Metropolis Healthcare Limited (METROPOLIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Metropolis Healthcare Limited, hosted by BNP Paribas. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tausif Shaikh from BNP Paribas India.

Thanks. Good morning, everyone. I welcome you all to the Metropolis 2Q FY '26 earnings con call. I Tausif Shaikh, India Analyst at BNP Paribas for Pharma and Healthcare Service would like to thank the management of Metropolis for giving us the opportunity to host the call. From the Metropolis team, we have with us today Ms. Ameera Shah, Chairman and Whole-Time Director; Mr. Surendran, Managing Director; Mr. Sameer Patel, CFO; and Mr. Avadhut Joshi, Chief Business Development Officer. Now I would like to hand the call to Ameera ma'am for opening remarks. Over to you, ma'am.

Thank you so much, and good morning, everyone, and thanks for joining us today on the Q2 and H1 FY '26 earnings conference call. I'm joined by Suren, the MD; Avadhut, the Chief Business Development Officer; Mohan, Sameer and the other team and SGA. We've uploaded our investor presentation and related documents on the exchange and on the company's website, and I hope everyone's had an opportunity to go through the same. Let me begin with a brief overview of the broader healthcare landscape before we move into the company's performance updates. The Indian healthcare sector is undergoing major change driven by rising health awareness, better access and a focus on affordability. Patients are increasingly proactive about preventive care and early diagnosis, leading to more patients -- more tests per patient. With great emphasis on quality, accuracy and credible reports, consumers now prefer organized trusted diagnostic chains over small unorganized local labs. The competitive environment continues to remain stable with no major new entrants. We're observing a natural consolidation in the market, where many smaller unorganized labs are finding it difficult to sustain due to rising compliance, technology and quality requirements. This trend is accelerating the shift towards organized and trusted diagnostic players where Metropolis is well positioned with its brand equity, clinician trust and superior quality standards. Talking about our quarterly performance, it's an exciting time for us at Metropolis as we continue to deliver strong broad-based growth of 23% year-over-year, accompanied by sustained margin expansion. This consistent trajectory reinforces the strength of our strategy, the resilience of our business model and the disciplined execution by our teams across the country. We had earlier emphasized automation and digitization as key strategic priorities, and I'm pleased to share that we are seeing strong progress. Over the past few quarters, we have rolled out several digital initiatives, including a new consumer app, a partner app for our partners and lead automation for them as well, along with middleware auto authorization in our labs, helping improve our TAT, which is our turnaround time, and enhanced inventory management system, driving material efficiency and AI call quality monitoring in our contact center for improved customer experience. Together, these initiatives are not just strengthening our operational backbone, but also elevating customer experience, quality, consistency and scalability, all of which are critical to sustaining our leadership position in the premium diagnostics segment. On the acquisition front, our focus during the year has been on stabilization, process integration and synergy realization. It's only been a few months, but the priority has been to standardize operating procedures and drive cost efficiencies as per plan. I'm pleased to share that we are fully on track with the expected synergy realization and time lines. Our integration efforts are progressing smoothly, both at the technology and people level. Teams have been harmonized under a unified performance framework, while product portfolios are being aligned to strengthen cross-selling opportunities and enhance local market relevance. As planned, year 1 is about integration and efficiency, while year 2 will be focused on scaling revenue growth over the strong foundation. For the current year, our clear focus at Metropolis remains at margin expansion and operating leverage with multiple levers in motion, better cost controls, improved test mix, automation benefits and productivity gains. Importantly, we are not planning any new acquisitions over the next 6, 9 months as we believe the immediate opportunity lies in organically scaling the business and strengthening key strategic drivers already in motion. Our genomics journey continues to make steady progress, leveraging Core Diagnostics as our base platform. The integration of Core has enhanced our capabilities in high-end molecular diagnostics, oncology and next-generation sequencing, and obviously improved our front-end connect with oncologists. We are now expanding the test menu, deepening collaboration with clinicians and building a stronger R&D-driven test development pipeline. The upcoming center of excellence in Delhi will serve as a hub for innovation, training and scientific excellence, further reinforcing our leadership in research-driven diagnostics. On the GLP-1 therapy front, we are closely tracking developments as this class of drug expands its presence in metabolic and weight management treatments. These therapies necessitate regular and repeat diagnostic monitoring to assess their efficacy and safety. And we see a long-term structural opportunity here to leverage our deep clinician network to co-create testing protocols, packages and wellness plus disease management pathways aligned with GLP-1-based treatments. Lastly, the Metropolis moat continues to strengthen. Our differentiators remain unwavering commitment to quality, wider accessibility and a deeper customer-centric approach. These core strengths have resulted in high customer and doctor retention, a top ranking Net Promoter Score and a steady increase in revenue per patient and revenue per test. Our focus has always been on the quality of business rather than just volume, ensuring that every customer interaction builds trust, loyalty and long-term customer value. In essence, we are building a resilient future-ready diagnostics company, one that balances growth with profitability, science with empathy and scale with precision. With this, I hand over the call now to Suren, who will take you through the company's strategic updates and operational performance for the quarter and half year ended September 2025. Suren, over to you.

Thank you, Ameera, and good morning, and a very warm welcome to everyone joining this call. We are pleased to report that Group revenue for quarter 2 and H1 of financial year '26 grew by 23% year-on-year. Metropolis revenues on an organic basis grew by 12% in quarter 2 and margins stood at 26.8% as compared to 26.2% in quarter 2 last year, an improvement of 60 bps in line with our guidance. TruHealth and Specialty segment revenues grew by 21% and 15%, respectively, on a year-on-year basis for organic business. Group level EBITDA margin is at 25.4% in quarter 2 with Core Diagnostics EBITDA improving in line with our plans to high-single-digit, moving from breakeven in March. The same was at 23.1% last quarter. Speaking of the second quarter, fever-related test volume did grow, but the growth was slower than the usual monsoon season and per expectations, primarily due to lower incidence of common infections such as chikungunya, malaria, dengue and viral fevers. Despite this, Metropolis remained well positioned by quickly realigning focus areas and emphasizing growth in Specialty testing and TruHealth offerings. This proactive approach allowed us to offset the decline in seasonal volumes, maintain overall business momentum and revenue growth of 23% year-on-year. Our B2C segment contributed 59% of total revenues for the quarter, recording an 11% year-on-year growth for organic business. This double-digit growth was driven by strong performance in our TruHealth and Specialty segments, supported by targeted micro marketing initiatives and sustained clinician engagement programs. Our Mumbai revenues for quarter 2 grew by 13% year-on-year despite lower fever-related cases, reaffirming our strong leadership in Mumbai market. B2B segment accounted 41% of total volumes, registering a 14% year-on-year growth for organic business. This growth was driven by an increase in both patient volumes and realizations. Our clinical trial business also delivered a strong contribution in this quarter, aligning well with our specialty focus. With continuous enhancement to our partner portals, improved transparency and greater service efficiency, we remain optimistic about achieving higher volumes in the coming quarters. As Metropolis enters into the next phase of growth, enhancing productivity and operational efficiency will be key to driving sustainable progress. Our focus is on maximizing output while maintaining superior service quality through the core levers of driving people productivity, process and lab operation efficiency through AI and digitization. This 6 to 12-month road map is designed to lay the groundwork for scalable and profitable growth and continue to position the company for leadership in Specialty. As part of Metropolis 3.0 strategy, we continue to focus on the following things: one, accelerating our presence in new markets with focus on Tier 2 and Tier 3 cities. Following the completion of our lab expansion program in last year, we are now expanding our network of collection centers to feed these labs and increase throughput. In H1, we added approximately 200 centers with a plan to add another 300 more centers in H2. We are now present across 750 towns, as we said earlier, and are going deeper in these towns by adding new clients and clinician connects and increasing our brand visibility amongst the consumers. Secondly, strengthening our high-end specialized testing capabilities by enhancing AI-based allergy testing, AI-based diagnostics and expansion in genomics segment and many other areas. Third, enhancing the TruHealth portfolio through science-led bundling, doctor consultation and an integrated approach with basic radiology, allowing us to address the higher ends of the market as well as the lower rural packages for Tier 3 and Tier 4 towns. Fourth, integrating digital and AI-driven tools to enhance service quality and operational efficiency, supporting sustainable growth and scalability. In conclusion, I would like to highlight that our H1 performance has been largely in line with our guidance, achieving an organic revenue growth of 12% to 13% and margin expansion of approximately 40 bps on a year-on-year basis so far. We remain confident in our ability to meet the stated estimates in H2 this year. With these strategies in place, combined with the disciplined execution, a strong leadership team and alignment around common vision, we are confident in our ability to further build and reinforce our leadership position nationwide. With this, I hand over to Sameer to take you through the financial numbers for the quarter and H1.

Thank you, Suren, and good morning, everyone. Let me now share some of the key financial performance for quarter 2 FY '26. As informed in the previous quarter, we have bifurcated our performance reporting on 2 aspects for the current year. MHL Group includes 3 acquisitions of Core Diagnostics; DAPIC, Dehradun; Scientific Pathology, Agra; and second, MHL Organic excludes these 3 acquisitions. Also change in definition for B2C and B2B segment to streamline the same with the industry standards. B2C includes all owned franchisee and rural centers and B2B includes B2B lab, hospital, government, corporate and clinical trials. Moving to the financial and operational performance. First, I would like to highlight operational performance for MHL on organic basis. Revenue and EBITDA grew by 12% and 14.5%, respectively, and PAT grew by 13.6% on a year-on-year basis. Patient volumes stood at 3.6 million, a growth of 6% on a year-on-year basis. Test volumes stood at 7.4 million, a growth of 6% on a year-on-year basis with increasing contribution from TruHealth segment, we consider one profile as one test, which is different from peers. On a like-to-like basis as peers, this number would be significantly higher. Our B2C revenue stood at INR 230 crores, a growth of 11% on a year-on-year basis and B2B revenue growth stood at 14%. TruHealth and Specialty segment grew by 21% and 15%, respectively. As per the revised classification of B2C segment, B2C contributes 59% of total revenue. Revenue for Specialty B2C segment grew by 16% and B2C TruHealth segment grew by 20% on a year-on-year basis. B2B revenue contributes 41% of total revenue and B2B Specialty grew by 15%. EBITDA of MHL on organic basis stood at INR 104.8 crores, a growth of 14.5% on a year-on-year basis. EBITDA margin for MHL Organic stood at 26.8%, increase of 210 basis points on a sequential basis and 60 basis points on a year-on-year basis. PAT for MHL on an organic basis stood at INR 53 crores at a growth of 13.6% year-on-year basis. PAT margin of MHL Organic stood at 13.6%, an increase of 20 basis points on a year-on-year basis. Moving to key performance indicators for MHL Group. Revenue for the Group grew by 22.7% on a year-on-year basis. Patient volume stood at 3.7 million and test volume stood at 7.9 million, a growth of 11% and 12%, respectively. B2C revenue grew by 16% and B2B revenue grew by 33% on year-on-year basis. On MHL Group basis, revenue from North now contributes 19% of overall revenue, largely because of recent acquisitions, which has its major presence and revenue coming from North region. Revenue growth from Tier 1 towns stood at 26% and Tier 3 towns stood at 13% on a year-on-year basis. Revenue from Tier 3 town now contributes 24% of total revenue. Contribution from B2C revenue stood at 56% in Q2 FY '26. The decrease in B2C compared to organic business of 59% is largely on account of consolidation of Core Diagnostics, which has majority of revenue contribution from B2B. EBITDA margin for MHL Group stood at 25.4%. The decrease was largely attributed to a lower margin profile of Core Diagnostics. However, we are happy to report that margin for Core has increased from low-single-digit to higher-single-digit in Q2 FY '26 compared to quarter 1 FY '26. PAT for the MHL Group stood at INR 52.9 crores with a margin of 12.3%. That's all from my side. With this, I open the floor for the question and answers.

[Operator Instructions] The first question is from line of Anshul Agrawal from Emkay Global.

My first question is on margins. How should we look at margin trajectory going ahead? I mean, you have posted the healthy organic margin expansion. Should we expect this to continue with ramp-up in Core as well in the latter half of the year or would we stick to our margin guidance previously of almost flattish because of Core dilution?

Suren?

Yes. So if you remember beginning of the year, when we stated the estimates, we said for this full year, the organic business will do about 70 to 100 bps margins better than the previous year, and the previous year was 24.3%. And we said we will move up by 70 to 100 bps, and we stay committed to the same number even at this point of time. And we said for the overall Group, there will be dilution of 1% to 1.2% because of the lower margins of Core. And that also -- and by the time we exit this year, Core will be close to 2-digit margins. So these are the, I mean, statements we made in the beginning of the year. And all these remain same at this point of time. We are heading towards the same direction.

Just a follow-up to understand this better. Our organic business margins have surpassed the expectations that we would have had at the beginning of the year. So question was from that perspective.

Yes. So Anshul, what happens in quarter 2 is relatively a high-volume quarter, and hence, your margins will be definitely better than the average margin of the year. And hence, it's not necessary that the quarter 2 our margins will be the same going forward in quarter 3 and quarter 4. So for a full year basis, from a 24.3%, you would see 70 to 100 bps upside by the time we close this year for the full year. That will be the organic business trajectory.

Got it. This wouldn't be dependent on our B2C and B2B mix or would it?

Well, I think there will be some impact of the B2C, B2B mix, but we are not envisaging any significant shift in the B2C, B2B mix going forward, which is at currently 59%, 41% EBITDA and the B2C contribution can be a little higher by the time we exit this year.

Got it. Second question was on TruHealth. In your opening remarks, you mentioned that we are adding certain radiology tests in the TruHealth packages. Would this sort of be limited to sort of filling up prescriptions or would we think of venturing into advanced radiology at this stage?

So currently, the plan on TruHealth with respect to radiology is that the basic radiology services like the ECG and then X-ray and ultrasound, these are 3 things that we are basically adding on to the TruHealth packages. And we have a capability of adding now the ECG across the country and the X-ray and ultrasound around 5 towns in the country. So that we now got integrated into the TruHealth packages. And not high end -- in this scheme of things for the rest of the year, we are not including the very high-end radiology like MRI or a CT scan, et cetera.

Got it. The last question that I had was on our volume or top line guidance. I understand it's a stable pricing environment as such with more tailwinds around GLP-1 drugs and specialized testing. Would we sort of retain our top line guidance as we stated at the start of the year?

Yes. We want to maintain top line guidance, like I mentioned, for the rest of the year as well.

[Operator Instructions] The next question is from the line of [ Sanjay Chakrabarti ] from BNP Paribas Securities India.

So my first question is on the lab testing charges. Although it's a very small amount compared to your other operating expenses, on a half yearly basis, the expense has almost close to doubled. Just wanted to understand what is the reason behind this? And will we see the same quarterly run rate in that expense in the third and fourth quarter as well?

Just give a moment. You're talking about lab testing charges, right?

Yes, that's right.

Yes. So I think H1, 60% of the lab testing charges are because of the Core -- outsourcing charges of Core. But otherwise, nothing has significantly changed. And it's only because of the integration of Core and the trends will remain same for the rest of the year.

My second question is on your revenue for this quarter. So would it be possible to quantify how much of the revenue from your acquired assets came from each of the assets? Like how much revenue came from Core and Dr. Ahuja's and Scientific Pathology, if that's possible?

Well, I think the overall put together is 11% of the revenue growth has come from all the integrated entities. Maybe -- I mean, we can talk later to give you the details of each of the entities have contributed to each.

That sounds okay. If I can just squeeze in one more. Coming back to the margin front, if I'm correct, earlier you had guided high-single-digit margin for Core. And given that you have already are at high-single-digit margin in the second quarter itself, so are you still sticking to your earlier guidance for Core or do you think there is a scope for low-double-digit margin for FY '26? And how do see the margins...

Yes. No, for FY '26, I think we'll stick with the high-single digit, because as you know, Q1 was I think about 2%, 3% margin. Q2 is, like we said, is sort of mid-to-high single-digit. Q3, we hope to move to a higher-single-digit and then Q4 move to sort of closer to a double-digit. So the average for the year will still come out to a high-single-digit, which gives us a good foundation to make a leap into next year to obviously move into a double-digit margin on track for what we had sort of projected when we actually made the acquisition. So I think the synergies are playing out as we expected. But usually in these acquisitions, what we've seen is whenever you buy one of these businesses, there is a certain amount of practice clean-up that has to be done, ways of working changes that has to be done, integration that has to be done. And in services businesses, this not only takes a little bit of time, but it also means that sometimes you may stop certain businesses, et cetera. So whatever clean-up needs to be done, we are doing it in year 1 on the revenue side so that you don't carry that on into the future.

[Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Ameera and Surendran, just the competitive intensity at this point of time, maybe in B2B also, if you could kind of give us some qualitative comments. Your B2B revenue growth is now starting to trend better. So I just want to understand that. And is there any impact of this reclassification on any of these numbers? Like it looks like B2C percentage contribution has gone up to 59%. So -- but on a like-for-like, like what was -- I can see what you have moved to in terms of definition, but where were our classifications earlier? And does that have a material impact on your growth rates for both of these 2 segments?

So I'll answer the first question. I'll let Suren take the second one. So just talking on the competitive intensity, see, obviously, during COVID, we saw a bunch of health techs jump in, we saw a bunch of pharma guys jump in, hospital guys. We haven't really seen any new players jump in, in any significant way in the last couple of years. So on the B2B side, while some existing players are intensifying their efforts, we haven't seen any price competition escalation. We are seeing some amount of stability for that in the last 1 or 2 years now. So it's still obviously an intensely competitive environment, which it always has been, I mean, for many, many years to come. But there's nothing new or nothing disruptive that actually spoils the market. So also the reflection of the B2B growth being higher in Q2 is not necessarily only about our execution getting better, which it is partly, but it is also about the nature of tests that are generated in the quarter. So this quarter, we saw more specialty and more acute business in the market and less of routine, which is represented through lower B2C growth because of the lesser routine, but higher specialty growth and higher B2B growth. So some of it is just the product mix, which is specific to the quarter. But yes, our execution on B2B is also getting stronger as we go. Suren, if you want to take the question on the B2C contribution.

Yes. Shyam, if you remember in the last year, through all these discussions, we have mentioned that we are just cutting off some of the low margin and difficult B2B corporate, government business, et cetera. That clean-up has actually done last year and then we are working on a very cleaner base. That's point number one. And point number two is, and after that, the institutional business has really become relatively much smaller. And hence, we are now calling the institutional business and B2B together. So the remaining changes in the percentage is only a mathematical rearrangement after that. Otherwise, on the base, nothing fundamentally changed. And in quarter 2 also, specifically, I must tell you that we have got one good contract on clinical trial. That has helped us to get our B2B better than the normal run rate in quarter 2. So that was a one quarter specific project that we had.

Got it. Helpful. Just the second question is on GST impact. I know there is some benefit that accrues to you from a sourcing perspective. So just want to understand, are you calling out the quantitative impact or I know maybe you have to pass it on. So just how in the second half it flows through to you?

All right. So see, there are GST impact on 2 aspects. One is on the reagent and consumables and second one on the equipment when we purchase. Now coming to the reagent and consumables, we already had a part of the consumables and reagents at 5% GST only. And some of the consumables and reagents have moved from 12% to 5% GST. So not a very significant, what you call, benefit as such. But whatever benefit we will get, we want to pass it on to the customer one way or the other. And whatever GST benefit that we will get out of the equipment purchases, that will actually come on to the procurement efficiencies.

[Operator Instructions] The next question is from the line of Raman K.V. from Sequent Investments.

Sir, during the quarter and during the first half, how much was the revenue from radiology segment?

Radiology segment is very, very small for us. We are early days on radiology segment in a very, very small -- very low-single-digit percentage if you ask me.

Okay. Basically, it doesn't have a substantial contribution towards your entire consolidated.

No. As of now, no.

So with the TruHealth and Core Diagnostics, how are you planning to increase your radiology segmental revenue? Are there any plans?

So Core Diagnostics, there is nothing on radiology. It's purely whatever we do. So let me give you some information. So we have about 35 centers across the country now fully equipped with all the basic radiology testing capabilities, which is the X-ray, ultrasound, 2D Echo and ECG, et cetera. That's 35 centers in about 5 cities now fully equipped and we will be -- start driving the radiology in these centers and also get the portfolios, including radiology in these 5 cities. So that is one opportunity for us to drive forward. And second thing is ECG capabilities now we have almost done across the country. So that will also start playing out. These are the 2 opportunities for at least for the rest of the year. These are the 2 levers that are available on the radiology segment and we will start building this portfolio stronger going forward from here.

Understood, sir. Sir, my second question is with respect to your -- the clinical trial. Can you explain the business part of it? And how are -- how do you see the traction in that particular? Like how much is it contributing to your overall pathology volumes and revenue?

Well, I think clinical trial is a very small percentage of the business. Only in the quarter 2, we got a contract, which we delivered in quarter 2. Basically, this is about working with the pharma companies and other alliances to do some turnkey projects. So it's not one of the things which we keep -- I mean, all the time depending upon, but it's a relatively small part of the business.

So what are the margins in this business? Better than the consolidated margins or it's less?

Yes, it's a little better than the company level margins.

So are we planning to take more turnkey -- this sort of turnkey clinical trial projects or is it like you're trying to be consolidated?

We are one of the key players in this segment. The size of the market itself is not very big here. But we are a significant player in this market and there are some other small operators as well. So we really reach out to all the opportunities available and then we'll keep grabbing these kind of opportunities as and when it comes.

Sir, my final question is with respect to the Core Diagnostics. So by the end of this year, it will move towards -- in the call, you mentioned it will move towards the double-digit by the end of this year. So how -- can we expect that by first half of FY '27, the Core Diagnostics margins to be in the similar level of Metropolis?

No, no. So we said in the first half of the year, it's a single-digit number. We will come closer to a double-digit number by the time we exit this year. And full year basis, we will be still a very strong single-digit number. And we said in 3 years period, we will bring this into the current levels of Metropolis margins. It will take another 2, 2.5 years more to bring up to the Metropolis levels of margin. But the efforts are on and we are in the right direction.

Okay. Basically, you mean it will come to around 23%, 24% margin by FY '28, if I'm correct?

Third year.

Third year, yes, third year of acquisition.

And on the volume front, are we maintaining -- you had a strong revenue and volume growth in the first half. Are we planning to maintain our mid-double-digit volume growth for the entire year or are you planning to -- are you expecting much better than that?