Vijaya Diagnostic Centre Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Steady 18% non-COVID growth, volume-led: Revenue grew 18% YoY excluding COVID tests, driven by ~16% test volume growth; same-store sales contributed ~11.5-11.7% while new centers added ~4-5%.
• Margins resilient despite seasonal dip: EBITDA margin held at 39.4%, up 30 bps YoY, though down from ~41% QoQ on a 4% seasonal revenue decline.
• PH Diagnostics acquisition closed, integration underway: Acquired Pune-based B2C chain for ₹147.50 crores in cash; 11 days of contribution added ~₹1.29 crore revenue at similar margins. Full integration targeted in two quarters.
• Kolkata hub on track, second hub imminent: First Kolkata hub progressing toward breakeven within its 4-quarter timeline; a second hub likely to open in 2-4 months, with NABL accreditation for the first hub expected within a month.
• What to watch next quarter: PH integration milestones (front-end alignment, ERP go-live in April), Kolkata breakeven timing, and whether the 15-center annual expansion plan stays on track after landlord-driven delays.

PH Diagnostics Acquisition & Pune Entry

• Deal structure: Acquired PH, a B2C integrated diagnostic chain in Pune, in December 2023 for ₹147.50 crores, funded entirely from existing cash reserves. Closing cash post-acquisition and dividend stood at ₹158 crores.
• Initial contribution: PH consolidated from 21st December 2023, contributing ~₹1.29 crore in revenue over 11 days with EBITDA margins similar to Vijaya's parent company.
• Integration timeline: Front-end alignment to parent company expected in the next couple of months; back-end processes (HR, procurement, stores) will take another couple of months after that. ERP and front-end software integration targeted for April implementation.
• Network acquired: PH brings a ready network of 3 hubs, 3 spokes, and 12 collection centers, allowing faster ramp-up than organic expansion would permit.
• Branding and cost impact: Decisions on co-branding and advertising expected in 1-2 months, with changes effective from the next financial year (April). Management flagged that the first quarter of that year will see increased advertisement and rebranding costs.
• Pune focus, no Maharashtra expansion yet: No plans for other Maharashtra geographies until Pune is stabilized and under control. Detailed update on PH progress and expansion plans promised in the next one to two months.
• Revenue potential: PH closed ~₹42 crores in FY23, with some improvement expected in FY24. Management stated, "you can expect some good growth coming from that market."

Sivarama Raju: "you can expect some good growth coming from that market."

Geographic Expansion & Hub Performance

• New hub centers performing well: Hub centers at Tirupati, Rajahmundry, and Panjagutta (Hyderabad) broke even in record timelines. The three-month-old hub at Mahbubnagar is following the same positive trend and is anticipated to break even in the next quarter.
• Kolkata hub progress: Commenced operations in July 2023; progress described as quite promising, with breakeven expected within the anticipated 4-quarter timeline. Management indicated it may break even before the 6-month mark. Peak revenue potential at maturity (4-4.5 years) is ₹18-20 crore.
• Second Kolkata hub: Expected to open in the next two to four months, pending property handover. It will likely operate without a cardiac CT but will still be capable of delivering the entire health checkup portfolio.
• West Bengal strategy: Management wants to grow organically and take it slow, identifying strategic locations to add many more spokes over the next two to three years. The hub-and-spoke model requires a hub network first before spokes can be added effectively.
• Gulbarga entry: Hub center commenced in Gulbarga, Karnataka, driven by existing patient flow from that city to Hyderabad. It is a hyper-local market with multiple oncologists and is not part of a broader Karnataka foray strategy. Additional modalities may be added in two to three years if the market proves suitable.
• Hyderabad still growing: The city continues to surprise management; the market is expanding despite multiple players, and Vijaya is gaining market share year-on-year. Management sees at least another 3-4 years of growth at the current pace.

Sivarama Raju: "Hyderabad is a city which always surprises us, right, for healthcare that too particularly, right, because this is one market both in terms of diagnostics and hospitals where we always think of saturation but you still see the city growing and the market growing."

Volume Growth & Pricing Dynamics

• Volume-driven model: Out of 18% non-COVID revenue growth, ~16% came from test volume growth. Management expects 14-15% growth to remain predominantly volume-driven, irrespective of geography.
• Pricing strategy: No annual price hikes are taken; prices are increased only on specific tests when input costs rise, resulting in a modest 1-1.5% price impact on total revenue. The company focuses on volume growth over price-led expansion.
• Same-store vs new center split: ~11.5-11.7% revenue growth came from same-store centers (open one year or more), while ~4-5% came from new centers. Excluding PH, ~80% of revenue came from core geographies and ~3.5% from Kolkata.
• Wellness segment slowdown is a base effect: 9% growth in wellness was a one-off due to a base effect from the prior year Q3, when higher wellness and radiology volumes occurred while pathology dropped. Wellness as a percentage of revenue has remained consistent at 12.5-13% over the last four quarters.

Margin Structure & Cost Management

• Industry-leading margins sustained: EBITDA margin at 39.4%, up 30 bps YoY, supported by 17% top-line growth, a 94% B2C revenue share, the cost structure of the integrated business model, and close monitoring of operating costs.
• Sequential dip is seasonal: QoQ margin declined from ~41% to 39.4-39.5% due to seasonality and a 4% decrease in revenues quarter-on-quarter.
• Geography mix evolution: Hyderabad's contribution is expected to come down from 80% to 70-75% over time, with Andhra Pradesh increasing, followed by Pune, then eastern India. This shift may influence margin profiles as new markets mature.

Expansion Plan & Capital Allocation

• 15-center annual plan intact but facing delays: The plan to add 15 centers per year remains in place, though some landlord-driven delays may cause spillover into the next quarter. The mix may shift, with 2-3 hubs now planned for the Pune region following the PH acquisition.
• Hyderabad additions slowing: No new hubs are planned for Hyderabad in the immediate future. The city will see 2-3 spokes per year out of the total 15 centers, with the majority of new centers located outside Hyderabad for the next 2-3 years.
• Karnataka foray not on the table: Management has no current plans for Karnataka, stating hands are full with PH and West Bengal. Opportunities will be considered if they arise.
• Gurugram is a legacy wellness center: An old standalone unit catering to the corporate and wellness sector; no expansion plans exist for Gurgaon.

Suprita Reddy: "The hub-and-spoke model works beautifully only when we build a hub, create a network, then I can build on the spokes. We only have a single standalone center in VIP Road and if I do two more spokes, that is when we give room for the spokes to grow."

Operational Milestones & Doctor Engagement

• NABL accreditation progress: Recently established labs at Rajahmundry and Tirupati are NABL accredited. The Kolkata hub is slated for NABL accreditation within a month, with NABL showing the Kolkata lab for joint assessment alongside APAC (Asian Pacific Accreditation Board).
• Doctor base expansion: The doctor base increased from over 200 to over 250 doctors. The company held its highest number of CMEs (Continuing Medical Education events) in this quarter as part of its doctor engagement initiative.

Guidance & Commitments

Key Metrics