Vijaya Diagnostic Centre Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Omicron hit non-Covid volumes, masking underlying growth: Non-Covid revenue fell 2% YoY in Q4 as the Omicron wave suppressed footfalls, especially in radiology. FY22 non-Covid business still grew 26%, and management expects a return to pre-Covid growth rates in a couple of quarters, assuming no further waves.
• Expansion is the central story, not the quarter: The company added 6 spokes in Q4, reached 95 centres, and committed to at least 4 hubs and 12 spokes in FY23, with a capex budget of ₹90–110 crore. East India is the next major geography.
• Margins compressed on multiple fronts: Q4 EBITDA margin fell YoY due to a mix shift toward low-margin Covid RT-PCR tests, higher employee costs from management hiring, increased equipment maintenance charges as warranties expired, and year-end listing-related provisions.
• Competitive discounting dismissed as temporary: Management believes price-led customer acquisition by aggregators and some companies is unsustainable in a trust-based, need-driven healthcare market, and expects organized players to gain share over the medium-to-long term.
• What to watch next quarter: Whether the Rajahmundry hub commissions on time, the digital app launches, and any concrete East India lease signings that turn expansion intent into visible execution.

Q4 Performance: The Omicron Disruption

• Non-Covid business reversed: Non-Covid revenue declined 2% YoY to ₹98 crore because Omicron severely impacted January and the first half of February. Radiology was hit harder than pathology since radiology cannot be delivered via home collection.
• Covid testing provided a temporary offset: Covid and Covid-allied revenue spiked 54% YoY to ~₹18 crore, lifting its share of Q4 revenue to 15% from 10% a year ago. For the full year, Covid contribution fell from ~17% to ~15%.
• Tests per footfall dropped: The metric fell to 2.55 from 2.69 YoY, reflecting the Omicron-driven disruption to normal patient behaviour.
• B2C share held firm: B2C remained at 95% of Q4 revenue and 94% for the full year, underscoring the company's retail-focused model.
• Margin pressure was multi-layered: EBITDA margin declined YoY due to four factors: lower gross margin from a higher share of low-margin Covid RT-PCR tests during Omicron; higher employee costs from strengthening mid-to-senior management for expansion; increased AMC/CMC charges as radiology equipment moved out of warranty; and a few year-end corporate provisions related to the listing.

Expansion Strategy: Hubs, Spokes, and New Geographies

• Centre count reached 95: The network stood at 24 hubs and 71 spokes as of March 31, 2022, with 6 spokes added in Q4 and one spoke upgraded to a hub during the year.
• FY23 pipeline is already building: Four hub centres and eight spoke centres have been finalized; another two to three hubs and a few spokes are nearly finalized. Management committed to opening 15 centres every year, though Covid caused a three-to-four-month delay in some centres.
• East India is the priority market: Leases are being finalized in a few locations. The go-to-market strategy is B2C with a large-format hub offering advanced radiology and a high-end lab first, followed by spokes. More concrete details are expected next call.
• Adjacent geographies in focus: Expansion will target Tier 2 and Tier 3 cities in Telangana, Andhra Pradesh, and bordering states like parts of Karnataka and Maharashtra.
• Hub economics are predictable: A hub generally takes one to one-and-a-half years to stabilize before it can add spokes around it, and then delivers adequate topline growth over roughly two years. Spoke centres typically reach P&L breakeven in three to four months, though centres outside Hyderabad may take a few more months but not more than six.
• Capex guided at ₹90–110 crore for FY23: This covers 4 hubs, 8–10 spokes, and new modalities like PET-CT and a gamma camera. Management noted a slight increase in capex costs in the last one to two months due to logistics costs and forex rate increases.
• Capital is not the bottleneck: Operational constraints such as finding the right location, hiring and training staff, and stabilizing operations are the real limits on growth pace, not availability of capital.

Sunil Chandra: "capital is not the constraint in growing this business. So it's not that if I had 10 times more capital, I could open a 100 centers. It's about getting the right location, getting staff, training them, opening the center, stabilizing operations. So that is an operational constraint rather than a capital constraint."

Radiology & Modality Investments

• Radiology is a structural moat: Contributing 35% of revenue, radiology is insulated from competition because it requires capital-intensive equipment and cannot be replicated through home collection or low-cost models.
• PET-CT and gamma camera being added: High demand at the flagship centre, where patients currently wait two days for a PET-CT slot, is driving the addition of these modalities at a hub in Punjagutta, Hyderabad.
• Wellness differentiation rests on radiology: Management argues that no wellness package is complete without radiology, and that an X-ray or ultrasound is essential to declare someone fully fit. This radiology-plus-pathology combination is their differentiator against aggregators.

Sivaramaraju V: "no wellness is complete without radiology. ... without even getting a x-ray test or say ultrasound, you cannot say that you're fully fit."

Digital & Customer Experience Initiatives

• App and digital tools nearing launch: A mobile app, progressive web app, and AI-enabled WhatsApp chatbot are close to completion and expected to launch in a couple of months. The app will offer value-added features including historical report viewing spanning 10 years, report comparison and sharing, ambulance booking, an ovulation tracker, and chronic-condition graphs for metrics like sugar levels and lipid profiles.
• Phase 2 will allow custom health packages: In a second phase, customers will be able to build their own health package by mixing radiology and pathology based on family or medical history. Management stated no other player currently has this feature.
• Home collection economics are protected: The cost incurred on a home visit is charged to the customer as a convenience fee, separate from the diagnostic service pricing, so unit economics remain unchanged.

Competitive Landscape & Industry View

• Price wars seen as temporary: Management acknowledged that some companies and aggregators are offering huge discounts to acquire customers, but argued this is not a long-term phenomenon because healthcare is need-based and trust among doctors and patients plus service quality matter more than price.
• Delivery and fulfillment create a natural barrier: Unlike pure-play consumer businesses, diagnostics requires reliable report delivery and patient trust in the centre. Price cuts alone cannot sustain customer acquisition when fulfillment quality is at stake.
• Organized players expected to gain share: Management believes the industry will grow and organized players will capture market share in the medium-to-long term, despite near-term uncertainty from changing industry dynamics.

Sunil Chandra: "I feel that this is not a very long-term phenomenon, because healthcare is a little more complex. It's not a kind of business where you can just do price cuts and acquire, you know it's not just a customer acquisition cost. There is a delivery and fulfillment piece, and you know unless the patient also feels that the reports are reliable and they can trust the center, price is not the only factor."

Capital Allocation & Inorganic Opportunities

• Dividend declared at 100% of face value: The Board recommended a dividend of ₹1 per share, representing approximately 9% of PAT. Management indicated a ~10% payout threshold has been discussed by the Board and will be re-evaluated going forward, with first priority given to cash utilization for organic growth.
• Inorganic opportunities being evaluated: The company is keen to evaluate acquisitions that fit its B2C strategy, integrated model, and have a good brand in focus markets, primarily South or East India. However, valuations have been choppy and changing significantly.

Sunil Chandra: "But as you will appreciate better than us, it's been a very choppy time. So, valuations also have been changing quite significantly. But we are very keen that if we get a good asset that meets our kind of B2C strategy and has an integrated or enjoys a good brand in any of our focus markets, we are very keen to look at such opportunities."

Guidance & Commitments

Key Metrics