Vijaya Diagnostic Centre Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Non-COVID revenue grew 22.4% YoY, the highest ever: Volumes drove the quarter, with wellness contribution hitting a record 13.4% of revenue, while the B2C model sustained 40% EBITDA margins despite new hub openings.
• New hubs are breaking even faster: Punjagutta reached breakeven in six months and Rajahmundry in nine months; Tirupati, launched in February, is tracking even better and may break even in the coming quarter.
• A depreciation method change lifted reported profit: The switch from WDV to straight-line, applied prospectively from 1 January 2023, better matches the linear consumption pattern of radiology equipment with 10–13 year useful lives.
• Kolkata is the next multi-year growth market: A hub on VIP Road opens in a couple of months, introducing 3 Tesla MRI and cardiac CT not available in nearby diagnostic centres; spokes will follow two quarters later, with the market being prepared for a 5–7 year build-out.
• What to watch next quarter: Whether Tirupati actually breaks even, the pace of the Kolkata hub ramp, and any inorganic move, with management saying it hopes to act in the next couple of quarters.

Expansion Strategy & New Centre Economics

• Hub-and-spoke model validated: Large hubs in Tier 2 towns bring high-end radiology (3 Tesla MRI, CT, Gamma Camera) and a local automated lab, while spokes and mini-spokes in surrounding areas are margin-accretive and offset the preoperative drag from new hubs.
• Faster breakeven driven by unmet demand: In geographies like Rajahmundry and Tirupati, competitors often send samples elsewhere; Vijaya offers all test types under one roof, supported by its radiology doctor network, brand, and patient convenience (parking, single-centre experience).
• Tirupati tracking ahead of Rajahmundry: Full operations began 1 May 2023; initial trends are very encouraging, and management expects breakeven even faster than Rajahmundry's nine months, possibly in the coming quarter.
• Expansion pace is constrained by talent, not capital: Management could open 50 centres if capital were the only limit, but trained manpower, technicians, doctors, and facility build-out timelines constrain the number to a steady 15 per year.
• Mix holds at 4–5 hubs, rest spokes: Of the 15 new centres annually, roughly 12 will be outside Hyderabad going forward, spread across adjacent geographies, Andhra, and West Bengal.
• Kolkata hub introduces new capabilities to the market: Within a 10 km radius of the VIP Road centre, no diagnostic centre offers a 3 Tesla MRI or cardiac CT; those are only available in hospitals, giving Vijaya a differentiated entry point.

Siva Rama Raju: "So, we launched Tirupati in the month of February, but the full-fledged operations started very recently, almost from May 1st. And the initial trends that we are seeing are very encouraging. So, we expect even this centre to breakeven even more faster than Rajahmundry."

Revenue Growth & Volume Dynamics

• Volume-led growth with selective price action: Out of the 15% guided revenue growth, 13–13.5% is expected from volume; selective price increases on 40–50 tests in a few geographies added 0.8–1% to revenue, with no across-the-board price increases planned.
• Footfall decline is a COVID base effect, not a demand signal: Last year's Q4 had 6,000–7,000 daily RT-PCR samples and ~11,000–12,000 daily footfall, many single-test visits; current footfall is lower but non-COVID revenue grew 22% and test volume grew 24%.
• Wellness share is structurally rising: Wellness contribution moved from 8% of revenue in Q4 last year to 13.4% in Q4 this year, lifting tests per footfall as single-test COVID visits fade from the base.
• Existing centres will drive the bulk of growth: Going forward, ~9–10% growth is expected from existing centres and ~4–5% from newer centres; centres opened in the last 1–2 years will reach maturity in the next 2–3 years.
• The muted 3-year CAGR of 8% reflects a young spoke base: Most new centres were spokes opened only in the last 1–2 years; during COVID, only 6–7 centres were added, and these will mature over the next 2–3 years, while year-on-year growth is already in double digits.

Sunil Chandra: "So across the industry, I think most people are basically saying that we cannot absorb some of those input costs, input increases, so they are really selectively prices. But across the board, rising prices, I can't comment about competitors, but we have no plans of doing any such price increase across the test menu."

Margin Structure & Sustainability

• 40% EBITDA margin sustained despite hub openings: New hubs create a drag from preoperative expenses, but spokes and mini-spokes outperformed and offset that drag; management is confident of maintaining 40% going forward by scheduling operational plans to minimize preoperative costs.
• Radiology-pathology mix stable at 65–35: More hubs increase the radiology mix, more spokes increase pathology; based on the current expansion plan of 4–5 hubs and 10–11 spokes annually, this ratio is not expected to change drastically over the next 2–3 years.
• Segment-level EBITDA cannot be split: Common centre overheads (staff, rent, power) make it impossible to bifurcate EBITDA between radiology and pathology, though gross margins can be computed separately.
• Input cost pressure is real but managed: Post-COVID, equipment costs and reagent/consumable costs have risen due to currency issues; the industry is selectively raising prices in response, and Vijaya has taken selective increases without resorting to across-the-board hikes.

Depreciation Method Change

• Switch from WDV to straight-line, effective 1 January 2023: Under WDV at 20.5%, 50% of an asset's value was depreciated in the first three years, but radiology equipment has a 10–13 year useful life with a linear consumption pattern; straight-line spreads 50% depreciation over 6–7 years.
• Three structural reasons drove the change: OEMs now offer upgrade options without replacing equipment, reducing the need for buyback swaps after 6–7 years; industry practice in healthcare, hospitals, and diagnostics uses straight-line; and the consumption pattern from these assets is linear, not accelerated.
• Timing tied to the first large capex year: With ~INR 100 crore in capex (versus less than INR 25–30 crore in prior years) and large facilities like Punjagutta and Rajahmundry coming on stream, the accounting policy was evaluated at year-end and changed in Q4.
• FY24 depreciation guidance: Existing block depreciation will be approximately INR 50 crore; new capex of INR 75–80 crore will add additional depreciation depending on launch dates.

Narasimha Raju: "If you are following the WDV method, the rate that we are applying is 20.5%. So, in just the first three years itself, you will end up depreciating 50% of the asset value. But we know that the useful life is 13 years, and the consumption pattern from these assets is linear."

Kolkata & New Geography Entry

• Kolkata is the next major expansion market for 5–7 years: A hub on VIP Road in northern Kolkata opens in the next couple of months; spokes will follow about two quarters later, and the market will not be ramped at the same pace as Andhra/Telangana.
• Medinova brand coexistence under review: Vijaya has operated the Medinova brand in South Kolkata since 2014–2015; the new hub is in the north, keeping geographies separate, and the Board will decide on co-branding or a single-brand strategy.
• FY24 hub locations span four cities: Two hubs in Kolkata, one in Gulbarga, and one in Mahbubnagar, with the majority of capex now directed outside Hyderabad.
• AP/Telangana market still has significant headroom: The outpatient diagnostic market is approximately INR 6,000 crore (excluding hospital diagnostics), and Vijaya's share is less than 10%; Tier 2 towns are the target for new hubs, followed by spokes.

Suprita Reddy: "And the centre that Vijaya is coming up is in the northern side of Kolkata. And the strategic plan for growth of Kolkata has been to grow in the northern side. And also, the Board would probably take a call on whether we would be doing co-branding or using both the brands or a single brand, but we would not want to eat into each other's geography."

Digital & Operational Initiatives

• LIMS fully deployed across all centres: The new system is operational, but management needs 2–3 more quarters before it can analyse patient cross-utilization of radiology and pathology; currently, an estimated 30–35% of patients come for radiology and may or may not also use pathology.
• Mobile app and e-commerce website launched: The app covers every investigation across radiology and pathology, and the e-commerce site is fully functional, rounding out the digital front-end.
• Nuclear medicine being introduced in select hubs: Rajahmundry and Tirupati are getting nuclear medicine capabilities, adding to the high-end modality mix that differentiates Vijaya in Tier 2 markets.

Guidance & Commitments

Key Metrics