Metropolis Healthcare Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Non-COVID revenue rebounded 26% YoY as Q1 FY23 marked the first normal quarter after two years of lockdowns and COVID spikes, with B2C growing even faster at 28%.
• Wellness revenue share doubled to 12% from 7%, lifted by health-tech players' marketing spend that expanded the preventive health market, with a stated ambition to reach 20%.
• Reported EBITDA margin fell to 25.6% (ex-CSR/ESOP) on a lower revenue base after the COVID drop, plus costs from leadership hiring, front-end staff investment, and lab network expansion that carries fixed costs before launch.
• Strategic investment evaluation concluded with no deal: management decided the best direction is to continue building on their own, citing strong cashflows and a healthy balance sheet, with no fund raise planned.
• What to watch next quarter: whether the promised margin recovery to pre-COVID levels materializes in Q2 despite July increments, and whether the higher-single-digit QoQ non-COVID revenue growth target is met.

CEO Transition & Strategic Direction

• CEO Vijender Singh is departing after six years leading Metropolis 2.0; he will continue until November 30, 2022, to ensure a smooth transition, with details of the new CEO for Metropolis 3.0 to be announced shortly.
• Metropolis 3.0 strategy rests on three pillars: strengthening center density in focus cities for consumer convenience, expanding home visits, and increasing the B2C ratio, which management says has worked in the past.
• No fund raise or strategic partnership: management evaluated inbound interest from corporates and financial institutions for a minority stake but concluded the best direction is to build independently, with strong cashflows and a healthy balance sheet sufficient to fund growth or acquisitions.
• Leadership gaps are mostly filled: a Chief Revenue Officer joined last October for pan-India revenue generation, middle management was strengthened for succession planning, and technology transformation talent was brought in over two years; one or two consumer-mindset hires may still be added for Metropolis 3.0.

Ameera Shah: "As management and shareholders while we were encouraged by the overwhelming interest by multiple parties to invest a minority stake in Metropolis we have decided that the best direction for us is to continue to build on our own."

Revenue Growth Drivers

• B2C revenue grew 28% YoY, outpacing overall non-COVID growth of 26%, driven by operational rigour that delivered QoQ growth in a quarter that historically is flat to negative versus Q4 in West and South India.
• Home visit revenue (ex-COVID) more than doubled to ₹23 Crores, growing 30% QoQ as coverage expanded to 100 cities, with economics improving as volume throughput increases.
• Revenue per patient rose 3% YoY to ₹955 while revenue per test dropped 7% to ₹466, reflecting a mix shift toward packages; management emphasized value per patient, not volume, as the key KPI because specialized business is stickier and harder to replicate.
• Hitech Diagnostics contributed ~9% of YoY non-COVID growth, with standalone Metropolis growing ~17%; 9 overlapping Hitech labs were merged and 14 new service centers added as integration progresses on schedule.
• Focused cities' revenue share rose to 60% from 58%, aided by Hitech's large presence in Chennai and Bengaluru; the near-term target is to reach 65% B2C contribution in these cities.
• Digital marketing spend doubled from 0.4%–0.5% of revenue to 1%–1.1%, driven by Google search and social media ads delivering 3–4x ROI; management will keep increasing spend as long as good ROI continues, with the run rate expected to sustain through FY23.

Ameera Shah: "Our company has always had a strategy not on volume growth, but on value growth and our revenue per patient being one of the key KPI that the focus on, the volume is not our focus, the value per patient is our focus."

Wellness & Chronic Segment Strategy

• Wellness revenue share reached 12% versus 7% previously, accelerated by new health-tech players whose large marketing budgets expanded awareness for preventive health checks and grew the overall market.
• The chronic segment is seen as an opportunity, not a defensive move: a loyalty program for chronic customers will launch "in the next few months," combining price value with Metropolis's quality positioning, which management believes is a more lethal combination than price alone.
• Management is exploring smaller packages at lower entry price points to bring consumers into the Metropolis framework, with upsell and cross-sell to follow; this volume-and-value balancing act will take a couple of quarters to show up.
• Health-tech players are seen as competing mainly for budget wellness business, not for chronic patients referred by doctors, because chronic patients follow doctor referrals where quality and trust matter more than price.

Ameera Shah: "We are actually looking at this as an opportunity for us to gain traction in a chronic market and therefore how can we create schemes and packages for customers where they are believing that they are getting a price value as well as they are getting the best quality from Metropolis and that combination we believe we will be a far more lethal in combination than just price benefit."

Margin & Cost Structure

• EBITDA margin at 25.6% (ex-CSR/ESOP) was impacted by the lower revenue base from the 80%–90% drop in COVID PCR and allied revenue, increased employment costs from strengthening the leadership team and front-end staff, and lab network expansion carrying months of fixed costs before launch.
• Pre-COVID margin range was 26%–28%, and management expects to return to pre-COVID levels in Q2 FY23 because Q2 is historically one of the best revenue quarters in West India and cost optimization work is underway.
• July increments add a cost headwind, but management still expects Q2 margin recovery; Rakesh Agarwal indicated ~150 bps expansion is the kind of number being looked at, while cautioning to wait and watch how the quarter goes.
• Cost normalization efforts are underway: in Q1, extra costs added during COVID were cut, and Q2 is expected to be more normalized; FY23 focus includes digitization of processes, efficient manpower allocation, and improving break-even of the newly expanded network.
• Marketing investment may be a slight drag on achieving pre-COVID margins, as management may continue to invest in branding and rebuilding the brand over the next few quarters.

Network Expansion & Productivity

• On track to add 90 labs and 1,800 centers by 2025, after having paused network expansion in FY21 for consolidation and then resuming in FY21–22; new centers (22 labs, 631 service centers since FY22) have shown early positive trends with shorter expected break-even periods due to value-led productivity from specialized tests.
• Phlebotomist productivity averages 10–12 collections per day, with efficient ones reaching 13–14; during COVID peaks productivity was highest, and without COVID it has come down, but management believes pushing beyond 13–14 would compromise quality for volume.
• B2B semi-specialized pricing saw selective rationalization of 10%–15% due to new players entering and increased competition intensity, though management characterized it as not a big number and done only where logical to save business.

Ameera Shah: "Anything more than that potentially would probably land up compromising quality in to sake of volume."

Competitive Positioning & Pricing

• Management pushed back on price-based competition, arguing that in healthcare, pricing ranks sixth or seventh in consumer surveys, and consumers actually distrust very cheap services; of the 150,000 labs in India, many already offer lower prices than leaders, yet Metropolis remains a leader because quality and service are appreciated more.
• Government tender volumes in Q1 were at almost the same level as Q4, but management remains very selective about public-private partnership tenders because the pricing, quality scope, and practices often differ from what Metropolis is comfortable with.
• COVID-era patient behavior suppressed non-COVID testing independent of competition: during lockdowns, fewer patients visited doctors for heart, lung, and gastrointestinal issues, treating themselves at home via video call, which depressed testing volumes.

Ameera Shah: "In healthcare in every consumer survey done, pricing is not the most important factor, it is actually factor number six or seven on the list... in healthcare people actually feel when something is done very cheap or low price actually they feel that the quality must be wrong."

Guidance & Commitments

Key Metrics