Vijaya Diagnostic Centre Limited (VIJAYA) Earnings Call Transcript & Summary

Karan, so I think on the industry competitiveness, there is no much change, right? So we are seeing different types of competition from stand-alone players, from pathology chains to the new age players, right, and also the discounted players. I don't think at least for the last three, four quarters, I would say it is status quo. So it is a similar competition that we are seeing from the markets that we are operating in, right? And coming to the market share, et cetera, these numbers are something that we also get from many firms, but we are not sure about any exact number. So because different research firms have different projections, right? So -- but overall, if you see at a country level, they say that this diagnostic market is expected to grow at 11% to 13%, right? And whereas we are growing slightly at 15% to 17%. So again, we'll have to wait and see for these numbers because every year, they publish a slightly different number with 1%, 2% here and there. But otherwise, on the competitiveness, I don't think there is much of a change that -- or any new competition that would have come in the last four quarters.

Okay. Okay. And for this direct-to-consumer or direct-to-customer channel, we have 93% kind of share. So in the future, do we think that we are diluting this maybe a percentage to go to B2B side, this kind of change in strategy to get the market share B2C channel.

No, Karan. We have been focusing on B2C. 92% is B2C. So we don't foresee significant dilution in that proportion going forward as well.

[indiscernible] can you share of the repeat patients from the existing network hospitals because obviously, you connected with the hospitals, and they are referring to you guys. Any metrics that you can provide?

Karan, I'm very sorry, but we are unable to hear you. There's a lot of disturbance.

Now I think it's clear. So just saying one thing, any metric that we can track that the hospitals are referring the patients to you? So repeat patients' numbers or anything kind of this number? But obviously, the hospitals are referring patients to you guys in the B2C side. So anything...

Hospitals do not refer patients to us, Karan. A customer who is basically walking into a hospital probably decides because in India, diagnostics is an out-of-pocket expense. The customer decides where he would like to go, pay and get his test performed. The customer who is actually undergoing the test decides that he would like to come to us. Hospitals do not send these cases to us. The cases that the hospitals send to us are called corporate tie-ups, which we do have with 100, 150 kind of bedded nursing homes, and that's something that they send. That does not come in this B2C portion that we are talking about. This is a customer base where the customer is choosing to walk into one of the Vijaya Diagnostics and get his test performed.

The next question is from the line of [ Vivek ] from Emkay Global.

I have a few set of questions. So I just wanted to understand, firstly, on the total revenue -- total growth front, right? So like you said earlier in the call that the growth -- sorry, the growth outlook is looking better so far. So can you explain it in terms of the operational metrics, like how do you see the volume and the realization panning out in terms of the growth when you say the growth is looking better? And is it -- is the growth uniform across the geographies where we operate? Or is any one particular geography driving the growth?

So if you look at this quarter year-on-year, the volume growth has been close to 8.2%, 8.3% and the realization growth has been around 1.8%, okay? But if you look at our overall guidance or our yearly number, out of the 15% revenue, around 12% -- around 13% is volume growth and 1.5% to 2% is the realization growth. And coming to your other question, so if you basically see significant investments are going into outside Hyderabad, right? So while Hyderabad continues to grow, right, because we are investing in Bangalore, Kolkata, West Bengal and Pune, right, you will also see the growth -- the higher growth in volumes coming from these geographies because a lot of investments are going into this market.

So just in terms of these geographies, right? So firstly, coming to the Bangalore geography. So like what do you see the core factors being contributing to the Bangalore growth? And -- like how do you see the growth panning out in Bangalore? And similarly, yes, so firstly, for Bangalore, yes, then I'll ask for others.

Bangalore, we just launched Bangalore six months back, right? So ideally, for the first 1, 1.5 years, obviously, this volume is when you grow because there is no scope of taking any price increase in the first 1, 1.5 years, right, because we just started our operations, right? So obviously, it is a volume growth that will drive the revenue in Bangalore. And as and when we open more and more centers, you will see more growth coming from this market. Similarly in Kolkata, there was one center, other than Medinova there was one center on the name of Vijaya, right? And then we just launched three more centers and we are going to launch two more centers. So for the next at least 1, 1.5 years, the growth actually will be driven by volume, not by price as we are putting more and more hubs in this geography. Similarly, in Pune, we -- after taking over PH, right, we just launched two hubs and two spokes, and we are in look out for a few more spokes. Even in this geography, the price is not going to -- we will not take the price route, it will be the volume route. See, overall, if you see in Hyderabad as well, right, we're being present for more than 45 years in this market. Our concentration was never on price. It was always on the volume. So I think in the near-term, maybe like one, two years in the near-term, the growth, whatever you see across these markets could be volume and not by price.

So just two questions on this side. Firstly, do we see -- and I understand realization is not what you're looking for in terms of growing your revenues, but do we see any price hikes in the near-term? And secondly, just wanted to understand in terms of the breakeven timelines in each of these cities, right, the non-Hyderabad cities. Could you throw some light on that as well?

Any new geography, Vivek, kind of guidance that we give on the breakeven is one year because it's a new geography. It also takes a little bit of time to stabilize. These two centers have broken even earlier does not mean that the guidance would change. It's going to be one year. And in terms of price increase in the future, that would probably depend on a lot of things. Like Siva has mentioned earlier, if there's too much of impact on the input pricing because of this dollar fluctuation, then there's not going to be any other route than to probably take a slight increase. But we are waiting and holding on to that for the time being because we've always wanted to be affordable and the lowest in the markets that we operate in and in the landscape that we are in. So we will not be able to probably give you a confirmation whether there will be an increase in pricing, we'll just have to wait and watch. Also, what happens is an importing of the equipment. Sometimes there is a certain margin that we can be around with, but if there's too much of increase in the equipment cost itself, then obviously, there's going to be a little bit of differentiation in the pricing in that particular month.

Understood. So what you said in terms of breakeven, right, that usually across cities, it's one year, right? So during that time period, I mean, what's the impact on the P&L side of things in terms of whenever we launch a new center? So if you could throw some light on that?

So it all depends on the number of centers and the geographies that we launch. Like we said, we estimated the drag for the current year since the plan is to launch 10 hub centers, right? We estimated a drag of 1% to 1.5%. But if you actually see because the centers are performing better than expected, the overall drag is less than 0.5%. And still we are able to deliver that 40% margin. It all depends on the timing and the number of centers that we launch. But if it is like one center per quarter, you may not see much drag on a consolidated EBITDA number.

So this drag that you say of 0.5%, this is for which period and how many number of centers that have opened?

So that is like in the last nine months, we opened close to 10 centers. All the 10 centers put together, right? And these centers came in during different times, one center opened in the month of April, May, two in June.

And also irrespective of the time, Vivek, what happens is these were all hubs and not spokes. And we were also basically looking at that drag because we said we will hire in advance and train because these were all different new geographies [indiscernible] operate. And because of that, also that you're seeing Bangalore probably took over very quickly and started doing well because these people were already well trained in Hyderabad in one of the bigger centers. So it depends on the number of hubs and the timing that they would open in.

And also when we talk about the breakeven, right, we should train that part of our [indiscernible], but the EBITDA that you see on the P&L that we publish is because of the IND AS effect, you don't see your rent is part of depreciation and interest. So when we say there is a drag in the absolute terms, you may not see the similar drag on the EBITDA that we report.

Could you please repeat the part that you said about the rent and where it's included in the P&L? I guess your voice broke in between.

According to this IND AS 116 standard, right, the leases are part -- leases gets capitalized as a long-term asset and then interest we charge to the [indiscernible], right? So -- but when we talk about breakeven of one year, we include rent as an expenditure and then we say that we have broken even, right? So let's say, if the actual drag is, say, 1%, you may not see that on the EBITDA that we report because rent is below EBITDA as per the...

So any outlook from your end on the margin side of things for FY '27? And also, I see in your presentation that you have highlighted in H1, like how many hubs you are planning to launch. Could you throw some light on the second half of FY '27 as well along with the outlook on margins?

So since we are going to open two more hubs, we just opened two hubs in the last month, one in Nandyal [indiscernible]. And we are opening two more in Q3 of FY '26. Considering all that, we are still confident that we'll be closer to 40% EBITDA for the next half, which would be anything between 39.5% to 40% EBITDA.

And for FY '27?

For FY '27 also, because the overall CapEx is anywhere between INR 100 crores to INR 120 crores, which is lower than FY '26, the EBITDA margin is likely to be around 40%. Because by the time many of the centers that we opened in the current year will break even, right? So you will see a slight increase in EBITDA margin.

I guess you had said this earlier, but if you could provide your projected CapEx for FY '26?

Yes. FY '26, the CapEx for the new centers is around INR 160 crores.

This is in the second half, right?

No for the entire INR 160 crores. I'm saying that we incurred majority of the CapEx by H1 itself.

The next question is from the line of Surya Patra from PhillipCapital.

So my first question was on the growth side. Sir, in fact, on the radiology growth, this quarter, we have seen around 20% growth, which is really strong, I believe, considering the kind of national holiday, festive season, what we have seen in this quarter. So what has really helped it? Or do you think it is a normalized performance despite the relatively weaker season?

So firstly, the growth year-on-year is about 16% plus on the radiology. And like you rightly said, yes, to a certain extent, the growth was impacted by the national holidays. But at the same time, if you see in the last one year, we opened more hubs, right, close to -- in the last nine months to one year, we opened more than 10 hubs, right? Like -- and you've seen centers like Bangalore and Kolkata performing well. And like we say, whenever we open, launch a new hub, for the first one year, the revenue is generally dominated by radiology. In the first six months, in fact, the advanced radiology dominates. It will be like 70% of the total revenue being contributed by that hub. Because of these reasons, you still see the radiology revenue being strong -- in spite of a dull season, you still see the revenue growth from radiology at 16% plus.

Yes. Got it, sir. Sir, can you just clarify the kind of center mix? See, in fact, Hyderabad, it is 95, rest of Andhra and Telangana, it is 33, 22 Pune, Kolkata, around 7 and balance is...

Kolkata is five at the moment. We'll be opening two in Q3. So that will add to seven that will be by the end of this year. Bangalore is two as of now.

Okay. Fine. So sir, in fact, here in case of Pune, you see -- the revenue per center, if I see. So we have been obviously seeing a kind of a steady progress, but it is still much lower compared to the kind of a normalized revenue per center, what we have in the other places. So is it because of the lower number of hubs that we are having in Pune and whenever that hubs will be added, then subsequently, the realization revenue per center will improve? Can you give some sense when we can see improvement to the normalized level and what are the triggers for that?

No, no. So not because of that. So Pune is an acquired asset. And when we acquired Pune, having three hubs, three spokes. And the rest of the centers are pure collection centers where out of the 20-plus centers that we have now, only we have 5 hubs, 5 spokes and the rest of the centers are collection centers, where all these centers contribute only 5% of Pune's revenue. So ideally, in Vijaya Center, we don't have only collection center. But since it is an acquired asset, we acquired the collection center as part of the acquisition. So that is the reason if you divide the revenue on the centers and see and it will look like -- it will be lower than the company's average. But otherwise, if you see Pune, if you see the existing network, the old network, only on the hubs and spokes is more or less in line with what we have in our core geographies.

Okay. Regards to the Bangalore entry, so obviously, that we have -- looking at the kind of population density of Bangalore and we have already successfully penetrated there with two centers in Bangalore. So could you give some sense given the kind of success story what we have already built here in Hyderabad. So over a period of, let's say, three years, how big and how substantial or how successful does Bangalore can be for Vijaya?

So Bangalore is going to be a very long-term play. So even in Hyderabad, I think we took a lot of time to come to this stage. Obviously, yes, I understand considering the current bandwidth and the teams and the capital that we have, right? And because of Bangalore giving us the right [indiscernible], there's a lot of vacuum for a branded diagnostic centers. So like ma'am said, right, we already finalized one flagship center and looking for two more hubs, right? I think by end of FY '27, which is like 1, 1.5 years from now, from two hubs, we may move to five hubs and parallelly, like ma'am said, we'll be looking for spokes. But again, even if you see our earlier conversations on Kolkata, right, when we said two, three, but finally, we finalized about seven hubs now. As and when the opportunity -- we'll be in lookout for the locations. As and when the opportunity comes, we'll be taking these properties on leases. It is sometimes about finding the right property in the right location. That also matters when you're a B2C business. So that way, if you see, it's going to be a long-term plan, but at least you'll see two hubs becoming five hubs by end of FY '27.

Okay. And can you give some sense about the competitive scenario in Bangalore, whether you are facing more competition from, or it is not that so if you consider your home market that is Hyderabad.

All of the markets are competitive, Surya. None of the markets are not noncompetitive. The landscape remains the same. And in Bangalore, because it's also more in terms of it works like Hyderabad, you have a lot of chains, smaller localized chains that have four to six branches integrated in nature, but probably also considering the kind of traffic and the chaos and the lifestyle of Bangalore itself, every region has a player. And we were pretty strategic in probably choosing our locations in Bangalore. We did a lot of study, went into what we would go to the market with. We chose locations where there was no 3 Tesla, there was no cardiac CT. There was some differentiation that we took. We wanted to give it some time, build out the business, and that's worked well. And that's how we're also going to be looking at newer areas in Bangalore. All of the markets, including Calcutta, there is intense competition, but we are a differentiated player. We do not keep changing what we do. We are good at what we do, that is specialized advanced radiology with pathology work.

Okay. Just last one point regarding the pathology. So we have obviously seen a kind of relatively weak season against a strong season last year. So also, rain was one of the factors. So is it fair to believe that the acute season of the Q2 got shifted to Q3 and hence, one should anticipate a relatively stronger Q3 than the normalized trend?

I should say that we had a healthy season, and we should be happy about it. I would anticipate and be optimistic about a peak season. So I'm not assuming that. I'm thinking we will have a normalized Q3 as usual. And that's also a reason why we said we are confident about that 15% on an overall year level growth. So we should be happy that we were healthy and there's a lot more water in India.

The next question is from the line of Sumit Gupta from Centrum.

Yes, I just want to understand on the market share in the core markets of, let's say, Hyderabad and then -- and how the trend has been in terms of volume share or overall market share in radiology and pathology segment.

So Sumit, like we said, we don't have any recent reports. The reports that we are basically tracking were two years old. If you go by the reports, the numbers will not change as of now. So we still feel that we are less than 15% of the overall Hyderabad market, including hospitals. Maybe if we move hospitals, then we will be slightly higher. And the other markets, we are at a very nascent stage, right? So market share because Kolkata that we just entered has been two years and Bangalore is a very recent entry. But we don't have any reports from the past two years, either in FY '24 or '25 for us to comment on the market share.

Okay. But in the radiology segment would be having higher market share, right, in, let's say, Hyderabad market?

So again, Sumit, so basically, if you see all the old reports, they go generally at a country level or a state level. So the revenue, even though volume-wise, there may be a lot of difference. But in terms of revenue, if pathology is about 50%, 55%, radiology is considered to be 45% to 50%, right? But whereas for us, pathology is about 65%. So ideally, in that scenario, if you see our radiology share will be lower than pathology share for also the other reasons because in Hyderabad, all the competitors, if you take to player #2 to 10, 15, everybody is integrated in nature right? And we have a few hubs with a lot of spokes, whereas many of the other integrated players are more in hubs where the radiology revenue dominates for them, right? And also, there's a lot of pricing differential in terms of radiology when you see in hospitals because with all these factors, even though we don't have anything concrete in hand, we feel that radiology share will be slightly lower when compared to pathology.

The next question is from the line of Rajinder Singh an individual investor. Mr. Rajinder has dropped their line, so we'll go to the next participant, [ Mr. Rishi Modi ], an individual investor.

So two quick questions for you, and then I have some for Dhiren [indiscernible], I'll take offline. On the Pune front, right, you just mentioned your Bangalore broke even kind of early because the Hyderabad team leading the operations with a more smoother function.

I'm sorry, I'm not able to hear you now, it's breaking up.

Can you hear me now? Yes. So I was saying well as you mentioned that Bangalore breakeven was partly attributable to your Hyderabad team leading the operations there. Pune, from what I understand is a newer team now. Just wanted to understand is this the similar Hyderabad team relocating to Pune or you've hired some locals and how confident are you? Like I'm just trying to understand the dynamic.

Specially Bangalore but not Hyderabad team moving there. Pune -- Bangalore was entire Bangalore team probably spending close to three months in Hyderabad getting trained to be able to handle and run that geography. So that is also a reason why in the last quarter, we said there will be a slight drag, right? When you are opening 8 to 10 halves, you will also need that level of staff to be trained in your core market to be able to operate in these different geographies. So the entire Bangalore team, even though the centers were opened within probably Yelahanka and HSR 10 days apart, the team was appointed almost four months earlier and sitting in Hyderabad actually in one of the centers. Pune was an acquired center and Pune saw a lot of people actually go from Hyderabad to help them settle down, unlike Bangalore, which is an existing center with almost 20-plus years of legacy there. So these are two different things. And Pune is something that we will want to probably train the existing team, right? We cannot move them to Hyderabad. And Pune also had a lot of business that they did on their terms when they were running it. So now streamlining those processes, probably cleaning it up, getting certain things into place. Even though we would have changed the back-end ERP and all of the systems, getting the actual operational workforce to think and align to the central team takes a little bit of time. And there's a large team that actually spends time in Pune doing all of this. And that's the reason why we opened two hub centers, which we had guided earlier that we will give it some time to stabilize. And once that is done, we will see a lot more centers opening up. And the older centers in Pune to grow have capacity issues. They are all 3,000 to 4,500 square feet centers, where you will see the entire load come in, in the morning because of the fasting requirement. So there's no -- have to add newer spokes, which is what we are doing. And also aligning the team to think -- as for the central team requirements. In fact, the lab team spends a lot of time from Hyderabad and Pune even today.

All right. So may be a matter of two, three quarters when we start seeing some double-digit.

Yes absolutely.

Secondly, I wanted to understand there's been a bit of attrition at the KMP level within the group over the last year, 1.5 years, I would say. I just wanted to understand now with some sort of, I don't know, I wouldn't call it vacuum, but some space created in that KMP layer how does that also ...

We know how attrition has been in every level in our industry, but if you -- see actually the CTO, it's kind of unfortunate to see that he's exiting. But he comes with a lot of extensive experience in the IT industry itself, right? So when he was coming in itself, it was -- even though however vocal and transparent you are, sometimes it's their core interest. So today, I think probably he feels that AI is something that he is interested in. And when the intent want to learn and grow and that appetite is in their own field, then nothing much that probably I could do. So that's definitely very unfortunate. Siva is family. So it doesn't matter whether he's here, he moves on. Siva came in about seven, eight years back. He's played multiple roles, worked multiple hands has done different things. So I don't know how I'll fill Siva's vacuum, but at the same time, a lot of people you've been seeing at different layers. And we've always told you and the team that we hire whenever we see good talent, that will continue. But there's a lot of mid-level and senior mid-level teams that we've built over the years. So they're all there. There's not too much to worry about, but he's family now. That's something I cannot probably say anything.

I understand that. But like if I have to think of it this way, like at least last year, we had the confidence that opening 15 centers is now more of an easier job and maybe the team can move to, say, a 20 center per year addition. Do you think now...

So Rishi, probably the KMP that we're talking about were never part of the growth strategy because it's more of probably handling the operational and the IT strategy, right? So the technology bit was something that we've been time and again saying that we would like to invest and grow it, and that's when we said we will bring in a CTO of that kind of caliber. So we will continue to do that. We will bring in somebody in that position as soon as possible, and that's a separate thing that we would look at. And if you say 15 centers was easy, then I wouldn't say it was very easy then. It won't be easy now also, but 15 centers is something that we are very confident about. I was hoping that probably we'll get to a level where we do a little more than that We do the spokes and the entire year of FY '25 and '26 was about adding the base of hubs. And Vijaya has never seen addition of so many hubs earlier. So once these stabilize and breakeven, you will see a lot more in FY '27-'28, FY '28-'29 room probably to see a lot more spokes coming in. And none of these departures would probably make an effect in that growth plan for sure. There's definitely talent that is required. We will continue to keep taking people, adding people irrespective of whether we have people on board. So that shouldn't be probably a worry for anyone to say that there's a gap there, there's a vacuum there for growth. Definitely no.

Ladies and gentlemen, that was the last question for today. We have reached to the end of the question-and-answer session. I would now like to hand the conference over to Ms. Suprita Reddy for closing comments. Please go ahead.

I would like to thank everyone for attending the call. Should you need any further clarifications or any other information about the company, please feel free to reach us. Thank you.

On behalf of Vijaya Diagnostic and JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.