Thyrocare Technologies Limited (539871) Earnings Call Transcript & Summary

Yes, sure. So I'll just repeat just so that we are clear. So one question was about air connectivity and our dependence on air connectivity, how we are. Second was something about our business model of going via franchisee and end customer, and whether we have any plans [ for that ]. And the third one was about the average price of the antibody test. Right?

Yes. Yes.

So I will take up the first 2. And while Sachin, maybe you can just add on to the average price that we are getting on both of those tests. So in terms of air connectivity, your point is very, very right. When the pandemic-led lockdown was announced by Honorable Prime Minister on the 23rd of March, last 10 days of March and better part of April, we faced a huge challenge, and that was reflective in our business as well. Our business practically went down to nil or single digit versus what we used to do in the same period last year. So it was very severely affected. But as we all know, progressively market has opened up. And today, we are being able to ship samples from all parts of the country. So April was very, very bad. Over month of May and June and July, we are slowly attempting [ reopening ] . Especially in the month of September, most of the sample deliveries are happening close to normal, I would say, and that is continuing in October. So air connectivity today is not seen as a very big challenge. Of course, we are still not gone into full-fledged unlock. But as you know, more and more flights are opening up. Even for commercial and passenger travel, every week, more and more flights are opening up as well. So one is only seeing better days as far as air connectivity is concerned. And especially in the last 5 to 6 weeks, we have seen less of challenge due to air connectivity. Coming to your second point, while we are engaged via our franchisee and our partners to drive our business. We believe that, that is also a very effective way of reaching out to our consumers because, finally, our Thyrocare report anyway reaches the final patient. So -- and sometimes to drive our business model in a geographically distributed country like India, our franchisee model can actually become a very superior and efficient model, if you really have to expand fast. So as I said in my opening remarks and while answering questions from one of the other persons, I did say that we are trying to increase our franchisee network in all the cities where we are now putting regional processing labs. Along with that, we also have our Thyro app. It's a small part of our business where consumers can also call and getting their tests done, so which is there, both for COVID as well as for non-COVID business. It's a small part of our business, which is growing, which is growing at a very fast pace. But the salience of the business is very, very small to say immediate terms whether it will swing the needle. There are larger opportunities available. In going into some of the B2B segments, which we haven't gone earlier, e.g. bigger hospitals as well as increasing our franchisee network fast. We are engaged on the direct-to-consumer route as well, and that is seeing a very healthy growth. But I wouldn't say that in the immediate future, that is going to swing the overall needle of the company. Coming to the average price. Sachin, can you throw some light?

Because as far as average price realization for COVID antibody test and COVID RT-PCR test is concerned. For the last quarter, if you are asking COVID RT-PCR test average realization was somewhere in the range of INR 1,700. Whereas for COVID antibody test, it was somewhere in the range of [ INR 450 ]. But let me tell you, this is changing because as far as COVID RT-PCR test is concerned, the prices are regulated by their effective state governments. We have almost 27 plus states. And for each of the states, there are prices which have been defined, and these are changing almost like -- within 15 days, they are changing the prices downwards. Not only that, the prices which have been regulated by the government for home collection are different, for sample collection are different, for sample collection plus processing are also different. So to answer to your question, as far as the average realization for COVID RT-PCR test is concerned, the current indicator for the quarter ended September 2020 cannot be a benchmark. It is likely to change further. As far as COVID antibody test is concerned, I have already said, we have started at INR 600 a test, and we have reduced the test price further. And therefore, the average realization was about INR 450. This is what the price is. At the same time, the cost of doing these tests are also going down. So our margins to a certain extent, we are maintaining in both these technologies of the tests.

Next question we have from [ Chira ] from [ VSP ] Mutual Fund.

Sir, this infrastructure that we have put for the COVID PCR test, what does it mean for other PCR platforms like tuberculosis or HIV? As you look at the next 2 years beyond the current COVID crisis, what does this mean for these other tests? Do you think pricing will come down? Will it expand the market? Your broad thoughts [ here would be helpful ]

Yes. Thank you. Thank you, [ Chirag ], for this question. I think that's a very interesting and thought-provoking question. With COVID coming in, one thing that has happened is technological RT-PCR today is a lot better known. And not just for Thyrocare, it is known across India, if not the world. And a large amount of capacity both between government and private labs have been put up across. So yes, it is fair to say that given the supply or the capacity has been put in by multiple players and consciousness about DNA testing has also gone up, various other tests on the PCR platform will be now available. And it is a question of demand and supply, directionally with a lot more supply being there and the consciousness being there. Yes, it is fair to estimate that both demand will go up and prices may come down. And as long as there are volumes, and we have proven that multiple times over the last few decades, as long as there are volumes, as a company, we know very well how to manage our operations efficiently and maintain high margin.

Okay. Fair point. And then on genetic testing, sir, how big is the pot today? And just thoughts on the outlook, say, over the next couple of years? Whether it is neonatal or other tests that you may have expanded?

Sure. Our current profile of neonatal testing and other genetic testing is currently quite small. So at this stage, to say that how that will impact for Thyrocare revenue in the immediate future will be difficult to say. At a very broad India level or a segment level, of course, the gynae portfolio in general is growing. You can see the trend in the various IVF centers that are coming up and neonatal and prenatal tests and overall gynae tests and the various markers as a broader segment, one has seen growth. But currently, that segment is a very small part of our Thyrocare business.

Understood, sir. And then the last question, sir, in terms of volume split between your regional labs and the central lab, where was this 2 years back? And where are we now?

Sure. So at the current level, the volume split, if you just talk about the volume or the -- not the value -- is almost 50-50 between the central lab and the regional processing labs put together. Value-wise, of course, the central processing lab will still be higher because most of the RT-PCR test in quarter 2 has been done in the central processing lab. So this, of course, directionally, as one can say, has only gone up. So exactly how much was it 3 years back, we now have the data right now with us. But directionally, it's fair to say that the regional processing labs' workloads are going up. And this percentage, I'm quite sure 3 years back would have been far lower.

Over the next 5 years, do you foresee a need for these central lab? Any other location?

So as I said earlier, [ Chirag ], we have put up a COVID lab in Delhi in [ Grenal ]. And as we speak, we are expanding that facility to have our zonal processing lab, which will be like a mini version of our Mumbai lab. Not 100% match, but very close to that, having menu much wider than our typical regional processing lab. So we are already doing it. We are not talking about very long time in future. This is already work in progress and hopefully will come in place in the next couple of months. And we are deeply engaged along with the team to figure out where should be our next Zonal lab. So that is a broader plan that we have that we should have zonal labs in each of our 4 regions of the country. And then in some of the priority cities, we'll have regional processing labs. That's how the overall model will be developed.

From a volume capacity versus the central lab in Mumbai, sir, how big can Delhi be, say 2, 3 years down the line?

Difficult to give our exact projection of how big it will be. From a capacity building possibility, of course, we can build the capacity as big as Mumbai for the test that they will be doing. But to say exactly how much will be delivered 2 or 3 years down the line will be difficult to say.

Next question we have from [ Shante Tesing ] from [ Shante Patel ] Investment Adviser.

Sir, I just wanted to ask you, what is our market share in organized sector, if it is possible to answer? And secondly, how many new collection centers we opened in the last quarter? And how many franchises have been added?

Sure. Thank you, Mr. Patel, for your question. So I'll take the second one first. So as far as our collection center or our Thyrocare service provider, as we call them, due to the lockdown and the COVID pandemic, most of our focus was not on opening too many collection centers. So in the past quarter, our opening of collection centers has been very, very few and limited. However, that is one of the future growth areas, and we are gearing ourselves one of the sort of building blocks that I talked about. One of the two important building blocks is being able to increase these collection centers multiplefold. I'm unable to give you an exact week or a month-by-month plan on how many, because we are putting the team in place as well for the same. This will also mean feet-on-street to be able to add. But on a slightly longer-term horizon, we plan to at least double our collection centers that we have today. So we are clearly focused on the same. But in the last quarter, we haven't added too many. Your other question, can you just repeat that once more, please? The first question?

How many franchises have been added? And what is our market share in the organized sector?

Market share. Yes, yes, yes. So as you know, diagnostic industry, there are no formal way unlike, say, your FMCG or white boards, where you have a Nielsen or IMRB who does those studies and there's very more or less sample based on indicated market share. It's a little difficult for one to get a formalized market share in the diagnostic business, but for an overall industry estimate, between the large national diagnostic chains like ours, and some of the little more organized regional players that you know. So between the regional and organized put together, the industry estimate is we are about 17% or 18% of the overall pathology market of India. Now in that 17% to 18%, the national players will be roughly about half of them. And then Thyrocare will have a portion of that half of the overall market. So it's fair to say that the headroom available for all [ players ] as the overall consolidation happens and more and more unorganized players become organized, I see potential for growth for many, many years to come in, if that trend happens. So that's my overall take. But very difficult to give an exact percentage market share of Thyrocare, because there is no formal estimates available.

Okay. And how many franchises have been added in the last quarter?

As I said, that it has been just a few handful. I don't have an exact number, a very handful because our primary focus in the last quarter was on ensuring we come out of pandemic. We ensure the logistics, keep the safety of our people, while operating all the labs, and grow our sizable business on the RT-PSCR antibody. So those were our primary focus of last quarter.

Next we have Sriraam Rathi from ICICI Securities.

Basically, one question was largely on the strategy part. Pre-COVID -- basically in the last couple of years, our growth rate had slowed down to lower double-digit versus [ 25% ] in the past. So I mean, what kind of measures you can expect that the growth rate moves up further than the mid-teens or above that. So I mean, what we are focusing on, I mean, whether it will be like increases have been the [ cash market ] that we are offering. And we talked about more ties with the hospitals and [ IGY ] centers. So are we looking to increase the number of tests that we are offering towards the complete category or something like that?

Sure. So thanks, Mr. Rathi, for your questions. Ensure that the [ work that we took ] on pandemic [ plus the impact we are looking at ] of the steps that we are taking is, as you know, already, we have increased a few regional centers. We have more processing centers today than what we had past. We have already done that, and we are increasing [ our footfall ] over the next quarter. One is we will have a lot more processing centers. And as you know, once you have more processing centers, our ability to give those tests that have quicker turnaround time for better service will be enhanced. And especially for some of the customers like hospital [ in ], a quick turnaround time [ will be ] a driver of orders. If a lot more processing centers, we believe that we'll be able to do that. We are also supplementing that with our [ fee thing ] not happening [ hard to have a fee thing ] with a medical institution, so that we can have the benefit of higher revenue. So that is one area of growth that we have seen. Second area of growth is clearly increasing the number of franchisee, the Thyrocare service providers that we have, we believe that there is a large headroom available there. And again, as we are increasing our processing centers, that gives us the ability to increase depth of our Thyrocare presence in each of those cities and in nearby areas by having a lot more branded Thyrocare centers run by franchisee. So those are the areas of our current focus, which we believe will give us better growth in future.

Okay, got it. That's helpful. And sir, secondly, I mean, the focus of our strategy has been more on the price or pricing disruption. So will that continue? And how should we look at the average realization going forward?

Sure. So yes. So as you know that we have, as a company, being able to disrupt this market again and again. And despite doing the disruption, our business model and the efficiency and the productivity that we have developed, we have still been able to maintain our margin profile. So our overall strategy does not change. Even in future, if there are opportunities for getting higher volumes, we will be very much open and willing to disrupt the market further as we have done earlier as well. But at the same time, we are extremely conscious on the price disruption that we do, how that gets higher volume because at the end of the day, the volume leverage is a very critical component over here to be able to retain higher operating margin. So yes, we will be looking at some kind of disruptions in future as well on a selective basis to ensure that we have higher volume throughput.

Sure. And sir, lastly, on the antibody testing, assume that a large part of it will be through corporate. So I mean, these are kind of like onetime kind of business or it may be recurring part also in the medium term?

Well, again, jury is out there, Mr. Rathi, on how long the antibody stays in our body. All of us have seen expert reports, which talks about anywhere between 3 months to 5 months. That's what I have seen. No one can really say, given the strain of this novel virus is so new. It is novel as one knows. So technically speaking, if it is between 2 and 5 months, if a corporate has done an antibody test, they should ideally repeat that test after 4 or 5 months to ensure that their employees are safe. But that is corporate to corporate, what will be their philosophy. For us to exactly say what it will be, will be difficult. But it's not a test that will get done every week or every month for sure. I think ideally, some corporate should do it maybe once a quarter, once in 2 quarters, ideally, is what I feel. But exactly how it will develop, only time will tell.

Next we have [ Zharboush ] from [ Enkreet ] Capital.

For the second quarter business, Sachin talked about new facilities also being created for COVID at Bangalore and Calcutta. I'm just relating it to the CapEx number reported in the cash flow of about INR 13 crores for first half. Could you guide us what really -- what kind of capacity that we are building up in Bangalore and Calcutta? And what would be the full year CapEx number you're targeting?

So [ Rahul ], thanks for your repeat question. As far as quarter 2 capital expenditure addition is concerned, that is only for Delhi COVID laboratory. We have not spent anything as of now for Bangalore and Calcutta. That also includes some of our spending, which we have done for other than COVID business too, because our [ Bhubaneswar ] as well as [ Koli ] laboratory was also functional in the month of March, but we have not installed the analyzers at these locations due to COVID. As far as the capital expenditure per COVID laboratory is concerned, since we will not be going to invest in the place, and we will be [ phasing ] it and might [ lease premises ] and we will be spending only on settings and equipment, it would not exceed somewhere in the range of INR 4 crores to INR 5 crores per location.

Okay. So what would be a full year number we should look at? Should be like INR 20 crores should be good enough?

It depends upon whether we win and at what -- in what month or in what quarter, we are going ahead with our Bangalore and Calcutta laboratory. As I have said, we have already started our Delhi processing laboratory, and we are identifying a place in Calcutta. Bangalore, we have already identified a place, so it will be certainly in the range of some INR 15 crores to INR 20 crores .

Perfect. And just lastly, for the non-COVID pathology testing, basically, you were talking about 4.5 million samples per quarter last year in the third and fourth quarter. Should we -- do you see there will be growth on this number? So essentially because of the unlock happening and people would have postponed some testing in earlier quarters, would you say a 20% growth kind of number based on the 3Q and 4Q run rate is fairly good assumption? That's my last question.

So Rahul, just to reiterate, our like-to-like non-COVID, which does not include RT-PCR or antibody is, as I said, by the end of the quarter, which is in the month of September, came to the same level as a year back. And we are seeing a progressive growth in the last 3 or 4 weeks. And I believe this will further go up. Every month will become better than the previous month. So that's how I'm looking at it, the non-COVID, without RT-PCR, without antibody, every month, I believe the growth rate will improve as one goes through this period of unlock. And of course, the antibody and RT-PCR will add on to the same.

[Operator Instructions] So at this time, there are no further questions from the participants. I would like to now hand over the floor back to the management for their closing remarks. Over to you, sir.

I will request Dr. Velumani to please pitch in and give his closing remarks as far as the Q2 reserves and direction further.

Good afternoon, everyone. Thank you very much. Shyam and Srini asked me what is the new strategy using the new CEO? Obviously, I was answering all the questions in the previous call. Now the [ 3 of you ] have answers for all the calls. And also, I remember two days back, our Prime Minister was telling there is a double engine, I believe Thyrocare has got a double engine. Call it double engine, call it co pilot, whatever it is, Thyrocare intends to make a better journey. That's why we have inducted a new CEO. Though he has come from competition, he [ owned ] the last 22 years of business and answered all the questions, I was very happy to listen to that. Let me answer some of the questions very briefly within the maximum 300 seconds I will take. Mr. Rahul asked if antibody COVID RT-PCR tests will go up or down? I am sure even the health minister of the country may not know. And the country is ruled by 25 health ministers, they also may not be knowing. So it's very difficult to tell the trend will move up, remain as it is or go down, both for antibodies as well as RT-PCR. So very fluid, the dynamic unknown, uncertain sales, very difficult for us to give any prediction. Rahul also asked the question what will happen to [ MSL ] to profitably take capacity. Let me tell you a [ retail ] business will be created [ in sinaparty ]. In another 2 quarters, it will come to a steady state. We don't intend to put in more money into that business. We intend to milk out as best as possible the returns from that business. Please don't count MHL as equity, count that as a fixed deposit kind of returns. And Srini was asking the question that when we [ bond Kolkata ], what are the lowest of what is the plan and what is the strategy. Let me tell you, our business is [ very slow as a ] business, cloud business. Either are not going -- coming to Mumbai or going to Delhi or going to Hyderabad is an option, so is for Patna. So there won't be any [ ten term ] specific to lower growth, country growth will be distributed to all the 4 locations. So there is no concern about a specific city area growth. Nationwide, if we are growing, we will be able to distribute the work. Now the [ Sharma ] also asked the question what is [ ROB ], what is happening to that segment. I'm very pleased to tell, post COVID, home collections are going up. Central collections are not going up. [ Why I agreed today ] I had a lot of already [ free some street ] business. [ Let them ] walk-in patient business. So now I am seeing that I'm having a capability to [ serve set ] for much more capable across the country, single largest supplier. All the online companies are our major customers for all their [ med reorganize picture ]. Our ODM is moving up, fortunate that 15 years back they created this [ bank ]. Today, 1 less means that is more important. Let me tell you, there might have been many industries which might have got disrupted. Airlines is done, INR 1,200 crores this quarter we lost for Air IndiGo. Which says that globally, airline business is done, travel to the [ fun is done ] hospitality is done, that I'm pretty sure. Worldwide, pharmaceutical hospital diagnostics business is doing very well. Wellness, sickness, [ new pressable ] is doing very well. So for me, the double edge on diagnostics, some other is wellness, both put together [ is ROM ], I'm extremely happy to [ sell all into the core ] business. All the remaining are not growing. [ ROGM ] is growing, and that's a very positive news for our own stakeholders that we are doing very well. Regard as the question, logistics is a challenge. Yes, from some parts of the country still price into Mumbai. So obviously there are challenges. Some geographies, we have grown 300% post-COVID, some geographies we have [ shrunk ] minus 40%. So there is a challenge and once all prices are in place, we should be seeing demand [ for with ] business doing very well. Now some question was asked about the ownership of the patient, the clients and the patients. Let me tell you, the ownership of the patient lies with the brand. 99% of the patients who receive our report receive it on our letterhead. So as a promoter of the company, as a brand owner, I am not at all worried about the ownership. It is with the company; through whom it goes is [ due only ] matter. And our next question was from Chirag asking what will happen to other PCR tests, while we are all focused on COVID PCR tests. Let me tell you, COVID PCR test is a very great education for the entire industry. Industry tried [ for thousand times already do less ] to do business. Today, INR 1,200 business is going on. So at any price test can be done [ locally ] with every new every player of course, Thyrocare can lead very well at any price, there is a 40% EBITDA. So I have a reason to believe other PCR test will also be disrupted, and I am referring to [ disrupt them ] also. Without price disruptions, volumes will not be growing. So [ for anything you think we ask ] the question, let me tell you [ unless testing ] there is no volume in the country. There is no spending capacity for the individual, very few elite rich only can go for it. We don't see that as a huge opportunity for volume disruption and doing the [ SNAPS ]. And I think that [ Ransfer ] asked the question, what is market price. Let me tell you, there are 300,000 locations we are [ able ] collected. Our interest is to touch all the 300,000 locations. And let me also tell you all our competitors are basically very busy in learning how to handle the patients. We are very busy in learning how to handle the customer. It is a very, very different business model for the last 25 years, everybody helped [ create ] it. We will continue to focus on specimen management with more emphasis than the patient management, which we already are good at it. The last question was asked on price disruption. Sriraam Rathi asked. We will be disrupting. We will be different in the pricing. There are plenty of tests which we do where we are doing only 4 a day, 5 a day. There is no funding doing anything less than 500 test a day. How to do to get the time to test is our goal, not in how to keep its current profitability. As our CEO explained very clearly, there is no meaning in working on any test without volume. To get volume, need the price disruption [ make for them ] be [ nervous ]. So I want all of you to understand that the health care is going to do very well. I have been talking in various [ seminars ]. I want to repeat, governments were spending too little. Government will double its spending. [ Pharma ] are spending too little, we will double the spending. I have a reason to believe there will be overall Healthcare [ fire ] will grow. I mean, overall, health care by diagnostics will grow without any limit because there is no capacity limit placed on diagnosis. And in diagnosis, wellness will grow and the wellness [ ROI ] will grow. Thank you very much, for all of you have a nice day for the call. And I wish you all, I like to promise next few quarters, will be more exciting. Wish you all a wonderful time. Thank you very much.