Vijaya Diagnostic Centre Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Non-COVID demand rebounded sharply in December: After a festive-season lull, December volumes surged, and management expects that momentum to carry through Q4, with a seasonal wellness tailwind in March.
• Wellness packages hit a record 12.9% of revenue: The mix shift toward lower-realization wellness packages compressed average realization per test by Rs. 6 QoQ, a trade-off the company is willing to make for volume growth.
• PAT margin dipped on depreciation from new hubs: Full-quarter depreciation on large-format centres like Punjagutta and Rajahmundry, plus Ind AS 116 lease charges, pressured reported PAT, though cash PAT held steady at 28%.
• The hub-heavy expansion cycle is still in early ramp-up: Punjagutta and Rajahmundry, the two largest recent openings, are only 3–6 months old and will need 3–3.5 years to mature fully, so the P&L drag from new centres persists.
• What to watch next quarter: Whether the December volume uptick sustains through Q4, the pace of ramp-up at Punjagutta and Rajahmundry (Rajahmundry expected to turn EBITDA-positive in one more quarter), and the Tirupati hub opening this month.

Volume & Revenue Trends

• Festive drag, December snapback: October and November saw muted volumes owing to the festive season; December delivered a significant surge that more than compensated, and management expects that trend to continue into Q4.
• Wellness as a deliberate volume driver: Wellness packages contributed a record 12.9% of revenue in Q3, up from ~12.2%–12.3% in Q2. All packages bundle pathology and radiology, keeping average ticket size at ~Rs. 2,700.
• Realization trade-off: Average realization per test fell Rs. 6 QoQ solely because the wellness mix increased; core pricing across the test menu was unchanged.
• Same-store growth split: Centres opened before December 31, 2021 delivered 7% growth; the remaining 3% came from centres opened in the last year. Non-COVID same-store growth for mature centres was roughly 5%–6%.
• Hyderabad still dominates: Hyderabad contributed 83% of revenue, unchanged from prior periods; centres outside Hyderabad are growing at the same pace but from a much smaller base.
• New test additions gaining traction: Immunohistochemistry markers, flow cytometry, high-dose therapy in Nuclear Medicine and PET-CT, and PSMA scans were added ~1–1.5 months ago and are already seeing good volumes.

Suprita Reddy: "There is a certain clientele especially in all geographies that's completely price sensitive. Now if you ask me was that our clientele, I will probably say they would have never been our clientele, because we were all of about 15% market share, even in our geography where we are in Andhra, Telangana, and that's a long way for us to go and that price sensitive clientele is always going to be price sensitive."

New Centre Expansion & Ramp-Up

• Five centres opened in Q3: The headline additions were the 16,000 sq. ft Punjagutta flagship (operational mid-November) and a state-of-the-art hub at Rajahmundry.
• Ramp-up timelines are elongated for large hubs: Punjagutta and Rajahmundry, both opened less than 3–4 and 6 months ago respectively, are expected to take 3–3.5 years for full ramp-up, versus the typical 2-year hub timeline. Spokes ramp up in 1–1.5 years.
• Near-term EBITDA milestones: Rajahmundry is expected to achieve positive EBITDA in one more quarter; Punjagutta in two more quarters. Q2 spokes and mini spokes are already EBITDA-positive. Q1-opened centres (six months old) hit P&L/EBITDA breakeven on schedule.
• Somajiguda closed, equipment redeployed: The centre was closed because Punjagutta opened just 100 metres away; it was moderately well-performing but too close to justify.
• Tirupati hub imminent: A new ~15,000 sq. ft hub in Tirupati (new geography, new district) is almost ready and expected to open this month, ahead of its original next-financial-year schedule. It will offer basic pathology, nuclear medicine, CT, and MRI.
• FY24 expansion target: 4 hubs and 11 spokes. Kolkata and Gulbarga hubs are progressing; Tirupati opens this month; one more hub is yet to be finalized. The next two financial years each target 15 centres.
• Geographic focus: Andhra is the core focus, alongside adjacent geographies like Gulbarga in Karnataka, East India (Kolkata flagship first, then spokes), and incremental infill in the Hyderabad core market.

Sunil Chandra: "At the time of IPO we were at probably about 86 to 87 centres and very rapidly we have now got to a number of about 117 centres, we have 27 hubs, 90 spokes as of now. Obviously this was done during a period of COVID transition so some of these centres have been setup in the last 12 months."

Margins & Cost Structure

• PAT margin declined QoQ: The drop was driven by two factors: (i) full three-month depreciation on newly commissioned large hubs like Punjagutta and Rajahmundry (WDV method), and (ii) notional interest and depreciation under Ind AS 116 on leases for new centres added during the year.
• Cash PAT held steady at 28%: Despite the reported PAT pressure, cash PAT percentage remained healthy, indicating the depreciation charges are non-cash in nature.
• CAPEX fully internally funded: The entire CAPEX programme is being funded through internal cash accruals, with ~Rs. 80 crore expected for the next financial year.
• Pricing discipline maintained: The company did not change pricing and does not plan to for the next few quarters. Year-on-year price increases are taken only when input costs rise, and then only on the specific test, in the 3%–5% range.

Competitive Landscape

• Unorganized-sector competition is visible but not yet damaging: Many players entered during COVID, but management is seeing early signals of stress: equipment companies are listing refurb machines for sale, indicating centres are struggling. The shakeout is expected to take a couple of years.
• Price-sensitive customers were never Vijaya's base: Management estimates its market share at only ~15% even in its core Andhra/Telangana geography, and views the purely price-sensitive segment as a different customer pool it never competed for.
• Quality as the moat: The company's pitch is standardized, high-quality reporting across all geographies, so a test done in Rajahmundry is indistinguishable from one done in Hyderabad. Management argues that in healthcare, quality overrides price when a patient is in need.

Suprita Reddy: "It is showing Prakash, but probably it will take some time for that to come to light, right, it's only been a year since probably COVID is done and you saw mushrooming of hundreds of unorganized players putting in CT scans, in fact some of the houses became CT centres. But we are gradually seeing in fact, especially from the equipment companies, when we see the number of refurb machines up for sale, it basically signals that that many number of centres are also not doing well."

Technology & Operations

• ERP transition stabilized: The backend ERP system stabilized in the last 15–20 days prior to the call, after a network-wide rollout earlier in the year.
• Mobile app nearing launch: The app, which will integrate both pathology and radiology including DICOM images, is undergoing extensive testing and is expected to roll out in approximately two weeks. Management acknowledged the delay, attributing it to a perfectionist approach rather than rushing an incomplete product.
• Radiologist hiring continues: The current radiologist base can support new tests, but hiring is ongoing to cover extended service hours in smaller spokes as more centres add ultrasound capability.

Suprita Reddy: "Rishi now there are two ways of looking at it, we could just roll out any app and say we do have an app, we are in terms of perfectionist when it comes to certain things that we do. ... So, we said let's go all out 100% when we are very confident."

Guidance & Commitments

Key Metrics