Vijaya Diagnostic Centre Ltd Q2 FY2025 Concall Summary

Key Takeaways

• 32% revenue growth, volume-led: Revenue grew 32% YoY (23% organic), driven by 30% volume growth and 24% footfall growth, with existing and new centers breaking even faster.
• Hyderabad still the engine: The core market grew 18.5% YoY despite maturity, benefiting from capacity added during FY19-23 and a post-COVID shift from unorganized to organized diagnostics.
• Margins improved sequentially: EBITDA margin rose 230 bps QoQ as fixed-cost operating leverage kicked in, while gross margin dipped 80 bps YoY on mix shifts that management calls normal.
• Bangalore is the next big bet: Management identified Bangalore as an additional Tier 1 geography and will enter organically, citing a fragmented market of semi-branded chains with only 2-3 locations each.
• What to watch next quarter: Whether Kolkata revenue recovers from the Q2 disruption, the pace of hub additions (3-4 more this year), and any concrete Bangalore timeline.

Growth Drivers & Volume Dynamics

• Volume, not price: The 30% YoY volume growth and 24% footfall growth were the primary drivers, with the dense, integrated network enabling a 17% QoQ revenue step-up versus 15% in the prior year.
• Test per footfall rising: Samples per patient have grown 25%+ for three straight quarters, attributed to the PH Pune acquisition (hub centers carry higher test intensity) and wellness packages, though wellness remains only 13% of the business.
• Hyderabad capacity paying off: The market is growing 18-20% after a historical 12-14%, as centers added from FY19-23 ramp up and direct walk-ins grow across both existing and new centers.
• Wellness is integrated, not pushed: Management makes no conscious effort to grow the wellness segment separately; it has always been part of Vijaya's history and is integrated into the core offering.
• Kolkata disruption: Revenue fell from ₹6 crores to ~₹5 crores sequentially due to strikes and the Bangladesh issue affecting the market for 20-25 days; October and November run rates are picking up, and more leases have been signed for centers over the next 1-2 years.

Siva Rama Raju: "if there are 4 players in 1 geography, all the 4 players are growing"

Margin Composition

• EBITDA leverage: The 230 bps QoQ margin improvement came from fixed-cost operating leverage playing out, even as the company continued investing in technology and digital marketing.
• Gross margin dip is mix-driven: Material consumption rose from 11.8% to 12.6% YoY on three factors: test mix, pathology-radiology mix (pathology grew 24-25% and carries higher material consumption), and wellness segment growth (₹22.5 crores in the current year). Management budgets a 12-12.5% range and considers 50 bps quarterly movement normal.
• Gross margin outlook: Expected to remain in the 87-88% range going forward.
• New-hub drag is temporary: In quarters where 2-3 major hubs open outside the core geography (e.g., Q4 or Q1), there may be a slight margin drag because those hubs take at least 3 quarters to break even.

Network Expansion

• Hub-first strategy: The plan is to add at least 10-12 hubs across two financial years, with 2 already ready (Ongole launched in August, Nizamabad opening the day after the call). Another 10 hubs beyond these two will open in those two years.
• FY25 hub cadence: At least 6 hubs this year: 2 already opened, 1 Gurgaon spoke upgraded to hub, and another 3-4 hubs across regions this year or early Q1 FY26.
• Spokes come later: FY25 and FY26 will see more hubs; subsequent years will see more spokes. Spokes in Tier 2 cities like Rajahmundry and Tirupati are likely 1-2 years down the line, once residential development and housing visibility materialize.
• Breakeven tightening: The stated goal for hubs outside the core geography has moved from 3-4 quarters to "less than 2 to 3 quarters." Gulbarga took 4 quarters and is expected to break even this month. Ongole's early response suggests it may break even ahead of the initially anticipated 2-3 quarter timeline.
• Capex unchanged: Approximately ₹200 crores on new centers, funded entirely from internal accruals.
• Pune spoke imminent: Work is almost complete; awaiting approvals expected this month, with a likely launch in December.

Suprita Reddy: "it's not the capex that drives us to grow. It's the geography, the interest and then probably also the people."

New Geography: Bangalore

• Organic entry chosen: After evaluating the market for two years and considering both inorganic and organic opportunities, management chose the organic route, finding it works better financially and for the brand. Inorganic targets had compatibility issues: mindset mismatches, B2C versus B2B orientation, radiology-only focus, or government-work dependence.
• Market structure is the thesis: Bangalore is described as largely dominated by semi-branded integrated chains, each with a presence in only 2-3 locations across the city. Management is confident the market holds significant potential and believes it can create a dense network over time.
• No concrete timeline: Nothing concrete to confirm on this call; if something materializes, a few centers may come up in the region. The constraint is not capex but geography, interest, and people.
• Bandwidth built over time: Mid-level to senior-level investment over 2-3 years provides operational bandwidth, though finding the right people remains a challenge.

Suprita Reddy: "Bangalore is largely dominated by semi-branded integrated chains, each with a presence in only 2 to 3 locations across the city. Given this, we are very confident that the market holds significant potential for us, and we believe we can create a dense network in the years to come."

Technology & AI Initiatives

• AI-powered pathology system: The network has been successfully transitioned to a new AI-powered pathology system as part of the digital strategy.
• AI power pack for radiology: A web-based platform connects 200-250 radiologists across the network, assigning cases based on subspecialty (pediatric, cardiac, etc.) on a first-come-first-serve basis, with TAT monitored automatically. The system enhances customer experience and reporting quality.
• Radiologist productivity, not cost savings: Doctors on an incentive model earn more with higher throughput; management expects no benefit on the professional fee front, but productivity and professional satisfaction improve.

Suprita Reddy: "It will also increase, and we'll also make sure that there is no attrition in the radiology base because they tend to do various cases and also what they enjoy at the same time."

Medinova Integration & Other Updates

• Timeline pushed out: Formal major process approvals are pending; the company has received points from the stock exchange but needs clearance from stock exchanges and SEBI first (delayed from the authority side), then a petition to NCLT, then shareholders' approval. Completion is now expected around May or June.
• Gurgaon is contained: The spoke center was upgraded to a fully equipped hub with MRI and CT, but management has "absolutely no interest in expanding" further in Gurgaon; it was the only center in the network that did not have high-end imaging.
• PET/CT in Tirupati: Added due to growing demand for oncology testing and advanced radiology.
• Second MRI at Kurnool: Added to the Kurnool geography.
• No share split or bonus plans: Any share capital reorganization would be with the Board of Directors; currently no such plans.

Guidance & Commitments

Key Metrics