Krsnaa Diagnostics Limited (KRSNAA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to The Krsnaa Diagnostics Limited Q2 FY '26 Earnings Conference Call.[Operator Instructions] I now hand the conference over to Mr. Surya Patra from PhillipCapital. Thank you, and over to you, sir.

Yes. Thank you. Good morning, everyone. I, on behalf of PhillipCapital, welcome you all to the Q2 FY '26 Results Conference Call of Krsnaa Diagnostics Limited. Joining us today on the call are Mr. Rajendra Mutha, Chairman and Whole-Time Director; Mr. Yash Mutha, Managing Director; Ms. Pallavi, Executive Director; Mr. Mitesh Dave, Group CEO; Mr. Pawan Daga, Chief Financial Officer; and Mr. Vivek Jain, Head, Investor Relations. I would like to hand over the line now to Mr. Yash Mutha for the opening remarks, subsequent to, which we'll have the Q&A session. Over to you, sir.

Thank you, Mr. Surya. Good morning, everyone, and thank you for joining us. Today, when I look at what we've built at Krsnaa, it feels less like a company and more like a mission taking shape, a mission to make high-quality diagnostics accessible, affordable and reliable across every corner of India. Let me start with what really matters. Despite being in one of the most capital-intensive segments of health care, which is radiology and despite offering our services at prices that are 40% to 60% lower than the market rates or, let's say, truly pocket-friendly rates for the patients, Krsnaa continues to deliver steady growth and healthy margins that stands shoulder to shoulder with the best in the industry. This in itself is a huge differentiator. There's honestly no one quite like us. Radiology requires heavy upfront investment, specialized talent and deep operating backbone. Most players don't even venture into it at scale, yet Krsnaa has built and scaled one of the largest integrated diagnostics network across India, spanning 18 states and union territories. And today, based on our deployed and under implementation equipments, we operate the largest fleet of over 200 CT and MRI centers across India, making us one of the largest radiology service providers in Asia But beyond [ side ] the numbers, what makes this story meaningful is its impact. The scans and the tests performed at our centers don't just produce images, they change and save lives. Because of our reach, even people in the remotest parts of the country are now getting access to early diagnosis. That means illnesses are being caught sooner, treatment costs are coming down and the pressure on the tertiary hospitals is also reducing. To put it simply, Krsnaa today conducts radiology scans of more than 10 million patients every year, covering a significant population across the states where we operate. We are not just present. We are making a measurable difference in the public health outcomes. And along the way, our model has also created employment opportunities, not only in the metro cities, but even in the remotest corners of the country, enabling skilled health care jobs where they were once rare. And we have done this without compromising an inch on quality. Our operations are backed by India's first 36 NABH accredited radiology centers, 57 NABL accredited labs, India's first CAP accredited pathology lab in a government facility and India's first ACR accredition for a teleradiology hub. No other diagnostics company in India, public or private, has achieved this combination of scale, access and quality within government partnerships. These accreditions, supported by our rigorous processes, firmly establishes Krsnaa's position as India's leading quality-driven diagnostics company, a benchmark in the public health care delivery. Now despite some of our PPP contracts completing their initial tenure, where one might have expected the revenues to dip, we not only bridged this gap but achieved an impressive 11% year-on-year growth. This proves the resilience and self-sustaining strength of our business model. It shows that the foundation we've built continues to compound even without new tender inflows. On the financial side, this quarter's performance speaks to that mission. The Q2 FY '26 demonstrated both scale and profitability. The revenues stood at INR 2,060 million, up 11% year-on-year. The EBITDA came in at INR 602 million with a healthy 29% margin. The profit after tax was INR 239 million, translating to a 12% margin. Our EBITDA and PAT growth reflects the maturity and consistency of our model. And as we've said in the past, we aim to deliver sustainable improvement in EBITDA margins, profit margins and the return on capital employed. I'm pleased to say this quarter's number show we are walking the talk with ROCEs now trending towards 15% and continue to strengthen in the quarters to come. Now let's talk about where we are headed. The Rajasthan PPP project, which is the India's largest diagnostic PPP project, is progressing right on schedule. We are set to operationalize 10 labs in November, another 25 labs and over 500 collection centers by December and the balance 152 labs and 1,100 collection centers by the end of Q4. These will add a significant layer of growth and further reinforce Krsnaa's nationwide reach. And this is not just about Rajasthan. Several marquee PPP projects are under implementation and with these all going live, we expect meaningful revenue accretion from Q4 FY '25 onwards and a full year contribution in FY '27, which will further strengthen our growth momentum. Behind all of this, there's a strong team of over 350 radiologists and 120-plus pathologists, who trust our systems, technology and processes. Their association with Krsnaa reflects the confidence they have in our quality and reporting standards. No other diagnosis company in India has a doctor network of this scale, and this base continues to grow. It further strengthens our leadership and depth in clinical excellence. So when we talk about Krsnaa, it's just not about the financials or centers. It's about an ecosystem that blends scale, trust and technology to make diagnostics truly accessible. It's this very ecosystem that has made the government's vision of delivering quality diagnostics through PPP model a successful reality, and Krsnaa has been at the heart of this execution. To summarize, this quarter is a reflection of who we are becoming, a company that invests deeply, serves affordably, delivers profitably, generates employment and grows responsibly. We are proud of what we've achieved, but we are even more excited about what lies ahead. Thank you for believing in our journey and for being a part of Krsnaa's mission to make diagnostics accessible to every Indian, one scan, one test, one life at a time. With this, I now hand it over to Mr. Mitesh to take you through further updates. Thank you.

Hi. Good morning, everyone. Mitesh Dave this side. Group CEO, Krsnaa Diagnostics Limited. A very warm welcome to all. Today, I'm really pleased to share that quarter 2 FY '26 has been a milestone quarter for Krsnaa Diagnostics, which is mainly driven by strong execution, disciplined cost management and commitment towards the operational excellence. Our EBITDA, INR 602 million, growing at 18% year-on-year and taking our margins to 29%. This is a clear reflection of our structural efficiencies, which we continue to unlock across our network. Over the past year, we have undertaken a focused set of initiatives that are now clearly reflected in our improved profitability and stronger operational leverage. We have enhanced manpower planning across our network, ensuring each center delivering higher productivity and greater patient throughput, while maintaining strong quality and service standard at the top. At the same time, we have sharpened radiology utilization further, mainly into the advanced modalities and resulting in superior asset efficiency and a meaningful uplift in both revenue and margins. Our supply chain has been strengthened further, which is enabling us to move faster with a greater precision, reducing installation time lines, minimizing downtime and accelerating commissioning of new facilities and all this contributing to faster scale up and improved capital returns. Alongside this, our continued investment in technology-led automation is streamlining core workflows from reporting and billing to centralized monitoring and turnaround times. These efforts are enhancing patient experience, taking our NPS to the significantly higher numbers, while driving sustainable and scalable operational efficiency across the business. A key competitive strength for Krsnaa is people-first capability building. We are investing significantly in training and upskilling our workforce from frontline to the technician to the phlebotomists, radiologists, operational team, lab technicians and so on and so forth. Today, we have one of the largest and fastest-growing pool of skilled and semi-skilled professionals in the diagnostic space, delivering their best, operating seamlessly and across metros and deep rural clusters. These initiatives enables us to do more with the existing infrastructure, delivering better outcomes for both patients and our beloved shareholders. Krsnaa stands out as one of the most future-ready platforms, uniquely positioned to outpace industry growth by expanding access to our unpenetrated markets, bolstering brand equity, capturing a substantially larger share in the retail opportunity. The results are already visible on the ground. We are witnessing robust growth, not just in the patient volumes, but also in recurring customer behavior, a reflection of rising patient satisfaction, strong unit economics and operational agility backed by efficiency with which we are able to deliver a consistent service experience nationwide. Our retail expansion journey, in particular, is advancing at a remarkable pace, demonstrating the power of our brand and trust we are continually building with the patients. In the second quarter of this financial year, revenue of our direct-to-consumer business has surged by impressive 60% quarter-on-quarter growth. Retail has contributed 8% of our revenues in the first half of the year, and this contribution is steadily compounding each quarter as both reach and brand preferences are increasing.. Given the growth trajectory, we see today and expect retail to account for 8% to 10% revenue in the FY '26 to accelerate to the tune and contributing 15% to 20% in the coming financial year, a shift that will not only enhance market positioning, but also deliver strong margins accelerations and the improved profitability. Our scale-up has been fast, smart and deeply impactful. In just 1 year, we have expanded to more than 2,800 touch points across the country, a testament to the strength of our asset-light partnership-driven strategy. We are strengthening our retail business in regions, where we trust and what the patient and the other doctors and the other shareholders are there towards brand recall are deep rooted, including the Maharashtra, Punjab, Assam and Odisha. Our strategy here is crystal clear: be present where patient needs us the most and elevate the ease, which they can access high-quality diagnostics. We are scaling home collection services at pace, widening our preventive and wellness offerings and building strong partnerships with the local health care ecosystem, allowing us to seamlessly integrate into the daily health care decision of our large and diverse communities. Now as we advance into our next phase of accelerated growth, we remain fully committed to profitable scale. Our strategy revolves around deepening our leadership in integrated diagnostics, continuously improving operational efficiency and margin profile, driving sustained and diversified growth across both retail as well as PPP and ultimately building one of the India's most admired health care brands, powered by technology, reach, relentless execution. With that, I would like to hand it over to Mr. Pawan, Chief Financial Officer, Krsnaa Diagnostics Limited, to take us through the financial highlights for the quarter. Thank you.

Thank you, Mr. Mitesh. Good morning, everyone. Let me take a moment to briefly walk you through our financial performance for the quarter. Revenue for Q2 FY '26 stood at INR 206 crores, reflecting a robust year-on-year growth of 11%, driven by sustained momentum in both our radiology and pathology segments. Our focus on cost leadership and operational excellence has translated directly to our profitability. EBITDA grew by impressive 18% year-on-year to INR 60 crores. This performance resulted in 221 basis point expansion in our EBITDA margin, which now stands at 29%. Profit after tax increased by 22% year-on-year to INR 24 crores with a margin of 12%. This demonstrates our continuous ability to not only grow the top line, but also deliver the bottom line. Earnings per share of INR 7.25 for Q2 FY '26, up from INR 5.9 in the same quarter last year, making a 24% year-on-year growth. On the working capital front, our receivable currently stands around 150 days, which we aim to bring down to around 100 days by year-end. The current positions reflect a temporary timing impact largely arising from the implementation of a new central government payment guidelines under which states are aligning their processes and releasing payment through RBI Link account. With this, we conclude our opening remarks. We would now like to open the floor for question-and-answer session. Thank you.

[Operator Instructions] And the first question is from the line of Balamurali Krishna from Oman Investment Advisors.

So regarding these new tenders, so what is the status of the pending center radiology centers on the Maharashtra -- and after that Maharashtra and Rajasthan have received a long back, but there is no any new tenders have received. So what is the pipeline status -- could you please share that one?

Bala, so if I understood your question, you were asking a question about the Maharashtra and Rajasthan status and about the pipeline. So Maharashtra, we have the MRIs, which are under implementation. Almost 15 MRIs are under implementation, 10 are already in the completion stage, and they are yet to be inaugurated by the respective authorities. With regards to Rajasthan, as we said, we are in the process of establishing around 10 labs soon and the balance 25 labs and 500 centers will be done by December and the rest through Q4. With regards to pipeline, there are [Technical Difficulty] in pipeline. But like we mentioned in the past, due to the competitive nature of these tenders, we will be disclosing the details as and when we come close to the concluding of the process of the tendering different stages. I hope that answers the question.

Yes, I understood. But small follow-up clarification on that. So earlier, we used to have some maybe 3, 4 tenders we are winning every year 3, 4 to 5 tenders, sir. So now there is a big gap between the Maharashtra last tender and as there is no awarded tender. So is it because of any delay in tender -- tender opening from the state government side or our winning rate has a little bit decreased. That's why we have not announced any tenders in the recent past maybe 5, 6 months...

Sorry. So see, the tendering process, basically, it's not in our hands. There are tenders, which are currently at different stages of execution. There are different moments when the tenders get published and when they get executed. So as of now, as I speak, there are some tenders in the pipeline. As and when they'll come, we'll disclose. It's not that the tender pipeline has kind of reduced. It's still there. It does exist. In fact, there are discussions at different states, different authorities. As and when they come, we'll certainly share the updates with you all.

Sure, sir. And on the RPL side, so we are targeting about 20% of revenue in 1 or 2 years. So I think maybe that we may achieve in the next year itself. So on the OpEx part of the RPL, we have our own collection center or we need to franchise the collection center. That is only the expenditure part or because we have already infrastructure everything. So as compared to the normal business, so what could be the OpEx percentage for the RPL?

[indiscernible], can we please request you to repeat the question? Your voice is not very clear to us.

Yes, yes, I'll do it again. So I'm asking about RPL. So I think we have a target of 20% of revenue in the coming 1 or 2 years. I hope we will achieve that a little bit earlier. So when it comes to OpEx part, so operational expenses in the RPL, I think it's very lower side because we already have infrastructure in our hand, pathology and radiology. So what could be the our OpEx percentage as compared with the normal business [ as the leverage rate ] could be 40%, 50% or anything less than that that I want to know.

Mitesh, this side. Well, taking what the question that you have asked or is the query around. One is, yes, this year, we are hopeful to getting it closer in 8% to 10% of the overall revenue contribution and taking it to the 15% to 20% in the coming financial year. That's correct. And that's where the entire ecosystem is working around. And what -- secondly, what you mentioned is also correct is yes, we are going to be a uniquely positioned ecosystem in the retail space, along with the PPP, where we'll have a shared infrastructure to drive the better margins and sharing the cost. OpEx is going to be lower in the coming times. However, for now, it is very important as an RPL, where we are looking to building the brand initiatives, how to be most accessible to the needy ones, building higher operational efficiencies and how to build AI capabilities for our overall ecosystem for the better outputs. So in that sense, initially, it may be a little slower, but however, it's going to be very robust. And as and when we are scaling the newer heights and building out percentage contribution to the overall revenue, it will come down further.

Maybe 4 to 5 years of prospective, so where do you see this revenue contribution if you can hit a 40%, 50% kind of revenue contribution from RPL?

Yes. So over 5 years, we are looking to having close to 40% to 50% of contribution coming out from the retail straight up.

Lastly on this revenue...

Sorry to interrupt, sir, but I request you to rejoin the queue for follow-up questions as there are more participants left. The next question is from the line of Lokesh Manik from Vallum Capital.

Yash, my first question was we've seen a patient growth of 4% Y-o-Y and a drop in test volumes of 4%. So what is driving this divergence? Ideally, you would see a drop in patients as well, but you've seen an increase. So what is driving this divergence?

Lokesh, could you please repeat the last part of -- I couldn't hear you very well.

Yes, sorry. Am I audible now? Is it better?

Yes, yes. This is much better.

Okay. I was saying that we have seen patient growth of 4%, but we have seen the test volume drop by 4%. So there is a divergence here, what is causing this divergence?

See, Lokesh, if you see the diagnostic business is something, which is dependent on the needs of the patient. So these test volumes, the patient volumes are all dependent, and therefore, they go in different directions at different point in time. So there's really nothing that I could comment on. What I would suggest is if you see overall directionally, we are growing and we'll do what it means in terms of creating patient awareness, more tests to come through. And this is how we see the business. Yes, Mitesh also want to add something?

Yes. Furthermore, taking up your input, we have also started pouring in wellness care, where the RPT is what you are talking about will going to have even further surge in the coming times.

Okay. And Mitesh, in this -- in the retail business, out of INR 17 crores, what would be the proportion for preventive and wellness? How much would that have contributed to wellness, to the retail business?

Yes. It's too early to have any bifurcation around the wellness as well as the illness area. However, it's going -- that's where our focus is now shifting. And in the coming time, we'll be able to give you the way crisper bifurcation if need be.

My next question is on diagnostic industry as a whole. First half sees good results and then second half is a little flattish to subdued. Do you expect a similar trend for yourself as well going forward in Q3 and Q4 on the top line growth?

Yes. So Lokesh, this is something an industry-wide trend. Typically in Q3 because of whether it's the winter, the cold, there are dips in the revenues. And then Q4 onwards, it starts picking in. So that -- though the trend is there, we, of course, try to see how we can maximize our revenues and continue on the profitability of the growth engine. But the trend does impact across the industry.

And the radio centers will be operationalized by when? What is the time line? When will you reach 200 radio centers?

So by December end is what we're expecting the radio centers to be operationalized.

The next question is from the line of Anshul Agrawal from Emkay Global.

A few questions. First, the CGHS benefit that has been conferred to hospitals, does that apply to us? And if yes, if you could just quantify the benefit that could flow in?

[ Ankush ] (sic) [ Anshul ]. the CGHS, if you see is more for empaneled hospitals since we are through a tendering process and the rates are as per the tender, we don't see an impact or benefit coming to us. Though there are discussions going on. But as of now, I don't see any benefit coming to us immediately on this.

Second question on retail. So any insights on how we have been able to ramp up this retail portfolio so fast? Is it our value proposition? What is it that is working for us so well in retail?

Mitesh, this side. So retail, unlike the traditional approach or unlike the absolute modern approach, when we started foraying into the retail space, we were very clear, while we have to stick to our routes, the traditional approach that everyone takes up and builds up, but parallelly, we will also have a blend of the modern approach, which is going to be more accessible, AI-driven, more patient-friendly and the multiple value proposition for the patient. So we got a very strong blend of both of this with the existing infrastructure that has been to the truly quality standard all across the nation. And then the overall field force that we carry throughout the length and breadth of the India. Strategic initiatives helping us because we are going with the specific models, which is like asset-light or partnering with the clients or to an extent, where the overall value proposition, which is kind of a gap that we identified when we started it.

My question would be around B2C business in retail. There, I don't think we'll be partnering with any of the technician/doctor network would be driving this through our workforce itself. Would that be correct?

It's a blend of both, right, wherein -- as I said, it's not going to be a single-line approach ever because we want to cover a 360-degree space. And in that, sticking to the older routes with the existing infrastructure, existing premises, existing processing units, adding up to the layer of the modern way of driving the business, which is more patient-friendly, more accessible and offers a value proposition. So we will not try to give away any of the fees for building our retail and wherein we'll have a holistic approach to build it the way it can and it should be even more faster.

Okay. And is our retail business now margin accretive? Is it not loss-making anymore? That has contributed to the margins for the overall business?

Not really. As I said, we are still not at breakeven for the retail. However, in the coming end of the year or in coming times around INR 100 crores or so, we are looking to have breakeven and then driving the robust bottom line from there on.

And ex of retail, if I carve out retail revenues from our overall revenues, our B2G business does not seem to have seen much growth. Is this due to any contracts sort of expiring in the current quarter? Or any indications around why our B2G business has not continued to see the uptick that it used to see?

So Lokesh, on the B2G side, there has been no major contracts that have gone. There are some smaller drops. But in spite of the drops, we continue to have the growth momentum and which we believe will continue even in the subsequent quarters to come through.

Just one last question, if I may. Our tele-radiology and radiology center ...

Sorry to interrupt sir, but I request you to rejoin the queue. The next question is from the line of [ Deepali Bansal from Ventura Enterprises ].

My first question is, would you be able to give the mix between how the revenue was divided between matured, semi-matured and newly launched centers between radio and path?

Yes. Deepali, Vivek Jain would be able to provide you this detail offline with you.

Sir, as we have seen that we have rapidly increased our number of radio and path centers. What would you suggest? How -- when can we see like major uptick like because we see that there's almost 1 year, 1.5 year gestation period for all the centers. When are we expecting that period to, let's say, end for most of our centers, newly launched?

Yes. Deepali, if you see this model, there's a continuous investments on one side, a ramp-up on the other side and then retail also going up. So from a time line or a quarter-on-quarter performance perspective, you see -- I wouldn't be able to pinpoint that there will be an uptick immediately. Directionally, yes, things are progressing well. And what have we been seeing in the past in terms of the top line, bottom line, I see that going -- continuing to maintain this momentum even in the subsequent quarters. Now from an uptick perspective, yes, FY '27 onwards, because with Rajasthan coming in, you might expect that uptick to happen. But I think directionally, we continue to have this growth momentum even in the subsequent quarters.

Would you be able to provide some guidance for, let's say, next year or 2 years down the line, what kind of revenue are we targeting from all the expansion we have completed? And we are going to open a lot of centers from, let's say, Rajasthan and Maharashtra by the end of quarter 4. So can you provide some guidance?

Well, I would wish to, but just to give you a very broad level guidance, we look at -- expect around higher teens.

Sorry, how much?

We are looking at higher teens. And further details, we'll ask Vivek to share any more additional granular details for you.

[Operator Instructions] The next question is from the line of Anand Kulkarni from Front Wave Research.

Congrats on a good set of numbers. Just one question from my end. We can see an uptick in our borrowings and in the past quarter, we have seen with the institutions and analysts and the houses. So my question over here is...

Anand is not very clear to us. Could you please speak closer to the mic?

Am I audible now? Hello. Am I audible? Yes. So as I was saying we can see an uptick in the borrowings. And in the past quarter, we have seen many updates filed that we are meeting institutional investors and analysts and everything. So any time line, if you can share what is also along with the quantum that we are trying to raise the funds, if you can throw some color on that?

So if you see the borrowings largely are mostly on the overall working capital. We've been able to maintain a tight control on the borrowings. As a company philosophy, our approach has always been to leverage these borrowings to the minimum wherever it is more efficient from our usage of capital. Having said that, even for further expansion for whether it is Rajasthan or other PPP projects, as I mentioned in the past, we always look at what is the most optimum or efficient use of capital, whether it is, let's say, borrowing raising debt or a combination of debt and equity. So we continue with that approach even in further projects. In terms of -- just to give you a headline of CapEx, I think as and when we see more clarity with Rajasthan, we might come back to further updates on the debt side. But as of now, we try to maintain the debt within the limits, reasonable limits and ensure that the impact on the financial statements are to be minimum.

So we are not looking for any expansion on the terms of equity?

No, not as of now.

The next question is from the line of Aditya Chheda from InCred Asset Management.

For H1, the volume growth is flat at roughly 32 million. Can you explain us the drivers of volume growth for H1 and drivers for price growth, which is to the tune of roughly 12.5% for H1? And your outlook on the same, what would drive volume or price growth going forward? That is my first question.

Yes. So [ Aditi ] (sic) [ Aditya ], in terms of volume growth drivers, like Mitesh also mentioned, across the board, whether it is PPP or retail, there are different strategies that we have deployed. Some of them are bearing fruit in terms of even identifying certain wellness packages even in the PPP space and at the same time, creating some awareness about advanced test that we had in our test menu, which we are now also offering. More granular details, Vivek will provide to you in terms of the numbers separately offline.

Got it. And you highlighted that we are expecting the receivables to come down to closer to 100 days. That would imply a roughly working capital release of roughly INR 100 crores. That should help you to sort of fund the Rajasthan CapEx. Is that what you have in mind? And this is in context of the higher borrowing that you have for H1 as of now?

Correct. So as I said, the Rajasthan -- sorry, the receivables that we expect to collect in the coming weeks or months, it will certainly help us, cushion. But we are also exploring if there are debt as a combination because as you see, we also have ongoing various PPP projects. There are some PP projects in the pipeline. So whatever is the best optimum way of looking out capital, whether it is internal accruals or raising maybe some debt, we are evaluating those situations. And we continue to monitor this on a daily basis to ensure that there is efficient use of capital overall.

The next question is from the line of Daljeet Singh from Roha Asset Managers.

Can you hear me?

Yes, we can hear you.

Yes. So my question is regarding the receivables part. We have had some legacy receivables from Punjab and Himachal. What is the status of that? And I see this time almost INR 80 crores increase in receivables. So is it any more state has gone into that process or what happened?

Yes. So Daljit, if you see the receivables, yes, it's been a situation, which has not -- we've seen in the last so many years. And even if you see historically, touch wood till date, we have maintained 0 bad debts. So from that perspective and our experience, this receivables is more of a timing issue for now. Even if you see subsequently, we've collected almost more than INR 50 crores. So things are looking better now with the SNS per systems getting -- the teething issues getting normalized. We do expect some of these hiccups to continue, but we expect to come about 100 days in the coming quarters and maintain that past trends from next year onwards. But these are, as I said, system transition happening across different governments. So there are some teething problems impacting these collection of the receivables. But from the way we have collected our money, I see this as a positive sign and also what we hear from different quarters of the authorities.