallocations as well as the regular interest income. So it's part of our routine operations, nothing out of the ordinary.

[Kashish Thakur, analyst]

So what can be a range of what we can expect for FY '26?

[Pawan Daga, executive]

Sorry, if you could repeat the question, please?

[Kashish Thakur, analyst]

What can be a brief range of what we can expect for FY '26?

[Pawan Daga, executive]

It's around INR 5 crores that we are looking quarterly.

[Operator]

The next question comes from the line of Surya Narayan Patra from PhillipCapital.

[Surya Patra, analyst]

The first question is on the budget initiative or budget provisions for it has been announced. So at the district level, the cancer treating centers. So what does this really mean for us, whether it is indicating about possible expansion of centers across India or it is the test volume or scan volume that is giving a positive indication.

[Pawan Daga, executive]

Well, if you see it's a recent budget announcement. So the way we understand or we are given to understand, this is an ambitious plan of the government to set up care centers in cancer where they might provide certain chemotherapies or radiotherapies. But what it means for us is this will result into patients requiring certain diagnostic tests, whether it's pathology or imaging test. And given our presence in district hospitals, we expect these patients to come to our centers. Therefore, we believe this will certainly be a welcome move for Krsnaa Diagnostics.

[Surya Patra, analyst]

So basically, this is a facilitation of our centers at the district level for radiology as well as pathology.

[Pawan Daga, executive]

It will be one of the avenues for customers to come through and have Krsnaa services.

[Surya Patra, analyst]

The second point is on the radiology growth that you have indicated means the radiology revenue share, what you have mentioned. So based on that, it looks like radiology has seen a kind of 2% decline Y-o-Y. Why should one -- or why should we see a kind of a decline in the radiology revenue, sir?

[Pawan Daga, executive]

No. So the decline is basically because if you see the pathology projects that we had entered into last year and some of them which got implemented. So the contribution of pathology revenue has increased. Going forward, like we have Maharashtra, CT scan, and MRI tenders. And as they get implemented, again, there will be a higher contribution from the radiology projects as well. So we're trying to see overall, it should come in at a healthy mix of 50% to 50%. In some quarters, it might be 51-49 or 55-45. But we're trying to see that both of them have a decent amount of contribution to the overall pie of the revenues.

[Surya Patra, analyst]

But whether we have any control over this revenue mix because it is up to the kind of a tender, whether it will come in the radiology or it is in the pathology. So ideally, it seems that we have no control. But why should we target about 50-50 only?

[Pawan Daga, executive]

No. If you look at it from an overall perspective, like the previous years, Krsnaa had a lot of radiology business. Then there were pathology projects, which came in because the government also realized there were not enough pathology labs or pathology services. And therefore, the pathology business came in. So that shift. And again, from a diversification perspective, it is also good to have a healthy mix of radiology and pathology and as a holistic service offering.