Vijaya Diagnostic Centre Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Non-COVID growth on track at 15.1% YoY: The core business delivered double-digit growth while COVID revenues declined 67.6% YoY, confirming the transition is proceeding as planned.
• Margins normalized to a sustainable 40.4%: EBITDA margin landed at 40.4% despite carrying costs from newly commissioned centers, and management sees 39–40% as the sustainable range for Non-COVID business in the long run.
• PAT halved by new-center depreciation: H1 PAT fell from around ₹60 crore to ₹41 crore, driven largely by a 6% EBITDA margin gap from COVID seasonality plus depreciation and interest from new centers added since September 2021.
• Panjagutta flagship opens with India’s second dual-source CT: The 16,000 sq ft hub went live recently, anchoring an imaging strategy that management expects to contribute meaningfully over 3–4 years, with premium pricing only on select high-end tests.
• What to watch next quarter: Whether the December app launch lifts wellness volumes, how quickly Panjagutta and Rajahmundry hubs ramp, and whether Q3 seasonality is offset by the 12 new spokes opened in Q2.

Revenue Transition: COVID Fade, Core Strength

• Non-COVID engine delivered 15.1% YoY: Growth was volume-led, with test counts rising 11% YoY to 0.26 crore and tests per footfall climbing from 2.72 to 3.09, indicating higher test intensity per visit.
• COVID revenue collapsed 67.6% YoY: The mix shift from COVID to Non-COVID continued through the quarter, and management expects this transition to define the full year.
• Revenue per test dipped 2% on mix: Non-COVID revenue per test moved from ~₹470 to ₹460 because pathology grew to 67% of mix (a seasonality effect) and new spokes contributed more basic radiology at lower average realizations.
• B2C share held at 94%: The consumer franchise remains the dominant channel, insulating the business from institutional pricing pressure.
• Wellness segment surprised positively: Management had flagged uncertainty in Q1, but walk-ins for wellness packages picked up, driven by post-COVID health consciousness and Vijaya’s integrated radiology-plus-pathology offering that lets customers consult a specialist on-site.

Suprita Reddy: "This was a segment where I think in the Q1 call we had mentioned that we will have to see how this sector will take off. It's actually doing better. We are seeing more walk-ins come in for this wellness."

Margin Mechanics: Normalization, Not Deterioration

• Q2 EBITDA margin of 40.4% is the new normal: Management was explicit that the ~45.9% H1FY22 margin was inflated by high-margin COVID revenue (₹30 crore in Q1, ₹10 crore in Q2 last year), and that 39–40% is the sustainable range for Non-COVID business.
• New centers dragged EBITDA by 0.9–1.0%: Fixed costs from the two major hubs (Rajahmundry and Panjagutta) plus a couple of smaller format centers have been sitting in the P&L for five to six months, with no offsetting revenue yet.
• PAT decline is a depreciation story, not an operating one: H1 PAT fell from ~₹60 crore to ₹41 crore; beyond the EBITDA gap, increased depreciation and interest from close to 18 new centers added in the current six months drove PAT margin from 26% to ~18–19%.
• Short-term margin drag accepted for expansion: Management flagged that quarter-on-quarter margin dips of a few basis points are possible as large-format centers open and COVID revenue continues to fade, but expressed confidence in the 39–40% long-run range.

Hub & Spoke Expansion: Flagship Opens, Pipeline Builds

• Panjagutta hub launched 8 days before the call: The 16,000 sq ft center is the first in South India with a walk-in, walk-out dual-source cardiac CT (only the second such machine in India) and a biometric 3-tesla MRI, alongside PET-CT and a gamma camera.
• Rajahmundry hub ramping in line with projections: Now in its third month of operations, the center is seeing unexpectedly fast demand for high-end testing and is performing well.
• 12 new spokes commissioned in Q2: Several were set up to capture upcoming pockets across Hyderabad and ease capacity constraints at existing centers; these are over and above the initial plan of 15 new centers for FY23.
• Next hubs already in progress: Kolkata, Gulbarga, and Tirupati hubs are planned for next financial year, with work underway; if 2–3 complete in Q4 FY23, capitalization and revenue could start this year.
• Hyderabad not saturated: Management will continue adding smaller-format centers where scope is seen, but no more large hub centers are planned for Hyderabad in the near future unless a capacity constraint emerges.
• Tier-2/3 pricing set 10–15% below Hyderabad: New hubs in smaller towns will price below the core market, reflecting local affordability while expanding the addressable base.

Suprita Reddy: "We don't have a formula or we don't look at going to a market with that kind of strategy. But we do look at towns where we see that they're more like district headquarters or there's a Government medical college where you have about 200, 150 kilometers of population coming into that town..."

Competitive Moat: Trust, Integration, and 40 Years of Doctor Relationships

• Trust is the primary barrier to entry: Management argued that healthcare diagnostics competes on trust and quality, not price, and that Vijaya’s 40-year track record with both patients and referring doctors creates a moat that new entrants cannot easily replicate.
• 120 full-time radiologists create a tertiary-care capability: The integrated radiology-plus-pathology model, with in-house consultant opinions rather than outsourced reads, is positioned as a differentiator that discount or asset-light models cannot match.
• Franchisee model rejected for now: After extensive brainstorming, management decided to keep all centers company-owned to preserve quality control, particularly on the radiology side where opinion-giving is central; no concrete franchisee plans in the near future, though not averse long-term.
• Franchisee economics would dilute margins: Under a franchisee model, EBITDA margins would dip by the partner’s revenue share (20–25%), with the trade-off being faster revenue ramp-up in new markets with less management bandwidth consumed.

Suprita Reddy: "Being in the market for 40 years has created trust is not in the customer, but also in the doctors. ... we have more than 120 full-time radiology consultants sitting here and it's like a tertiary care center. ... we never compromise on that [quality]."

Digital & Operational Upgrades: ERP Live, App Imminent

• ERP migration completed on 1st November: All centers and labs across the network moved to a more efficient, robust, and comprehensive ERP system, replacing legacy infrastructure.
• Consumer app ready at the backend: Release is expected around the second week of December, once the ERP and lab information software stabilize after the 1st November go-live; the wellness segment is expected to benefit directly from the app launch.
• Pathology-radiology mix target set at 65:35: Management aims to maintain this ratio at the company level two to three years out; new hubs take about one year for spokes to come up and sustain that mix.

Guidance & Commitments

Key Metrics