Vijaya Diagnostic Centre Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Non-COVID business holds up, COVID evaporates: Non-COVID revenue grew 12% YoY while COVID revenue collapsed 90%, dragging consolidated revenue to Rs. 104 crore from Rs. 123 crore.
• Radiology mix shift lifts gross margins: Radiology share rose to ~36% from 32% YoY, and because radiology carries lower material consumption than pathology, gross profit improved nearly 5% YoY.
• Pre-opening costs compress EBITDA: EBITDA margin fell to 38.2% from 46.3% YoY as staffing and fixed costs for Rajahmundry and Punjagutta hubs hit the P&L before those centers open.
• Two flagship hubs near launch, with a third pulled forward: Rajahmundry opens tomorrow; Punjagutta, with research-grade equipment found in only two or three centers nationally, commissions by early September; a project team is accelerating three more hubs into FY23.
• What to watch next quarter: Whether the two new hubs achieve their promised six-month EBITDA breakeven, the pace of month-on-month volume improvement through the seasonally stronger second half, and any sign that aggressive pricing by new entrants is biting beyond the unorganized segment.

Revenue Walk: COVID Fades, Core Holds

• COVID cliff: COVID business declined 90% YoY, the dominant driver of the consolidated revenue drop from Rs. 123 crore to Rs. 104 crore.
• Non-COVID resilience: Non-COVID business grew 12% YoY, with test volumes improving month-on-month from 0.07 crore in April to 0.08 crore in June, and the improvement continued into July and August.
• Wellness recovery: Wellness business recovered to pre-COVID levels, contributing 9.6% of revenue versus ~6% during the pandemic, driven entirely by existing packages with no pricing changes.
• Realization jump: Realization per patient rose to Rs. 1,400 from Rs. 1,200 in Q4, helped by the highest-ever tests per footfall (2.98) and the radiology mix shift; Q4 was depressed by Omicron-driven lower tests per footfall (2.3).
• Seasonal floor: Q1 is historically the weakest quarter, representing 20-22% of annual sales across both Telangana and Andhra Pradesh, so the soft top line is partly structural.

Suprita Reddy: "The uniqueness of these packages and why this Wellness business is the key differentiator is because all of our packages have a mix of both Imaging and pathology. So, if there is only a bunch of lab tests, it's not going to be holistic in nature."

Margin Mechanics: Gross Up, EBITDA Down

• Gross margin tailwind: Gross profit improved nearly 5% YoY because COVID revenue (with material consumption almost double that of non-COVID) shrank 90%, and radiology revenue share increased; radiology material consumption is generally lower than pathology.
• EBITDA margin headwind: EBITDA margin fell to 38.2% from 46.3% YoY, with the entire compression explained by pre-opening staffing and fixed costs for Rajahmundry and Punjagutta hitting the P&L before those centers generate revenue.
• No discretionary splurge: Marketing and other discretionary expenses saw only usual annual increases, with no one-off spending behind the margin dip.
• Material consumption anchor: On a fully non-COVID basis, material consumption is expected to range between 12% and 14%, depending on the radiology-pathology mix.

Sunil Chandra: "These new centers, usually what happens is that, even before they open, staffing, and all the fixed costs are going to still hit our P&L, right. So, as they open and start contributing, you will see that the revenues improve."

Hub Expansion: Two Flagships, Accelerated Pipeline

• Rajahmundry hub: A 10,000 sq ft facility inaugurating tomorrow, equipped with advanced radiology including a gamma camera; expected to stabilize at Rs. 12-15 crore and reach close to Rs. 20 crore by the end of year four, with potential to add around 10 spokes once stabilized.
• Punjagutta hub: A 16,000+ sq ft facility commissioning by end of August or early September, housing a 204-channel MRI, Dual-source Cardiac CT, PET-CT, and gamma camera; management describes the equipment suite as one of only two or three such installations in the entire country.
• Punjagutta revenue ambition: Expected to contribute Rs. 40 crore in 3-4 years (about 10% of current revenues), slotting between the Himayat Nagar center (Rs. 60 crore) and Dilsukhnagar (Rs. 25-27 crore); located next to NIMS, the city's largest government hospital, with services unavailable there flowing to the center.
• Breakeven cadence: Large centers and spokes historically achieve P&L EBITDA breakeven within six months, and management expects the same for Rajahmundry and Punjagutta, with full-fledged revenue from Q3 FY23.
• Pipeline acceleration: The project team is working to open an additional three hubs in FY23 originally planned for FY24, aiming to drive better-than-industry growth over the next 2-3 years; the steady-state plan is 15 centers per year (3-4 hubs, 10-11 spokes).

Suprita Reddy: "Panjagutta center has to be looked at as a center which is one of its kind like I am telling you the PET, the MR and the CT are probably maybe two or three in the entire country today."

Competitive Positioning & Pricing

• B2C fortress: 95% of revenues come from B2C, which is margin-accretive, less price-sensitive, and supported by 40 years of brand recall in its geographies.
• Integrated moat: Vijaya's combined radiology and pathology offering makes its centers a one-stop shop, a structural advantage over single-modality competitors.
• New entrant view: Management believes new entrants will largely take share from unorganized players whose customers are price-sensitive; aggressive pricing by new entrants may have some short-term impact but is not expected to work long-term.
• Affordability as strategy: PET-CT is priced at Rs. 16,000 versus competitor pricing of Rs. 22,000-26,000, a deliberate philosophy of keeping the best technology at the lowest affordable price.
• No pricing pressure yet: No changes have been made to package or radiology pricing, and no pressure on pricing is affecting the business currently, as non-COVID growth remains healthy.

Suprita Reddy: "I think the conversation that we have with the customer in these tier-2 and tier-3 towns is what is built that entire brand recall for Vijaya over the last 40 years."

Volume & Realization Levers

• Tests per footfall at a high: Tests per patient reached 2.98, the highest ever, and management expects the sustainable range going forward to be 2.75 to 2.9.
• Realization normalization expected: Sustainable realization per patient is guided at Rs. 1,250-1,300, down from the Q1 spike of Rs. 1,400 which benefited from the mix shift and higher tests per footfall.
• Same-center headroom: Internal estimates suggest potential to grow test volumes another 15% with existing branches.
• PET-CT utilization rising: Volume on the single PET-CT machine increased from about 17 to about 20 patients per day, with no price hike taken last year.
• Tier-2/3 contribution growing: Contribution from Tier-2 and Tier-3 locations is ~14% currently and expected to exceed 20% over 3-4 years.

Guidance & Commitments

Key Metrics