Dr. Lal PathLabs Limited (LALPATHLAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dr. Lal PathLabs Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you sir.

Thank you. Good afternoon, everyone, and a warm welcome to Dr. Lal PathLabs Q4 and FY '20 Earnings Conference Call. Joining us today are senior members of the management team, including Honorary Brigadier, Dr. Arvind Lal, Executive Chairman; Dr. Om Prakash Manchanda, Managing Director; Mr. Bharath, CEO; Mr. Ved Prakash Goel, CFO; and Mr. Rajat Kalra, company Secretary and Head of Investor Relations. Before we commence the call, I would like to underline that some of the statements made on the call today could be forward looking in nature and the actual results may vary from these forward-looking statements. A detailed disclosure in this regard is available in the results presentation, which has been circulated to you earlier. I would now like to request Dr. Lal to share his perspectives with you. Thank you, and over to you, sir.

Good afternoon to all, and thank you for joining us on today's call. I will be sharing my thoughts on the key developments during the quarter and give a broad color on the outlook. The world over, we are grappling with defeating a common enemy in the form of COVID-19, which has taken the shape of a global pandemic. The quarter gone by was marked by a decline in volume due to the impact of nationwide lockdown, starting second half of March, to contain the spread of COVID-19. While we continue to experience some adverse impact of lockdown on the business, in Q1 FY '21 as well; however, we believe this to be a transient effect and expect to return to normalcy once the economic activities start post lockdown given the inherent nature of services. You may be aware that we were one of the first private laboratories in India that has got approval to commence testing for COVID-19. Currently, we have approvals for 3 labs, which are the National Reference Lab at Delhi, the Regional Reference Lab at Kolkata and Central Lab in Indore. We are closely working with the state governments to meet their testing requirements. This unforeseen pandemic will bring in sharp focus on communicable diseases in time to come, and it has also exposed that India is underserved in the health care segment. Therefore, current situation highlights vast scope of growth in health care, particularly in diagnostics. Our performance during the first 9 months of the fiscal year reflects our well-positioned approach of blending organic growth with pursuing strategic opportunities in West and South regions to build out testing and patient collection infrastructure. We're also continuously working on providing an improved user experience to the patient's high leveraging technology. This is in addition to our efforts towards providing a test venue and geographic presence. Our hub-and-spoke operating model has successfully demonstrated scale benefits in the past, and I continue to believe that this will help us in further expanding our penetration in the diagnostics industry. With that, I would like to hand over to Dr. Om Manchanda to share his thoughts and updates on the operational performance. Om?

Thank you, Dr. Lal, and good afternoon to everyone on this call today. As pointed out by Dr. Lal, this quarter was a challenging one for us due to COVID-19 pandemic, especially towards its end that is in March 2020 and the challenge still continues. While we have undertaken a host of initiatives to partially offset this impact, the resultant impact on our financial performance is evident. We are certain that the adverse impact on our operations will not be too prolonged given that we offer an essential service and that our momentum will return gradually as the lockdown gets eased. Our revenue for the quarter came in at INR 301.7 crore for the full year ended March 31, 2020. The revenue stood at INR 1,330.4 crore, growing by 10.6% compared to last year. We served 4.4 million patients in Q4 FY '20, an increase of 2.1% as compared to Q4 last year. In FY '20, we served 19.4 million patients, an increase of 10.3%. While we have been driving sample volumes through network expansion and bundled tests, the overall performance has to be seen in light of COVID-19 impact and subsequent lockdown. In terms of COVID-19 testing, we are drawing samples and conducting the tests in complete compliance with patient and sample management protocols as laid out by ICMR and other government bodies. The data is being shared on an almost real-time basis with the government authorities. We are currently testing for COVID-19 at our National Reference Lab in Delhi, Kolkata Reference Lab and Central Lab, Indore. The COVID-19 outbreak has significantly impacted sample flow in the non COVID segment. And Dr. Lal PathLabs continue to keep its infrastructure of labs and collection centers open as much as possible. We are carefully analyzing likely patient behavior post the lockdown and accordingly, making changes in various processes related to patient handling. Dr. Lal PathLabs continues to drive volumes by expanding the reach in rest of India market through cluster approach. And during the quarter under review, contribution from Rest of India stood at 60% as against 58% last year. Our attempt has always been to increase the productivity by driving scale and keeping costs under control. Given our strong presence in the Delhi NCR region, our focus has been on growing the Rest of India contribution in a calibrated manner, which will be crucial for us to maintain margins. We have also been acquiring smaller but high-quality local labs in the West and South regions of India to grow our presence in lesser tapped regions of the country, that is beyond North and East. Technology is an integral part of our operations and we are continuously trying to strengthen our digital presence and further developing the app with greater functionality and customization. Our online experience thus far has been encouraging and our ability to integrate technology into our service offering is what gives us a significant edge over competition. Our mission is to provide the best possible diagnostic services to our patients conveniently and at reasonable prices by leveraging technology and widening the test menu. With that in mind, it is our duty and responsibility to enhance the quality of health care and to provide value to all our stakeholders. With that, I conclude my opening comments and would now request Ved to give an update on the financial performance of the company. Ved?

Thank you, Om, and a very good afternoon to everyone present on this call. I will now share with you some of the financial highlights. Revenue for Q4 FY '20 is at INR 301.7 crore as compared to INR 301.1 crore in the same quarter last year. For the full year FY '20, revenue came at INR 1,330.4 crore, a growth of 10.6% over FY '19. Realization per patient for the year FY '20 stood at INR 686 as against INR 685 in FY '19. Normalized EBITDA for Q4 FY '20 came in at INR 55.5 crores as compared to INR 72.9 crores reported in the same quarter last year. Normalized EBITDA for FY '20 came in at INR 331.1 crore, a growth of 5.7% over FY '19. PBT for Q4 FY '20 is at INR 45.4 crore as against INR 69.2 crores in the same quarter last year. PBT for the year FY '20 came in at INR 310.5 crore, a growth of 3.3% over FY '19. PAT for the quarter 4 FY '20 is at INR 32.6 crore as against INR 47.4 crore in the same quarter last year. And for the FY '20 full year, the PAT came in at INR 227.6 crore, a growth of INR -- growth of 13.5% over FY '19. Cash, FD and investment in mutual funds stood at INR 744.3 crore as at March 31, 2020. Basic EPS for the quarter 4 FY '20 was INR 3.94 per share. For the full year, basic EPS stood at INR 27.42 per share. That brings me to the conclusion of my opening remarks, and I would now request the moderator to open the forum for question-and-answer. Thank you.

[Operator Instructions] The first question is from the line of Chandramouli from Goldman Sachs.

First question is related to the opening remarks that you had made. We've seen only a mildly similar shock in the past, post listing, for you, which is demonetization, and demand there seemed to come back in a couple of quarters. When you contrast the current experience with that shock based on data and trends that you're seeing, how many quarters would you think that it might take for demand in this situation to come back to sort of normalized levels? Any color there would be really helpful.

Yes, I think that's a good question. While we are seeing encouraging improvement in the sales over the last 5, 6 weeks of lockdown, but it's definitely not come back to what it used to be as we are significantly down compared to last year. But my sense is once the lockdown gets relaxed and overall lockdown 4 has certain relaxation in green zones, et cetera, definitely demand will come back. But it's very, very difficult to actually say as to when we will come back to normal level because of strategy adopted during this lockdown by various states is actually varying. We were hoping that from today onwards lockdown relaxation will be much, much more, but we haven't seen that yet. So I do believe that, a, I do believe that we will come back to normal. It's very difficult right now to say as to how much time it will take. But my sense is that it will be a big function of relaxing various restrictions that exist today in key states, especially Northern and Eastern part of India.

Got it. Got it. That's helpful. Second question, Ved, is on the gross margin. So looks like for the last couple of quarters, gross margin was down in excess of 100 basis points. Is this a function of maybe the INR weakness and some of the contracts that you have with your suppliers? Or is it a function of maybe softer volumes than expected in recent quarters. If you could give us some color on the gross margin, please?

See, gross margin is -- if you are talking about this quarter, especially because of lower sales and that's where consumption is slightly higher because of on scale of low volume, probably the consumption tends to go on. So that's the reason where you see that gross margin is looking lower. But otherwise if the -- on a steady state, our gross margin is quite stable.

I think one variable that we see is clearly it's very sensitive to scale. As the scale went down very sharply in the last fortnight of March, we saw some impact. But having said that, I also must say that as the contribution of high-end test grows, while the revenue per patient from high-end test is high, but relatively, these kind of tests tend to have lower gross margin compared to, let's say, to a routine test. But their EBITDA margin is very similar because servicing cost of a high-end test is much, much lower than a routine test because most of the high-end test tend to be B2B in nature. So that also tends to make a difference at a gross margin level.

Got it. Got it. That's helpful. And just last question is, I understand you do not usually comment on monthly trends. But these seem to be very, very different times, and there are a lot of numbers going around that health care services companies are seeing in excess of 70%, 80% sort of Y-o-Y declines in April and May. So if you could just give us some directional commentary on what trends you've been seeing in April and May that would be really helpful.

Yes. I know it's -- I do not want to put a figure onto this because we are in such a dynamic world where virtually these numbers on a day-to-day basis are changing. But there are 2, 3 things that I want to tell you. One is that we are looking at business as a COVID and non COVID because there is some COVID testing which is flowing in, and that is very highly volatile in nature because 1 day you get a large number of samples, the next day, you don't get it. So we are very clearly focused on reviving non COVID business because we know that COVID business is a temporary opportunity. It also exists primarily right now more on the top line because we are uncertain right now, and unsure as to whether it will have any positive impact on the bottom line at all because lots of unforeseen expenses are becoming more and more visible on the COVID side of business. But if I were to just take only non COVID, which is our original parent business, we are seeing a very encouraging improvement week after week. We are still nowhere close to where we would like it to be, but all I can say is that what happened in the first week of lockdown and where we are now, there is a significant jump in the business as of today.

The next question is from the line of Nikhil Mathur from AMBIT Capital.

My first question is on -- so if you ask me what we have seen in your pricing profile over the last 2, 3 years is that there hasn't been any kind of pricing hikes that have been undertaken either by Dr. Lal or some other players, the larger players, in the market. Now does it offer some room for you to increase prices in FY '21, given that there's possibly more income at disposal for many of your clientele in metro cities and possibly if the competition is also a bit weaker? So can you offset some bit of pressure in FY '21 by taking some bit of price hikes in FY '21?

My sense is there's so much of adverse impact on the economy, I'm not sure whether we would like to take that route or market will be able to absorb it. So I think immediate reaction to your question would be, it will be difficult to make up through a price increase some shortfall that we expect in the year. But we also believe that as the lockdown opens up, there will be -- there is a pent-up demand, which is -- which will come out because, see, our demand is lot a function of private OPDs. And during lockdown, these OPDs have actually come down drastically. But I think with every lockdown, there's a relaxation happening on the medical movement. So we do believe that we should quickly come back to a reasonably good level of number compared to last year within the next 2 to 3 months.

Okay. And sir, also, the compliance cost in terms of protecting your employees or in general how collection will happen, how your facilities will operate, surely there would have been some jump in compliance cost in procuring these kind of -- or deploying these kind of safety measures. Can that really have a bearing on your margins in FY '21 from this standpoint?

I think it's a great question. We do believe that post lockdown, there's a likelihood of a change in consumer behavior. One clear behavioral change, which is going to be there for all of us, which is going -- is going to impact all the industries, is social distancing norms. And there's also likely for some time to come, the hesitation for people to walk into a retail facility. We do believe that we'll have to take some measures to counter that. I do believe that home collection segment will tend to grow. I also do believe that digital initiatives that people would like to book online, pay online and maybe come only for just giving blood samples rather than staying longer in the walk-in area. So that also may happen. We also may have to spend some money on protecting our own employees, which we have already started doing. So you are absolutely right that some amount of precautions will need to be taken to keep both patient as well as employee's safety. At cost basis, at some places, we have started -- we started building into that cost because, let's say, for example, we are not allowing anybody to walk into our facility without a mask. So we are actually communicating to all our customers that they should come with a mask. And if they don't bring masks, then we probably are giving a facility of picking up one from our outlet and pay for it. So all those costs as much as possible, we are trying to recover. And let's hope that we significantly don't increase the cost of operation. But it's very difficult right now to estimate that what the cost of operation is going to be. But I do believe that it's not going to be that significant that we are resorting ourselves to take a price increase. Yes, maybe Ved would want to add something more to it.

So you are right. I think Nikhil, that cost of operation is going to go up, as explained by Dr. Om also. But at the same time, we are looking and doing how we can change our model so that we can optimize the cost. So a lot of costs, which is in normal [ course ] we are spending, that might not be required or maybe we can optimize those. So it's a bit balancing the whole thing where in some area the cost will go up, at the same time we can also save some cost by optimizing some of these operations or some of these processes where we generally spend amount.

But on the revenue side, it can also throw up opportunity because consumers will feel more confident in coming to an organized branded player than a small player because they believe that safety measures are much better here.

Sure, sir. And if I may just ask one more question. So are there any packages that are being worked out from a strategic standpoint? So what we understand is that comorbidity is a very large issue. If a patient get -- has some comorbidities and he gets -- he also gets infected by COVID, so are there any health risk assessment kind of packages that Dr. Lal is willing to launch wherein there's a set of tests that will be undertaken by a patient and he or she can get to know his risk profile and, in general, try to be a more -- lead a more healthy lifestyle?

Yes. This is Dr. Lal, if I can answer this question. See, the thing is that the -- right now, it is the peak of COVID-19 infection. And the comorbidities right now are interconnected with people slightly in the older age group who are going for other kind of chemotherapy or who are going for an elective surgery or a cardiac stenting or things like that. So those are the ones who are actually looking you in the eye. And with that, you do not have the -- if you have comorbidity, if you are infected with COVID-19 then the outlook is likely real bad. Coming to people like us, we have to wait for this initial peak to subside. As we say that if the curve gets down, and then, of course, that the number of packages which we can take out in no time. But at that point of time, they will be testing for the COVID-19, but hopefully, for the antibody segment to find out if there is any immunity created in this person or not. But that will take time. Right now, the government has not announced those plans for people like us to do the antibody testing along with comorbidity conditions.

The next question is from the line of Harish Krishnan from Kotak Mutual Fund.

Actually, my question was related to the antibody testing opportunity. Like you mentioned, the government has not allowed it. But could you give a sense as to how large the opportunity is, the scale of investments that may be needed? And how are we looking at this as an opportunity? Is it to institutionalize that we may not participate? How are we looking at this as an opportunity as we get out from the lockdown phase and this becomes the new normal?

Yes. So I will like to inform you that if you read The Economic Times today, the government has announced that the testing is going to be ramped up. And right now, I think we've done about 2 lakh tests, and I think they want to do about 17 lakh -- sorry 20 lakh tests, and they would like to do about a crore of tests by July end. This is written today. And in that, they expect to find 5 lakh to 7 lakh positivity, which means 5% to 7% positivity. The point I'm trying to make is that right now, there's no time, absolutely, for the antibody test to come in right now because the peak of the epidemic has not been seen in India. So once this peak comes, then it will taper off, and at that point of time, the antibody test will come in. Having said that, antibody manufacturing companies are already approaching us, some of them have even been approved. But what is most important is that the government has not given any private or for that matter even government companies -- labs the go ahead and start doing the antibody testing because the antibody testing is not to be used for diagnosis. It is only for surveillance and finding out the immunity. And therefore, it is going to commence later from our point of view.

Understood that. Okay. But we are keen on entering this opportunity? Or you think that this will be too commoditized, and therefore, we would not want to get in? I just want to reach a sense as to...

No, no. No, that is not the issue. The issue is that first of all the science must be correct. Right now, the science is of finding out who has got this infection and namely people who are around a positive case and the unsymptomatic -- asymptomatic cases. So right now, the phase of the disease in India is different, and it is to find out if somebody is infected or not. For that, the test is, the gold standard is RT-PCR. So once this tapers off, which is going to be, I mean, we can keep on speculating, but I think it may take another 2 months or so. After that the antibody test will definitely kick in because people will have to find out whether they're immunized or not. And people who are not immunized, for example, will also be good candidates for the vaccine trials or the vaccine when it is introduced. So the 2 phases are different. Yes, the opportunity will be there. But right now, the opportunity for us, as I mentioned earlier, is jumping on to the bandwagon of the government trying to do 1 crore test by July. So that's the first opportunity.

So Dr. Lal, if I may add, I think, if your question is, as and when it opens up for private sector and we are allowed to do, obviously, short answer is, we would obviously participate in this opportunity as well. And second is RT-PCR test is highly specialized. Only a few labs do these tests. But once the antibody test comes in, then it will be widely available. It's a much more scalable test because ELISA or whatever technology that gets approved is widely available with various labs.

Understood. My second question, sir, is, have you seen any change in the reagent pricing because of maybe significant ramp-up globally for reagent itself? Has there been any such trend?

For non COVID profile of tests or?

For both, please?

I don't think there is any significant change that we've seen on either of them.

The only thing, which is a dollar movement, which is there. But right now, we have not seen any increase or we have not come across where suppliers are coming and saying the price is going up. So right now, there is no such...

Actually, I would say there is one adverse factor, which is dollar movement. And one favorable because they also must be sitting on high inventories because the business is down. So I don't see that they will come back and put pressure on increasing new prices.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Can you update us on the movement of samples, both intracity and intercity, how is it looking at the moment?

Yes, Bharath?

Yes. So we had initial challenge during the first few -- first 3, 4 days of lockdown. But glad to share with you that more than 90% of our intercity and intracity lines are completely operational now. The frequency gets better as flight connectivity starts to roll in. We have the crescent route now being run by Blue Dart, which we are using to connect into Delhi or into Kolkata. But going forward, the rest of the main cities must be covered through airline, which will hopefully open up soon.

So just to add to what Bharath said, relatedly we got more impacted by lack of patients because they were all locked down. While we were wondering logistics is actually hampered or not, but luckily, our infrastructure and logistics movement were not that badly impacted as the patient movement. The patients were not there mainly because there were no OPDs happening that time. But for the last 8, 10 days now OPDs have started opening up, and we are seeing some encouraging trend in our non COVID sales.

Okay. And just on that point of OPD, so these are doctors doing private consulting. So what's your assessment? I mean, is most of the doctors now operating 3 to 4 hours every day, or is it half of them? I guess that's what will definitely determine your volume recovery?

Actually, I don't have any firm number, but the challenge, which I find is that patients are hesitant to come out and see doctors, even if there is doctor there. So I think there is lot of anxiety in patients right now, whether they want to move out and see a doctor or visit a hospital or a medical facility. I think till that stabilizes, one will have to wait for this normalization of business.

Okay. And sir, on COVID testing, what is your current capacity, daily capacity or whichever way you want to put it? And earlier, remember, the reagents for COVID was the bottleneck. So how is that looking?

So our capacity for PCR testing is about 4,000 samples per day. And this is a total capacity because it also includes any business for non COVID as well because non COVID has been very low, so most of this capacity, we have been sharing with all the government bodies that if push comes to shove, we can actually go to 4,000 samples per day. So that's our stated capacity for PCR tests.

And do you have the reagent to do that test?

Yes. I think when these tests were approved, there was a lot of hue and cry and it's also over the media coverage about kit shortage. It was never meant to be like that because once the approval happened, obviously, these people had to get import license, all that, that is behind us. So kit is not an issue anymore.

Let me add -- if I may add very quickly, 4,000 is our stated capacity in the reference lab in Delhi, and the test is being carried out also in our Kolkata Reference Lab and also in our Central Lab in Indore. So the total capacity, which we offer all over India for this COVID testing is between 5,000 to 6,000 tests per day.

Okay. Great. Sir, one final question, if I may. Sir, how do you see the demand for COVID testing? In the sense that, are large employers like IT companies or private banks thinking of making a mandatory COVID testing once the lockdown is lifted. So every employee who comes to office needs to do it or airlines were thinking. Any conversations are going on in this direction?

Yes, we have actually recommended to these private industry and also to the ICMR, that for large industrial units, for example, big automobile units, et cetera, who want to bring back their people for testing, we have suggested pool testing. And pool testing means that these people are all asymptomatic, raring to go and join work again. So 5 people's throat swabs will be put into one and that is what has been already approved by the ICMR, but the difference is that they haven't given us the green signal yet. It is the -- the pool testing, they've only recommended in these clusters and red zone areas, not for the industrial workers so far, but hopefully it will come.

The next question is from the line of Neha Manpuria from JPMorgan.

Sir, if I were to look at recovery post COVID, which segment, in your view, is likely to see recovery faster? Do you think it would be the B2C versus the B2B given it might take time for people to get comfortable to go back to hospitals?

Currently, what we are seeing is both recurring at similar paces, a percentage point here and there difference. The reason is sort of B2C traffic is also led by a hospital or a clinic operating. So both are currently seeing similar rates of recovery, including the hospital segment.

But what I see is that if our collection center's having walk-in, more and more requests will come for home collections.

Understood. And if I were to look at -- let's assume March was 0, to what extent has the recovery happened now? And post, let's say, in May, when you have seen some of the green zones open, what is the extent of recovery that you've seen in that green zone? Just to understand if that can be replicated, let's say, once a larger easing of lockdown happens.

So it's actually varying. Our business actually fell to the extent of 80%, 90% in the first week. Now in some places, we have recovered to about 60% of our running rate, some places 50%, some places 70%. And these numbers actually vary on a day-to-day basis as well because we are not able to actually fix up a trend whether it is a sustainable trend or suddenly a pent-up demand that has suddenly opened up because there is a relaxation in one zone 1 day, and suddenly, all that is over in next 2 to 3 days and then tends to fall down again. So it's a very uneven trend that we are seeing, but directionally, I can say that trends are actually moving up. There's no doubt about that, and one does get a feeling that as the relaxations do take place, we will tend to come back to normalcy.

Okay. Understood. And my last question is, what -- would you have those numbers to what extent of volumes tend to be seasonal tests? And I ask this because we're going to see monsoons coming in and usually we do see increased volumes associated with flu, et cetera. So is there a risk that we see volumes being slower than last year as people are staying more indoors and probably don't see a high rate of infection? So if you could give us a ballpark number of what extent of our volumes are seasonal tests?

So I don't have this data readily available, but my broad guess is about 3% to 4% of our turnover is generally is due to these spikes. And these spikes are mainly on account of fevers. And fever is mainly on account of dengue, chikungunya and things like that, which are linked to monsoon, et cetera. And my sense is that it's very, very difficult to stay locked down if you have fever. So you -- I don't see that kind of dip happening just because there is a lockdown.

The next question is from the line of Prashant Nair from Citi.

So just one question. Ved, you mentioned some levers you have on the cost and the operational efficiency side. If you could just elaborate on, say, which broad hedge could these be under? And what could be the quantum of cost reduction that you may be looking at in -- under those heads?

So I'm not quantifying right now what will be the amount or quantum of the savings. But the broad areas, I can tell you to...

Yes. So I think let me take this question for what, -- is it for Prashant you asked?

Yes.

Prashant, right. Yes. So okay, I think one area is clearly rental. We are going back to our landlords and talking about slowdown, et cetera. So they do understand the situation. Many of them actually have come forward and offered some reduction. So that's one clear area. Second clear area is our A&P where we had certain arrangement with some agencies, et cetera, we are relooking that. And we are also -- because since there is no traffic movement, so naturally, there is savings on account of lesser spend, so that's the second head. Third head is also over time in our business. Naturally, the business is now slow and there is some saving coming on account of overtime. And fourth area is clearly manpower, which is a very large spend for us. We are a relooking at hirings, et cetera. And we are also looking at some ways and means of redeploying our resources as this COVID is a new work and we redeploy our people from non COVID to COVID rather than hiring new set of people. And COVID is also a highly specialized job. So that's another way of redeploying resources from non COVID to COVID. Travel, of course, for all of us is, including you guys, just come down to actually 0. So that is another saving, which will come. So I think while we do recognize there is a pressure on the top line, it might take time for it to come back to normal. And clearly, a lot of effort is going on saving costs and productivity, et cetera. Good news is that being in essential services, our employees have risen to the occasion and they are actually working in all the labs. All our labs are open. Many, I think, collection centers to the extent of 70%, 80%, 70%, 80% of our collection center network is open. And for the last few weeks, even our corporate office, some of us based on the guidelines in Gurgaon, we are all working from office. So I think we are trying our level best to keep our operations running within the guidelines of the government. And as and when the patient movement starts coming up, we are seeing improvement in sales as well. And having said that, focus on cost clearly is there to see if you can shave off some costs, especially the next -- this quarter as well as next quarter.

And just one follow-up question on that. Would you be able to give a rough ballpark estimate of what part of your costs are absolutely fixed and what part are -- will be variable with revenues for volume of business?

Clearly, the raw material consumable cost that you see, revenue share is the variable cost. Manpower is a bit of semi-variable because there is a bit of a component of overtime and component of outsourcing of manpower, especially when the business goes up. Rest of it is pretty much fixed.

Except A&P.

A&P also is somewhat -- we have a control there.

The next question is from the line of Hardik Shah from Prabhudas Lilladher.

Sir, my question is with respect to the COVID testing. Now that we are utilizing our time and resources for COVID testing and also the impact on bottom line is negligible, if at all, there is any, and sir, there is a possibility that it stays with us for an extended duration. Can you broadly comment that how does it impact our non COVID business, if at all, it turns to normalcy?

So I think COVID testing right now is only limited to one department, which is molecular diagnostics. And that department, if I'm not mistaken, is about 5%, 6% of our total -- 5%, 6% of our total business. So 95% of our business remains like biochemistry, hematology, microbiology, a lot of other departments. So they are not impacted by COVID at all. One of the departments will play a role once the antibody testing comes in. But as of now, RT-PCR test is done only by one department. I think most of the manpower actually is consumed by data entry work, which unfortunately is not related to technical stuff because a lot of these samples that have come, have manual TRF but that side of life is also improving as this RT-PCR app has come in. As this whole automation that is taking place, my sense is once that also stabilizes, it will be a very, very small set of people who will work on this COVID business. So I don't think it is going to be such a big impact on the non COVID because COVID business has come in.

Okay. Sir, just a small follow-up. Is there a possibility that this business turns profitable in the near term?

Actually, we don't know yet. When we started this, it actually was at cost basis because we didn't have any idea of this cost. We had to do some kind of standard costing and industry position was that we'll try it as at cost. As we have done now for the last 6 weeks, there are, in fact, lot of unforeseen costs that have come in, things like we have to do testing of our health care workers. Lot of people actually have been put in place to do data entry. We've also taken insurance for our people, whether it's related to health and life. That's another area that has come in. Yes, there is some advantage of a scale that falls in place. At the same time, as you mentioned that -- some of you mentioned that most of the business is coming from hospitals or is coming from institution, there you don't realize 4,500 is much lower. So I really don't know whether what eventually -- and then lot of money is yet to be -- is in the form of receivable, so we don't even know what is going to be the carrying cost of this better than our books. So it's little bit of chaotic right now in terms of financially. It is obviously showing up some benefit in revenue. But I think it's very early for me to comment on the bottom line. But I think the sense that we get is it's not going to be a very -- sort of making any meaningless impact on the bottom line.

The next question is from the line of Subhankar Ojha from SKS Capital.

So just one question. In terms of -- are we gained -- this COVID testing, are you doing home testing through normal online basis?

Yes, we do offer home collection in select cities. But it has to adhere to guidelines by ICMR.

Okay. So that booking can be done online?

Yes, you can book it online as well.

Okay. Okay. And can you just elaborate which all cities you're doing that right now?

Delhi NCR and some cities of UP and some cities of Punjab.

The next question is from the line of Manish Poddar from Nippon India.

Just wanted to get an idea. So you mentioned a lot about this cost tailwinds which you have. So would it be fair that this tailwinds will be able to offset the increase in the safety cost, which we are incurring and probably operating deleverage to some extent?

Yes. So that's where I've earlier told that, though some of the costs are going up operationally because of some compliance or a new way of working. At the same time, we are optimizing the cost, which in some sense will offset the additional cost, which is coming on account of safety, compliance and all that stuff.

But would it be a net positive or -- I'm just trying to understand, broadly, or would get you net-net neutral?

It depends actually what eventually happens, but I think on face of it, obviously, looks like there is going to be increase in costs. We have to estimate that impact. I think if you were to ask me, will the cost of operation go up, answer is yes. To what extent can we absorb it in our operations, we'll have to see as to how it is. Main cost of increase in operation is going to come out of use of masks and PPEs because you will have to take precautions not only from any COVID test, but also for even non COVID patient also we'll have to make sure that our employees are taken care of. Even non COVID patient also would want to make sure that they are equally safe. So I think on face of it, I do see that cost of operations will go up. We will probably estimate it as to how it is and figure it out and try and make sure that doesn't impact our margins.

Okay. And one question on the medium term. So do you, envisage, let's say, given COVID a lot of new labs have and -- let's say, new labs have come up and a lot of dormant labs have become active. So do you envisage that's a competition to increase in the medium-term?

For COVID you mean?

No, generally for, let's say, earlier, the 4 players, the organized larger players and the hospital labs, there was a lot of labs, which are dominant or not running at that scale. And government has also put up some labs in different cities now. So do you envisage that competition will increase in the medium term post COVID, let's say when things have...

I actually find that this -- the entire pathology lab space will undergo a huge change. And primarily, my personal view, I don't know whether it happens or not. I have a feeling that private -- public-private interface will grow on information exchange. As public health will gain a lot of importance in times to come, and COVID is one such infectious communicable disease, there are many other diseases like swine flu, dengue or any other disease or even tuberculosis for that matter. I think information exchange between medical establishments from private side and government will actually go up significantly. And that interface is not very easy to manage interface because it requires lot of technology and it requires lot of information, which has to been in a very structured form. I do find that smaller labs may come under lot of pressure rather than product ratings.

Okay. And just one question to Ved, the cash which we have on the books, is there any impact on, let's say, the recent -- where is that invested? And is there any impact of the recent debt fund impact which was there?

No, fortunately not. So most of the investments are in FDs. And we have some amount invested in mutual fund that too is not having any exposure into some of these companies, which you are referring to. So we are not impacted to that.

[Operator Instructions] The next question is from the line of Sapna Jhawar from Dolat Capital.

Sir, I wanted to understand post COVID when we resume normalcy, how will the product mix or the business mix be? I mean, the recovery, as we understand, would be faster in B2B or B2C, sir? How should we forecast that?

I'm sorry, I couldn't actually get your question. Can you repeat, and also be little louder?

Sure. Is it better?

Yes.

I actually wanted to understand post COVID once the business resumes, it starts to gain pace, how should our business mix look like in terms of B2B and B2C split?

Yes. Bharath, do you want to try?

Yes. See, like you said, the recovery we are seeing is at very similar pace across both the segments. Because both are dependent on each other, it's not independent channel. B2B doesn't mean that it is completely independent. There is a flow of patients which happen. So I would actually expect both to go up in a similar fashion. And this time, possibly the B2B segment going up a bit more faster up, given the pent-up surgeries, et cetera, which will be conducted now.

So if I would take a shot at it, it's a good question. If I were to visualize, I have a feeling that let's say, if I am a patient, I would actually hesitate to go to a crowded place. So I would rather go to an outlet where only a few people go. Let's say, for example, ATM also, I would rather go to that ATM where only 1 or 2 people are going rather than at ATM where 20, 30 people are standing in the queue. So if I apply that formula, then I think our collection center network should do better. Because normally, throughput per collection center is not that high. And even there also, I would rather receive lot of home collection requests because within the vicinity, most people know me personally, I would rather serve them through home collection. So I think a lot of business is likely to go up through our franchisee network, is the sense that I have.

So in that case, I mean, franchisee network, I do understand that also in terms of our hospital contracts or contracts from this small and medium nursing homes, will that not be under pressure right now? Or are we also renegotiating those contracts?

No, that part of business is IPD driven. So it depends as their occupancy of beds go up -- goes up, our business also will tend to go up. So there is no direct patient interaction that happens in the hospital side of the business where you actually pick it up what their own lab would have gone and picked it up from IPD patients.

No. I mean, in terms of hospitals, where there is no surgeries, I mean only the sample collection that happens from the small and medium nursing homes, so there also, again, I'm assuming our contracts is on a volume basis. So in times today and probably the recovery when it happens and may be slow and gradual in way, will there be a pressure in terms of our contracting and in terms of volume collection there?

We don't have volume-based pricing structure there. It's just a flat pricing that we agree with them. I think the only risk that we have in HLM is bit on receivables. I think that's the only area probably we need to be careful as the volumes dip. But otherwise, there's no change in the pricing terms as just because the volumes have fallen.

The next question is from the line of Samir Agrawal from IDFC.

Sir, just to -- you mentioned a couple of times that you expect someday the customers' behavior changing once the COVID normalization comes in post COVID, you did allude to customers facing -- preferring home collection versus visiting collection centers. Are there any other facets that you are [ that sort of strike you ] probably will change the industry in any meaningful way?

The other trends that you mean?

Yes. I mean that you -- your customer behavior changing that you anticipate may happen in industry?

Yes. One behavioral change I foresee is that a lot of people are reaching out to me, asking me, is there any test that I can do for to know whether I have immunity to fight these infections or not. So I think it finally boils down to your normal health status. So definitely, it should have some positive rub off on preventive health checkup. People would be much more health conscious, want to stay healthy. I think there's so much talk going around on comorbidity, which people know that if you are diabetic or you're -- you have a high blood pressure and things like that, you are at much higher risk. So people would want to manage their lifestyle better and manage some of these noncommunicable disease as well. So I do believe that overall preventive health checkup segment should do well.

And sir, secondly, on the sort of take off on that, if people essentially are becoming more health concerned. I think -- so I -- intuitively some bit of the infection-related diseases segment should -- burden should come off. Is there a large portion of our business or a meaningful portion of our business that is kind of contingent on the infection outbreak? Not specifically kind of [ easier ones or ] in general, is there infection driven business for us?

We have a component of vector-borne diseases.

Yes. I think that, of course, is very steady business that is very seasonal in nature. I'm not seeing any -- such a large -- see, the fact of the matter is, we are such a large country. If we just look at numbers that we serve is very small. So I am not sure whether some of these macro trends will have any impact. We have a long, long way to go because our market share is so low. Even if you lose somewhere, you gain somewhere, overall size of the opportunity is still very attractive for all of us.

And sir, lastly, while it's still early days, but with whatever that is happening, do you see any impact on our sustainable EBITDA margin? Is that the possibility for the business on a sustained basis? Does it positively or negatively impact it on a sustained basis? I mean, the whole whatever changes we see in the landscape right now?

So clearly, our business is somewhat retail in nature. It has a high fixed cost infra and it is extremely sensitive to any change in top line, both favorable and unfavorable. If you actually see this quarter results, while our top line is flat, but we have seen a sharp decline in EBITDA. So clearly, we will have to manage as a team next at least current quarter as well as maybe at the most next quarter to manage this decline in sales. So for these 2 quarters, I don't see that we can sustain these EBITDA margins in terms of percentage of turnover. But when we come back to our normal sales trajectory, I think we should be back to our normal EBITDA margins.

The next question is from the line of Anmol Ganjoo from JM Financial.

My question is related to your comments that year-on-year, we have seen just flat revenues, and we've seen very sharp decline in EBITDA. But if you deconstruct the EBITDA mix, it has primarily come on the back of gross margins. The way I understand the explanation is that this was on account of economies of scale getting disrupted for the last 10, 15 days. But then what could logically show also is that as the recovery starts, our gross margin profile should revert given the inventory and other reasons that you just read out as not contributing to any meaningful escalation in reagent costs, et cetera. So any thoughts on that? Because if I looked at the -- deconstruct margin part, I think gross margin is the only missing link. So...

Yes. Yes, you're right. So there's certain fall in gross margins and our -- we have high fixed cost structure that has impacted. Once that comes back, then we are back in the game.

Okay. Okay. That's helpful. And second is that it's, again, emanating from your comments only. Do understand that even pre COVID, given our dominant position in the NCR region, we were finding it hard to grow meaningfully faster than the market. The new dynamic, which you also highlighted and I find fairly logical that the smaller players should come under a lot more stress, do you see there is opportunity for us to grow meaningfully faster than the market? And in that case, why would you pull back on some of the expenses like A&P, et cetera, because if at all, that should just drive our journey to consolidation and even a more fortified dominant position even stronger. So we just wanted to know your thoughts, why not look at FY '21 just as an investment where you can reinforce your position as a dominant player in most markets, you've tried to get entry into for the last 3, 4 years?

No, sorry, if I conveyed, maybe let me correct myself. This pullback on A&P is not on annualized basis. This pullback of A&P is because since there are no patients, there's no point in spending. In fact, we have disproportionately increased our spend on communicating to our patients that our infrastructure is open because we didn't want them to feel as if there is a lockdown, and we are not working because we are an essential service, so our infra is open. We spent disproportionate amount of money sending SMSes telling them that we are open. So this pullback is natural because since there is no patient flow, some of the radio advertising, local stuff that we used to do, that is what we have stopped. But once the lockdown is lifted, we are back in action. So it's not that we want to actually pull back just to manage our EBITDA margin in the short term. So we are very clear. Our focus will remain medium to long term. While it's not that we want to have -- just, we don't want to sacrifice medium and long term just to manage our short term. We are very clear on that. So this pullback is not on an annualized basis, just at few -- just in the last couple of months, that's it.

And my last question, if I may. The huge cash pile that we have becomes fairly interesting at this point in time with more and more players coming under stress. Any thoughts, any exploratory thoughts about using your cash to strategically augment that -- a national player, a dominant player in this space, more than what we already have?

So that goes without saying, we have always been open to doing these M&A opportunities. Yes, there is a thinking that many of these players would want to come forward and engage in these conversations. And we are hopeful that things should turn for good as far as inorganic side of opportunity is concerned. And this cash would come handy for us.

The next question is from the line of Nitin Gosar from Invesco Asset Management.

I had 2 questions. In this current environment, the whole system, including prescription writer to collection center to hospitals, all have been [ stalled on ] businesses and they have been forced to absorb their fixed cost. The question is how much time as a diagnostic company we have before the system becomes impatient, try to come back, renegotiate the whole incentive -- incentivization program or commission construction, if the old system doesn't seem coming back to normalcy by October, November? The idea is to understand how impatient the system would be?

I think it's a question which is getting asked in different form and shape again and again, as to how quickly we'll come back to normal. I do believe that as more and more relaxation start happening because it's not like a switch on and switch off. A, it's definitely going to be a gradual recovery; B, I do get the sense in my bones that we will definitely recover because we are an essential services. It is not like airlines or travel, tourism or entertainment. This is a -- it's a basic need. So we should come back to normal. We are also cognizant of the fact that opportunity may present itself in a different form, either in terms of channel partners or walk-in versus home collection, maybe test mix might change. Now I think you are asking whether it will come in September, October, it's anybody's guess. As Dr. Lal mentioned, we are yet to see a peak on COVID side. So I think it will depend quite a bit on when do we get into that falling curve of COVID, I think it depends on that quite a bit.

Sorry, sir. My question was more pertaining to the impression that the ecosystem may show because everybody is out of cash, everybody is tired of business, everybody has to absorb the fixed cost. And each one will try to push back each other in the whole ecosystem. So the idea is to understand how much time we have in our hands before the system tries to squeeze out each other. Prescription writer, collection center, hospitals, all being part of the whole ecosystem.

Okay. So you mean to say the pressure which we start feeling because hospitals are not doing well. Is that what do you mean by that?

Yes. Hospitals are not doing well or maybe collection centers are not having enough volumes to absorb their cost, some of the doctors are not having enough business, so somebody is going to push the second guy and second guy is going to push the third and third guy will push the fourth.

Okay. I think it's a good question. So the pressure point that we will feel from each of these partners, let's say, from hospitals, one pressure point we might feel on receivables. So I think we'll have to be very, very careful on that receivables stay within the limits, and we actually track credit limits carefully. So I think that's one area for management team to keep an eye on that. Because otherwise, those guys might see us as funding their working capital. As far as the collection centers are concerned, their pressure could be because they earn through revenue share. They otherwise don't earn. If their business is falling, their revenue share is going down. It's quite possible that they may actually just close down. So we'll have to keep looking at active collection centers in these times. And if that is what is happening, I'm sure it also must be happening to competition. If it's happening to competition, my logistics must make sure that I give a better service to that town, and that might actually just turn to a competitive advantage as well, if I'm able to service that market better. So that's the collection center area. What else? On the walk-in piece, I think people may not want to come to lab immediately, but then I have to ramp up my home collection capacity to make sure that I cater to that segment as well. So I think each segment will require -- we'll need to find out pain points and then accordingly address it. But right now, I think the real issue we are facing is receivable from the -- on the COVID side because that business is coming from institutions and we need to be careful on the receivables is one area, which clearly we need to be careful.

Perfect. Sir, that was helpful. Second question is pertaining to on collection efficiency. Probably, the time that we get per day around 2 to 3 hours to collect a sample early morning slots. How do we spread it over or how do we ensure we collect more sample in that limited time window in an environment where social distancing will become more normal or sanitization norms will become much more stringent, wherein earlier person who comes up for blood sample will have to hygiene out the whole place and go for the second patient after a couple of minutes. Do you think the whole system will see a cost inflation?

So there are 2 things on this count. One is that operationally, you're trying to do a few things, which ensures that the space is used far more effectively. For example, we have asked people to book slots to come into our centers. We are also discouraging attendants from walking along with the main patient himself or herself. So we'll be able to manage the ambience in sight. Second is, like Om mentioned in his other question remarks, saying that people would prefer to go to a nearby center rather than travel a bit more distance to a main lab. So the franchisee collection center will see a faster growth. And third, the people will like home collection more than coming even to a franchisee center. So the nature of business is likely to shift in some sense, and we are working towards enabling some of their shifts to happen as well or enabling the patients to get their choice of channel readily available for them.

It's also quite possible that our Saturday workload generally is very high. Most people now would want to come on a weekday rather than crowding on Saturday.

[Operator Instructions] The next question is from the line of Amit Kadam from Canara Robeco.

Sir, I have one question. So in the recent -- in the last 10, we have seen lots of reverse migration happening in lots of urban cities. What could be the impact on our business, especially on the seasonal part, which is like dengue, malaria, if these guys does not come back in the next 2 months, how is it going to impact our seasonal business?

That's on our segment.

Our segment is slightly more -- the lower middle class to the middle class and upper middle class. So the bottom of the pyramid really doesn't come to us. They go to the government institutions for their treatments. So we do not see any major impact on this migration or remigration impact.

Okay. That's it. And just like wanted a small clarification. Sir, when Arvind sir said that we in the -- when we are saying going to see 1 crore for testing at pan India level, the percentage could actually touch 7-odd percent. Am I right like you said 7%? And what could be the reason that it's becoming like from 4% to 7%?

Yes. No, Amit, I'm just quoting what government has said today. They said that it can reach between 5 lakhs to 7 lakhs, that's what the government is saying. And this is also [ internally actually ] asked about the migration. When people are -- these -- the migration -- people are going back to their villages, they have found that they suddenly -- you find more positivity there. So I think that, that -- yes, so that has been -- I mean, it's not a fact of life, but we are likely to -- because these people have been sticking together for a long time, and one person, as you know, can infect 400 people and more in a matter of a month. So we see a spike coming up. And in the following 1 or 2 months, that's what the government is also saying. That's all.

I think Dr. Lal, you referring probably to an article that appeared today, right? That's what you are saying.

Yes, yes, yes. They have actually said, that we're going to ramp up the COVID testing hell of a lot.

Okay. So in short, this -- the displacement of people, which is happening, so that's not going to impact our business because that's not our target market as such?

No, no, no. We don't have that.

In fact, there is a possibility that we may get some more COVID testing from these people. That opens up another opportunity for us.

The next question is from the line of Ashish Thavkar from Motilal Oswal.

Sir, in this quarter, we did around 2% patient volume growth. And considering that we already have a knowledge of how the April month has gone, would you like to put a number for the patient volume growth for FY '21 for our business?

I think it's very difficult. It's a natural question to be asked by anyone of us, including our team. I would not like to put any figure as of now, maybe you'll have to give us some time. Maybe let's see this -- how this quarter goes, then we'll try and give some color on full year because right now, there is no such trend that is emerging.

Okay. Fair enough. Sir, on the COVID thing, so as we increase the number of tests per day, is there a possibility that the element of fixed cost absorption might just go up, in the sense that there could be more like operating leverage which could get unlocked?

I think it's not that significant right now. As I mentioned to you earlier that we looked at standard costing when we started this. We are seeing a lot of unforeseen costs now in the business. So my sense is that we may not get a significant leverage coming out of COVID testing.

Okay. Fair enough. Sir, one clarification I would need. In the midst of your commentary, you said that you won't be able to sustain the EBITDA margin actually for the next 1 or 2 quarters. So were you referring -- were you benchmarking FY '20 as the EBITDA margin or you're talking more specific about the quarter 4?

No, no. We are benchmarking FY '20.

The next question is from the line of Keshav Lahoti from Angel Broking.

Sir, I can understand that the volumes have dropped significantly in April and May months. Can you give me some ballpark number what was the volume in April and Lockdown 3.0 for you?

We don't have these phases. But as I mentioned, that when the lockdown happened, our business actually fell very sharply to the extent of 80%, but from then on, we have recovered very well and the trends are very encouraging. But given that these trends are little uneven in nature, so we are not able to put a figure. But definitely, there is significant improvement from what happened in the first week than what is happening in the last week. So we are clearly looking at non COVID trends because if I add COVID, then obviously, life looks better. But COVID contribution is primarily on the top line, not to a very large extent on the bottom line. And COVID also is very, very fluctuating. One day, you have lots of sample, next day, you have nothing. So that's why our focus primarily is getting back on our non COVID sales as much as possible. And our efforts are out there to open our lab network to collection center network and making sure that our service part is -- we don't fall short on service. Our courier boys are reaching out to all the hospitals. And we believe that as OPDS and IPDs open up, our business will come back to normal very quickly.

Okay, sir. Understood. Sir, can you just add some -- there was a notification from the government that the COVID test should be free of cost. Post that, whether anything has affected our COVID business or what is normal, nothing changed post that notification?

So that actually order got reversed by the honorable court. So that actually issue was there only a few days. So we are back to -- we are working on ICMR-approved rates.

Okay. Okay. And there is the expectation that ICMR might reduce the rate as we are already like in no profit business over this quarter, right?

No, but there will be some sort of a discussion around this. So it depends on how it goes. So even ICMR also arrived at this figure with the -- after discussion with the industry in any case.

Sir, my question was based on that, as the volumes are picking up in the industry, is there a possibility that rates might be renegotiated lower?

But when I say so -- but there are lot of other costs also are coming up as well because there is a huge administrative costs, which we never envisaged earlier because this data keeping, data entry work, which is happening. So -- and as far as the scale is concerned, government rates are definitely much lower because of different kinds of formats being serviced, whether the collection is done by the government, and we are only doing logistics and transport. So to that extent, economies of scale are already falling in place and B2B rates are actually directionally going down.

The next question is from the line of Pritesh Vora from Mission Holdings.

Sir, what are you seeing in sort of market opportunity over a longer period of time? What do you think so, like, say, next 5 years or something, what kind of opportunity do you see as you expand geographically and other areas? One is the natural acquisition of the customer and other is geographical expansion. How do you see the opportunity pans out?

I think I put an extremely positive outlook on the long-term opportunity. And I'm very clear in my mind that with this crisis, general public will become much more aware about health. And if we look at some of the government announcements in the last few days, they have even gone to the extent of -- they want to develop labs at the block level related to infectious diseases. So my sense is that penetration levels of diagnostics will go up very sharply once we are out of this crisis. The overall outlook for next 5 years is quite positive on diagnostics.

Yes. And if I may add, we have been actually concentrating that the noncommunicable diseases will catch up in India. But suddenly, this dual burden of disease, communicable diseases, as we are seeing right now, has again -- is again reminding us that the infectious diseases there are also going to stay. So we will have a dual disease burden for which we will have to be ready at all times.

So sir, do you -- how do you put it the -- would you take a market share in this environment? What is your ambition in geographical expansion? Will you go in the western area, southern areas? What is the plan? When is the natural client acquired, other is the geographical expansion?

So we have already outlined the strategy many times that we follow a cluster approach. Given our market shares are still in single digit, so we want to penetrate deeper down the [ POPs ] data. We identify a cluster, and then we want to be present in all categories of town in that cluster. So we have identified clusters across the country. And from an organic standpoint, we will keep deepening our presence within that cluster. Obviously, our presence in South and West is weaker. So there, we are actually trying to achieve a higher market share by adopting both the strategies of organic as well as inorganic. While North and East, we will just stay focused on the organic part of the business because that is where our growths are coming. And we will continue to follow cluster very, very highly focused approach on -- in an unidentified geography. That is the way we want to go about.

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

A couple of questions from me. One, given the volumes are pretty less from the hospital segment right now, how have you seen the B2B margins right now? Are they -- they were always very low, but have they really become very low during current times, let's say, in the last couple of months?

B2B gross margins are quite low, but not EBITDA margins because our cost of servicing B2B business is not that high, just we need to go and send our courier boys to pick up the samples because collection is done by these guys. So on EBITDA basis, both the segments are similar. But B2B is less sticky business. That's why it is not the most preferred business, but B2B also has a very high specialized test profile. So in these times, since IPD has stopped in many hospitals, our B2B business has declined quite a bit. But it should come back as somebody mentioned that Apollo capacity has gone up, so our business also is slowly, slowly coming back.

Yes. So I appreciate that. I completely agree with that. The only point was the volumes are down, but I was asking that in particular, whatever margins the industry was making, is there -- since the pie has shrunk in the recent times, has the margins even taken further dip?

So margins actually would take dip on all segments, even including our B2C also because we have very high fixed cost infrastructure there. If the volumes have dipped there also, we will see a dip in margins, but that's only for the short term. But once our volumes come back and we should come back to normal trajectory. But it's not just B2B alone, our margins will dip even in B2C as well.

Dr. Lal -- sorry, I was asking about the pricing pressure on -- from the B2B side that are players undercutting each other right now and offering better terms to the hospital because the volumes are so low on the IT...

Okay. Okay. Sorry. We are not seeing that right now.

Okay. And just a couple of other questions. Just on preventive test, which is 15% of revenues and second, the home collections. For these segments, are the margins below or above our corporate average margins, in a steady state I am asking, not right now?

Ved?

Yes. In this first week, which is kind of preventiveness unless on program, so generally, margins are -- as compared to other tests are high because we do a little high cash, but the testing cost is only 1/3, but 2/3 cost is servicing cost. If I service the same patient, even if I'm doing little extra test, it is not hurting me. So that's where the margin is as compared to other tests is quite normal.

And Ved, what about home collection?

So home collection is the highest revenue vocation because, again, in the whole segment, the home collection is also on the gross margin basis, is high as something to other...

There's always a chance to upsell in a home collection environment.

Om, sir, one question here on the home collection. Most of the home collection is done by your franchisee or is done by the Central Labs in the place. Why I'm asking that question is that it has a huge impact on, let's say, for that test, which is coming, what is the contribution to the EBITDA?

I think directionally, we would want our franchisee to do home collection. Because one of the reason the role a franchisee plays to bring scalability in our business. Because if I were to service first mile, myself, then it becomes -- it's not a scalable idea. So we would want, going forward, a lot of home collections to be done by our franchisees. So we are actually making them tech enabled so that they are able to service their customers better. So that's our directionally way forward. However, we also do home collections ourselves, which is directly done by the company, but that's more to actually just set up a model team so that, that becomes a role model for our franchisee to emulate.

Sir, directionally, when you said that home collections will increase, let's say, in a new world, won't our margins come down because typically on franchisee business, our margins will be lower than the corporate average?

But he's also bearing a portion of the cost.

Yes, he's also bearing all the costs as well.

Okay. So you don't think pressure on the margin with home collection is a big concern. Okay.

It's not that significant. Yes.

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

I had 2 questions. Going forward, for our non COVID business as home collection, will the volumes -- what are we doing to prepare ourselves to gear up for this changing trend maybe in the system. Are we going to outsource, are we using technology or adding more [ plethos ] if you could give some color?

Yes, Prakash. So the short answer to that, there's a lot of tech investment happening to get a seamless home collection experience going. And on top of it, like Om mentioned some time back, more and more of our franchisee will start to do home collection. So we will hold intellectual control of what is happening in the channel from a service delivery point of view, while the execution will be decentralized to the franchisee partners.

And as of now, these franchisees are part of the digital ecosystem for...

Yes. They are getting into this world now.

Okay. Okay. And secondly, what is happening to smaller labs, they would suffer more in these times. So any thoughts on faster consolidation?

Actually, I don't know. It's little early, but my sense is that consolidation may just happen by shift of patient base itself. We may not actually need to go and ask for acquisition. I think patient comfort is now going to be with more reputed brand rather than a small player is the sense that I get. So I think you'll have to give us a little bit of time to understand and do a dipstick market. Since the lockdown is on, so we are not able to get that. Maybe we'll commission and research on this and find out what's really happening with the smaller labs. But definitely, we need to be aware about the new trend that is going to emerge with small labs. Give us a little bit of time and maybe let us just conduct some research on this and come back to you.

Sure. And lastly, you mentioned [indiscernible] so isn't it the right time to use the gun powder and the cash which we have because at these times only you get what you want in terms of any inorganic or the right kind of company which you would want to acquire? So any thoughts on that?

Yes. So those conversations hopefully should begin, but right now we are not able to move out itself. But you're right. I think that goes without saying, current -- every crisis also throws up some opportunity. And for a fragmented nature of the industry, this is certainly that sort of a moment where consolidation wave should begin. I think there's no doubt about that.

The next question is from the line of Gagan Thareja from Kotak Advisors.

[indiscernible]

Excuse me, this is the operator. Mr. Thareja, may we request you to use your handset, please. We can't hear you.

Hello?

Yes, please?

Sir, my question was that would bundle tests have seen an outsized hit in the current environment? And would that have caused some impact on your EBITDA margins?

The bundle test took a very similar drop as overall business, but our contributions are coming back in terms of the past numbers, which hasn't come back.

I think the drop that we saw was uniform all across, except probably home collections, right?

Yes.

Yes, that's what we noticed that our home collection business fell relatively less, obviously, because some people wanted home collection, but otherwise, drop has been all across, uniform in nature.

Okay. And what could be the impact on your net working capital because of the pressures on receivables from both the COVID channel and also from the hospitals. What could be going ahead the new normal for net working capital?

So right now, we are facing -- you rightly said that on account of receivables, everybody is facing the same problem. So as we -- so our working capital is stuck, but as the lockdown is easing out, we are able to recover this money. But right now, we are cash negative.

I think we should be in similar situation for the next 2 to 3 months as well.

How much has been the increase in your receivable days, if you could give some idea there?

For days, because our sales are down so days sales outstanding has gone up. But in absolute terms, I think we are somewhat there only. I think there is a COVID outstanding that has gone up sharply. But other places we have received some money. I think in absolute terms, the increase may not have been very high. Since sales are down, that's why days sales outstanding is more.

Okay. Also, you indicated that there would now be an increased preference for home-based testing. I mean, do you see e-pharmacies who have both revenue streams, one in diagnosis and one in retail pharmacy practice, do you see them becoming more aggressive on their diagnostic practice in terms of pricing to build up a catchment base of patients who would be interested in the digital route?

So I do believe that they will play a much bigger role in collections part of the business. So they would become our partner on the collection side of it. But I do believe that consumers are going to prefer a brand for testing. So it is somewhat like both of us will have to actually work together with each other rather than compete with each other. So I get a sense that many of these e-commerce guys will become -- will play a very significant role for being our collection partners. Yes, you are right.

Okay. But you don't foresee them becoming competitors to you because some of them already have their own albeit limited sort of practices, but they do have their diagnostic practices full out rather than just being collection centers?

Some of them have pride doing that. But given this business is highly operational in nature, so if they want to do that, that will be at the cost of scaling up their pharmacy side of business, so they will need to be very clear what they want to do. Because if they get into doing end-to-end diagnostics, then I have a feeling that it will scale up. They might just be better off doing the front end part of it is my sense. I don't know, I may be wrong. But a couple of guys that have studied, they have struggled to scale full service model to multiple cities.

Even if they were to collaborate with you, would it mean that it has some sort of a difference in -- that business would have been there in difference in profitability or in cash flows compared to the traditional model?

You may be right because, obviously, these guys, if they start owning the front end customer, they would want to push back on us to get some extra share of margins. But that is some distance away because they are not that significant player right now. Having said that, we also are investing a lot behind technology. Our preference would be that we be that player to serve our customer directly through home collection, online, et cetera, rather than depend on them. I'd rather use them in those markets like South and West where my presence is weaker. I don't mind sharing higher margins with them in those markets because in any case, that's what I'm doing right now also. So I'll have to carefully use these people to suit my requirement. But you're absolutely right, they may want to push back on us to get extra share of margin.

And your presentation also mentions something around starting up a radiology practice or building it out. If you could elaborate there, have I got it right, that you are...

I don't think we've mentioned anything like that in our presentation.

Okay. Okay. I might have been taking it wrong. Lastly, around the COVID thing, I think the CSIR lab in Delhi came out with a paper strip sputum based testing format, which is not an antibody test, but which I think is in the same regime as the RT-PCR. And I think the NIV was supposed to give an approval. I don't know what the status is. But do you see that sort of things scaling up because sputum-based testing seems to be more accurate, even if you were to look at papers coming outside from India as well and also is more scalable and faster to implement?

Sorry, I'm not aware about this. If Dr. Lal is on the line, Dr. Lal, are you there?

Yes, yes. I'll explain that. See the -- see, in the diagnostic phase, that when you want to catch the disease, the phase which I keep insisting that we are still in, so there the best samples which you can get are the throat swabs and these oropharyngeal swabs, this is point number one. Point number two is that, yes, the virus can be find -- found in the saliva also, but saliva is not very easy kind of a thing to obtain. And the third thing is the sputum. The sputum has to be produced. Sometimes instead of sputum, you might just get saliva. And saliva also is not the best of the samples in this disease. So I think we have to be slightly more realistic and conservative that world over throat swabs and nasopharyngeal swabs is number one. When the disease goes down into the chest, you might get a productive sputum, then there's no doubt about it because as the whole infection has gone inside, then sputum is very good. So that kind of a thing would probably be when the patient is admitted in the hospital and is having these severe respiratory kind of thing. So that is the way we look at it. And even, by the way, it's also found in the stools. So there is a whole lot of places, it's being found in the semen. It's being found practically everywhere. It's penetrated the blood-brain barrier, that kind of a thing. So this is a very dangerous kind of a virus, which we are looking at. I agree with you, in principle, in sharing, yes sputum can be used, saliva can be used, but the best sample still is the 2 throat swabs.

Okay. My final question. You use PCR machines, which might be of a specific make, maybe Roche or a Thermo Fisher or something of that sort. Does that, therefore, mean that the RT-PCR test kits also have to be from Roche or from the same make as which you have the PCR machine or maybe you could mix and match the test kits with different machines also?

See, the very high throughput machines would be made by the same company. Very high -- you need 1,000 samples a day, well, there's an automated Roche platform for that. But then you have to use only Roche kits. So that is the way the whole system behaves. What we are doing is that we are pretty much open to it. So we have used the Mylab kits, we have used Altona, we have used something else. So these kits can be used freely, so -- and still we are able to give you 6,000 samples a day throughput. So we haven't done too badly.

Okay. So you can use the Mylab test kit with a PCR machine which might be of someone else's make?

Yes, yes, yes. Correct.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Thank you, everyone, for being with us on this call. Look forward to meet you on the next call. Until then, please stay safe and healthy. Thank you. I would now request the moderator to close the call please.

Sure. Thank you very much, sir. Ladies and gentlemen, on behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.