Vijaya Diagnostic Centre Ltd Q3 FY2025 Concall Summary

Key Takeaways

• 27% revenue growth, 20% organic: Volumes drove the quarter across radiology and pathology, with new centers and the dense core network both contributing.
• Margin resilience with a near-term caveat: EBITDA margin improved 30 bps YoY to 39.7%, but management expects a 1–2% dip as 9 new hubs open simultaneously over the next 6 months.
• The hub rollout is the story: 3 hubs commissioned in 9 months, 9 more coming in the next 6, and 2 additional AP/Telangana leases under finalization, all within a ₹200 cr capex envelope.
• New geographies are being given time: Bangalore breakeven will be more conservative than Kolkata’s 4-quarter pace, and PH Pune’s mature centers won’t grow until new large hubs are added.
• What to watch next quarter: The pace of hub commissioning, any margin dip from simultaneous openings, and whether the Q4 wellness seasonality delivers its typical uplift.

Hub Expansion & Network Build-Out

• Accelerating hub additions: 3 hubs commissioned in the 9 months to December 2024, with 6 more across Pune, West Bengal and Bengaluru over the next 3 months, and 3 additional leases finalized for West Bengal hubs in the following 3–6 months.
• Total hub count rising: 14 hubs across FY25 and FY26, comprising the 12 originally planned plus 2 additional AP/Telangana hubs under finalization, most likely in Q3 FY26.
• Capex envelope: ₹200 cr budgeted for the 12 hub centers, with the 2 extra AP/Telangana leases sitting outside that envelope.
• Spoke network beginning in Pune: The first spoke center launched at Pimple Saudagar under the Vijaya PH brand, with more spokes expected once the three Pune hubs are operational.
• Location strategy is residential-first: Hubs are placed near dense residential areas, medical colleges and societies rather than corporate hospitals, because most tests require morning fasting and proximity to where customers live.
• No cap on hub count: Management will be opportunistic on adding centers, though the CFO might prefer a ceiling; an internal incentivization program encourages staff in Andhra and Telangana to identify potential spoke locations.

Suprita Reddy: "I don't think there will be a large impact, maybe a 1% to 2% impact over the overall period when more of these hubs tend to open at the same time. Otherwise, we are confident of that 40%."

Margin Dynamics & Operating Leverage

• Core business leverage is real but absorbed: Excluding PH Pune, revenue grew 20% and EBITDA grew 22%, with the 2% incremental margin from operating leverage. That leverage is not visible at the consolidated level because IT investments, including migrating servers from physical to cloud and strengthening the IT team, are absorbing it.
• Gross margin stability: Gross margins have held at 87–88% for 7–8 quarters, with pathology contributing 64–65% and radiology 35–36%. New hubs may lift gross margins 0.2–0.5% because radiology’s share is higher initially.
• GST headwind: A new circular from October 1, 2024 imposes 18% reverse charge on rent from unregistered vendors, adding a cost with no input tax credit. The impact is roughly 0.3% and will persist, though 80–90% of rental spend was already under GST.
• PH Pune margin dip: Q3 EBITDA margin was 36% versus 39% YTD, driven by seasonal revenue softness (₹11 cr vs ₹12 cr in Q2) and a one-off ₹12–13 lakh expense. The base PH business runs at 38–39%, but expansion with larger Pune hubs may compress that.
• No operating leverage for at least a year: Management expects no operating leverage until Bangalore launches and the Pune and Kolkata networks stabilize, given spending on branding and launch marketing. After one year, when the network stabilizes, margins should begin expanding.
• PET-CT economics: Once ramp-up occurs within 4–5 years, PET-CT EBITDA margins approach 50%. The Tirupati machine was acquired on a pay-per-use model at a lucrative price offered by the vendor, a model Vijaya does not typically use given its cash-rich position.

Sivaramaraju: "Only in this case, PET-CT, even the equipment vendor was promoting digital PET. So we got it for a slightly lucrative price. So that is the reason we are trying out. But otherwise, we don't intend to take this model for other equipment."

New Geography Performance

• Tirupati hub: The 2-year-old center in core AP geography is performing exceptionally well and has been upgraded with a PET-CT machine to capture growing oncology demand from neighboring districts.
• PH Pune: Revenue of ₹11 cr in Q3, broadly in line with the ~₹47 cr annual run rate. Mature PH centers face capacity constraints from 8–10-year-old infrastructure and cannot accommodate additional patient volumes until new large hubs are added.
• Gulbarga: Achieved breakeven in Q3.
• Ongole: Expected to reach breakeven within the next 2 months, roughly 6 months after opening.
• Bangalore breakeven: Management is taking a more conservative stance than Kolkata’s 4-quarter timeline, allowing time to build the team and get comfortable in a new geography. One year is considered a good benchmark for EBITDA breakeven across both Bangalore and new PH centers.

Suprita Reddy: "I would say four to be a little more conservative, since it's a new geography. And like I've mentioned earlier, we're building a team and also elevating people within the team. So, I'm just giving it a little bit of time to get comfortable and grow, not that I think similar to Kolkata would be a good stand to take on this, immediately at the moment, since we haven't opened the center in Bangalore."

Growth Drivers & Market Position

• Volume-led growth: Value growth is expected at ~1.5–2%, with the remaining ~13% coming from volume, underpinning the mid-teens overall revenue growth target over 3 years.
• Market share gains in core geographies: Management believes Vijaya is growing at a faster CAGR than players 2–10 in Andhra and Telangana, driven by brand, dense network, technology investments, talent and trust, though no formal data points exist.
• Wellness segment: Post-COVID awareness has lifted wellness from 8–9% of revenue pre-COVID to 12–14% now, supported by a corporate marketing team. Q4 typically sees a seasonal uplift from tax exemptions and corporate schemes.
• Pathology mix: 80% of pathology business is routine and semi-specialized, with specialty testing remaining more B2B while Vijaya is B2C. No immediate shift in test mix is planned to improve pathology profitability.
• Gurgaon is not a beachhead: The existing wellness center was upgraded to an integrated facility with MRI because it had 8,000 sq ft and only ultrasound previously. There is no strategy to expand into NCR or Delhi.

Guidance & Commitments

Key Metrics