Vimta Labs Limited (524394) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Vimta Labs Limited Q2 FY '22 Earnings Conference Call hosted by Nirmal Bang Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Nirmal Bang Institutional Equities. Thank you, and over to you, Mr. Manchanda.

[indiscernible] Institutional Equities, I welcome you all to the Q2 FY '22 Earnings Conference Call of Vimta Labs Limited. We thank the Vimta Labs management for giving us an opportunity to host the call. Today, we have with us the senior management of Vimta represented by Ms. Harita Vasireddi, Managing Director; Mr. Satya Sreenivas Neerukonda, Executive Director; Mr. Narahai Naidu, Chief Financial Officer; and Ms. Sujani Vasireddi, Company Secretary. I now hand over the call to the company management for opening comments. Over to you, ma'am. Thank you.

Thank you, Vishal. Good evening, everyone. Thank you for joining us today in our Q2 FY '22 earnings call. We have yet another good quarter. This financial year started well for us in Q1 with a better performance in Q2. Despite the COVID second wave that we saw in Q1, it has been a good half year with a robust performance from the company. We expect to maintain or better this performance going forward into the second half. I will share a few key highlights of the quarter. And our CFO, Narahai, will get into a little more detail on the numbers. The performance for the quarter and half year played out in line with our expectations. The second quarter's consolidated revenue from operations grew by 9.6% over the corresponding quarter of last year at INR 650 million. EBITDA for the quarter was up 25.3% at INR 200.7 million compared to corresponding quarter of last year. EPS is good, it stands at INR 4.3. On the operations side, all our service vectors continued to grow steadily. So we continued to invest in manpower, technology and keep building new services to strengthen our portfolio to our customers. Some of you may be aware that we have entered into a Public Private Partnership with FSSAI, the Food Safety and Standards Authority of India, to set up and operate the National Food Laboratory at JNPT, Navi, Mumbai. It's a 25-year contract. The purpose of the laboratory is to test all the food imports into the country through that region. That's for basically the quality and safety of the imported items. We have finished the infrastructure works and have formally inaugurated NFL on 29th September of this year in the esteemed presence of FSSAI's Chairperson and their CEO. The lab will start commercial operations early Q4 after we obtain the NABL accreditation. We are in the process of validating all the test procedures. During Q2, we also inaugurated our diagnostic regional lab in Delhi. Q1, we had inaugurated a regional reference lab in Kolkata. So this is other one in Delhi that we inaugurated this quarter. The regional labs will take about 2 to 3 quarters to get significant customer traction in those regions. Coming to electronics and electrical product testing division. We have finally received all the equipment and essential accessories. We are performing trial testing and also preparing for NABL accreditation, which we expect to receive in Q4. ESOP have been implemented for our staff, and I'm very confident that the scheme will add great value to not only the employees, but also a lot to the organization. So with these few comments and updates, I will now hand over to our CFO. Narahai, please take over.

Thank you. Good afternoon, and welcome, everyone, to Vimta's conference discussing our earnings results for the second quarter FY 2022, which ended September 30, 2021. I'm happy to take you through the financial performance of the company for second quarter, followed by the half year ended September 2021. During this call, we may be making certain forward-looking statements, which are predictions, projections or statements about future events. And anything said on this call, which reflects our outlook for future or which could be construed as a forward-looking statement, must be reviewed in conjunction with the risks that the company faces. We will proceed discussing quarter 2 of FY '22 performance. So revenue from operations is driven by continued business performance. The company delivered a robust result for the quarter ended September 2021. Before I get into earnings detail, I would like to brief on certain one-off items during the quarter and half year ended September 2021. During the half year ended September 2021, the company entered into a 25-year PPP agreement with Food Safety and Standards Authority of India to set up, operate and transfer a National Food Lab. As a result, the company has received the right to charge the customer for the services to be rendered during the contractual period of 25 years on commencement of operations at NFL. Accordingly, an amount of INR 104 million has been recognized as money from operations relating to lab setup services and a corresponding cost of INR 104 million incurred to set up the lab has been recognized as cost of lab setup for the quarter and half year ended September 2021. The aforesaid treatment is very much in line with the Indian accounting standards. Secondly, there was another one-off item. There was a notification by the government reducing the eligible rate of export incentive by 2%. We have been accruing export incentive, which is Service Export Incentive Scheme for each and every quarter as and when they accrue. The company had accrued export incentive on its net foreign earnings for the previous financial years. And therefore, there was a need for us to reverse the revenue of INR 12.2 million for the quarter ended September 2021 to the extent we accrued at higher rate than the current notification, which was belonging in 2 previous financial years. Moving on to the financial performance during the quarter. For financial performance discussion, I'll be excluding revenue and cost of INR 104 million recognized on lab setup. Excluding that, the company delivered its highest-ever quarterly consolidated total income of INR 651 million. Our consolidated revenue from operations stands at INR 651 million, which grew by 6.1% on a sequential basis and 9.6% compared to corresponding quarter. Our consolidated EBITDA of INR 200.7 million grew by about 19% compared to previous quarter of around INR 168.7 million and grew by about 25.2% compared to corresponding quarter, which was about INR 160 million, driven by strong underlying performance across almost all the business verticals of the company. Profit before tax stands at INR 1.3 million, which grew by 31.1%. This is before exceptional item of SEIS income compared to previous quarter level of INR 109 million. And the growth stands at 44.5% on a comparative corresponding quarter basis. This was owing to a very careful cost management. Moving on to half year performance. Our consolidated revenue from operations increased during the half year by 37% to INR 1,264 million. Our consolidated EBITDA for the half year reported a significant growth of 86% at INR 369 million compared to previous half year. Profit before tax for the half year stands at INR 239.8 million, which is a growth of 3.2x compared to previous half year, which was about INR 75 million. With this brief summary, I will hand it over back to the operator, and we'll be happy to take any questions.

[Operator Instructions] The first question is from the line of Milan Shah from Urmil Research Consultancy.

Hello?

Milan Shah, your voice is breaking. May I request you to go in a better reception area?

Now it is audible?

That's slightly better.

Okay. I want to understand the expenditures for setup lab, which stands at INR 4 crores in this quarter. It is going to be next quarter? Or we are going to set up other labs in other ports. Is there any future growth possibility?

We have spent about close to INR 10 crores in the setup of this lab. What we have done is, to speed up the project, we have internally mobilized some excess capacities that we had at all our different locations. So actual asset cost, if you put in new stuff, would have gone up to maybe INR 20 crores, but because this was an internal mobilization, the investment stands at INR 10 crores. And we don't intend to, at the moment, start any other port laboratories.

Okay. But any -- other ports also have this kind of laboratory?

There are 3 NFL -- 4 NFLs, actually, in the country. The one in Delhi is also in a PPP model that FSSAI has entered into with another private partner. The Kolkata lab NFL, they are managing on their own. And then there is another one, which is in the Chennai Port area, which, again, they have another private partner.

Okay. And what is the probability of revenue after fourth quarter when we are going to start commercialized from this lab setup?

We expect a very strong addition to the top line and bottom line. We actually don't give out numbers. But as such, the committee is yet to sit down and fix the prices. And in the port, especially food imports, this tends to be a seasonal business. So quarter-on-quarter, there could be fluctuations in the number of samples that we get for testing. So as we test the samples, maybe go through a few quarters, we will understand more.

Okay. And my second question is there any these kind of laboratories available on airport come in so we can see the future maybe?

I'm not sure that any of the airports have attached laboratories.

Okay. And very good performance for this quarter and hope for better in the next quarter.

Thank you, sir.

[Operator Instructions] The next question is from the line of [ Surabhi Saraogi ] from SMIFS Capital Private Limited.

Am I audible?

Yes, ma'am.

Okay. Sir, my first question is can you give some update on your electronics business?

As I was already mentioning in my opening comments, the E&D project is actually close to completion, at least the project stage. We finally received all the equipment parts and accessories. So we are doing some trial testing now. Simultaneously, we are also preparing for the establishment of quality management system and its accreditation by NABL. So we expect accreditation to happen in Q4. And from thereon, we'll be able to accept customer samples.

Okay. And then can you give some color on the future outlook and your major future plans?

We have multiple business verticals. We are into food testing. We are into pharmaceutical testing, right, from preclinical research to clinical research. We support analytical testing services for small molecules and large molecules. So we are into biopharmaceutical analytical services as well. We do environmental impact assessments. We do clinical diagnostics. And now we are on the verge of starting electrical and electronic product testing. So for us, the future outlook is very bright. All the 5 sectors that I named are high-potential sectors. We expect good growth in all our divisions.

The next question is from the line of [ Vaja Debo ] from Nirmal Bang.

Yes. Could you share some color on what drove the strong growth of 25% on a quarter-on-quarter basis for Vimta?

Sorry. Could you repeat, please?

Could you share some color on what drove the strong growth of 25% on a quarter-on-quarter basis?

All the divisions did well because we have started pushing all the sectors -- or vectors for us. So growth came from across all our business units.

Okay. And should we expect the food lab setup with the Private Partnership with FSSAI to start contributing to revenue?

Q4. Like I was mentioning, we are in the process of submitting our application to NABL. Once we submit the application, they take a month or so to review it and then come for an audit. So the entire process might take 2 to 3 months.

[Operator Instructions] The next question is from the line of Neha Mehta from Pragya Equities.

Yes. So just my question is in connection or continuation with the previous participant. I just wanted a sense on which would be the fastest-growing business segment for the next 3 to 5 years. Until now, I believe pharma was dominating. So what is -- this segment will do well in the future?

That's a very nice question. For us, yes, pharma has been growing very well, very strongly year-on-year. Food and diagnostics, more of these services also we expect to grow quite rapidly. Electronics and electrical testing product division, it's going to be a maiden year this year. So we hope things will be good, but we'll have to travel and see how that goes for us.

Okay. And this last con call and even in the update, you mentioned that we've opened -- we've expanded our diagnostic business. So just wanted to understand that the growth is coming from COVID cases only or there is any non-COVID factor also that is playing?

In Q2, there is no COVID cases impact. The numbers are really across the country. So there is no impact of COVID in Q2.

And going ahead, how -- where do you see the growth coming from?

It will happen across -- it will happen across food. It will happen across pharma. It will also happen from diagnostics. We have also expanded our environmental division. We have 2 satellite operations set up in Kolkata and also Noida. So environment will also grow for us.

Okay. And the CapEx plan for all these things for the next 3 to 5 years?

We plan CapEx on an annual basis. This year, we have spent about INR 12 crores, and we might spend an equal amount in the second half.

So can we assume a similar run rate for -- in the future?

We want to maintain it, yes.

The next question is from the line of Charulata from Dalal & Broacha Stock Broking.

Yes. Congrats for the good set of numbers. I wanted to know if you could give a breakup of the different divisions -- revenue contribution from different divisions and also some -- if you could throw some light on the growth in EBITDA.

We don't bifurcate our revenues like that. For us, it's one -- it all falls under the testing and research services. So we won't be able to share any bifurcation as such.

Okay. And what has given the growth in EBITDA?

Growth in EBITDA is partially because of the growth in the top line. And also we've had -- we had some establishment of some new long-term partnerships. So large projects also add to the EBITDA.

Okay, okay. And how many scientists do you have?

For us, the total strength is about 1,300. And our scientific population is 70% of that number.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

My first question is regarding the growth. So if I exclude the INR 10 crore, that one-off from the revenue, our revenue grew by 10%. And if I see our pre-COVID level, we used to grow at 15% to 20% prior to 2019 for at least 4, 5 years. Now let's say, this year, we might end up with -- if our Q2 performance continues for second half as well, we might end up at INR 240 crores, INR 250 crores revenue this year. And given that electronic business will start from Q4 onwards and even this FSSAI will start from Q4 and the recently started diagnostic centers led in Kolkata and Delhi will also get matured by year-end, what kind of revenue growth percentage we can envisage for FY '23 and '24?

We don't make any forward-looking statements. I keep mentioning in these calls that we have a target for 2025 to be at least a INR 550 crore to INR 600 crore company. So we just have to break up that growth into these 3, 4 years and take it from there.

Okay. So at least we can expect that in near future we will start growing again at those pre-COVID level of 15%, 20%?

The numbers, I think, that you're referring to in those [ earlier ], sir, were annual growth numbers. But if you think quarter-on-quarter, I think we are doing pretty good. Those numbers -- we can even better those numbers.

Okay, okay. And is there any further plan of expansion in diagnostic in H2?

This is the first time actually we significantly expand footprint in a B2C market because in addition to putting up the 2 regional labs, we have also set up a few customer collection centers, company-operated collection centers. So for us, again, this is a water testing year, Depending on how that pans out for us, we might take up the expansion plans much more aggressively in the coming years.

Okay. And one last question from my side. In terms of pharma business, so obviously, in Q1 when there was a second wave of COVID, there were difficulties in terms of importing the animals and also difficulty in terms of signing up the patient. So how are we seeing the trend now?

The animal imports problem has been resolved. We have been able to actually double our kennel capacity. So we have one of the largest -- large animal capacities in the country now. So that is resolved. The second one was?

Yes. So second one was related to your clinical trial, the patient recruitment for the clinical trial.

Yes, yes, yes. So we are actually at present not doing any clinical trials. What we do is bioavailability and bioequivalence studies. So right now, we don't have any trials going on for us. Diagnostics, yes, in Q1, we still had lower footfalls in terms of patient sample testing, but it was more than well compensated by the COVID testing numbers. In Q2, that's normalized. We don't have COVID, so it's the other business that is happening now.

The next question is from the line of Ranvir Singh from Sunidhi Securities.

Just wanted to understand that food lab we have set up. So what kind of investment we have made in this food lab?

We have invested about close to INR 10 crores.

And that investment part is complete now?

Yes. The equipment and everything are set up. They're qualified. And any residual investment might happen in Q3.

Okay. So in this food lab, you've mentioned there would be some strong revenue coming up from this lab. So whether that -- you will not be able to give the number, I understand, but whether this division is likely to be a prominent division in our overall revenue breakup?

Ladies and gentlemen, please stay connected. The line for the management dropped. [Technical Difficulty] Ladies and gentlemen, thank you for your patience. We have the management line for you connected. Sir, you may go ahead.

Go ahead.

Yes. So I was asking, investment in food lab, you mentioned that there will be some strong flow of revenue. So whether this revenue would be a predominant part of our revenue going forward, this is going to be a significant -- significantly contributing to our overall revenue? Or how this is going to -- if I take 2, 3 years down the line, so what kind of contribution we can expect from this facility?

The revenue is entirely dependent on the number of samples that we test in the National Food Laboratory. Like I was saying earlier, this is to mainly cater to the imports. The imports, although they are not growing at any double-digit number, but still they are quite stable. Going into the future, it's very difficult to predict which way the imports will go. India is saying that there will be a lot of self-reliance that we will develop. But my guess is the food imports, even though we might become a strong exporter, the imports might still continue at those levels. So we should expect the revenues to continue or even grow with the economy in the next 25 years.

Okay, okay. And apart from -- this facility is dedicated to this port facility? Or we can use this facility for other clients also?

We can use this facility for other clients.

Okay. And secondly, on diagnostics side, our diagnostic business setup is similar to other peers like Thyrocare or some. So this is related to preventive health care checkup? Or do we have some other [ organ ] diagnostic business?

It's very similar to the peer group. You mentioned Thyrocare. So it's quite similar to that.

Okay. So it's like a hub-and-spoke model and we'll be setting up for reference lab in different cities and then collection centers. That is the way we will be going forward?

Correct. Yes.

Okay. Fine. And what is the investment in this diagnostic business so far?

It's not a very CapEx-intensive business. It's more as our sales reach out. So not really significant.

Okay. So that 12 year -- INR 12 crore CapEx in first half was related to what? Additional maintenance or some growth CapEx?

That is distributed across all our business units. It could have included even diagnostics. It would have gone to pharma, food, all the business units put together.

Okay. Similar case for next year also, the INR 24 crore, INR 25 crores annual CapEx should be across segments. That's what you are saying?

Yes. Typically, we tend to use up all the depreciation amount.

The next question is from the line of Sunil Jain from Nirmal Bang.

Yes, sorry. My question is related to the INR 10.4 crores, which you had recognized as a revenue. So against that, how much expenditure has been recognized? And how much is the profit in that?

Yes. So as you rightly said, we have recognized about INR 104 million at the revenue from operations level, which is nothing but the cost that we had incurred to set up this lab. The cost, what we incurred is INR 104 million. So on a net-net basis, there is no impact on bottom line. So there is a similar amount of recognition at revenue as well as cost, which is INR 104 million.

So if I exclude that from the revenue and cost both side, then your margin seems to have moved up very sharply in this quarter. Any specific reason for that? Or how we can read it?

You're absolutely right. So margins did improve. That is because we had -- whenever there is an incremental revenue, there is economies of scale.

Yes. But from INR 61 crore, if I exclude this revenue, then it's INR 65 crores from last quarter to this quarter, but the profit recognition is much higher than the INR 4 crore.

So the EBITDA improved by around 400 bps for the quarter, I mean, on a sequential basis, which is from the operational efficiencies during the quarter.

Okay. There is no exception, it's all because of operational?

There's no exception in the EBITDA level or PBT level. Exceptional has been shown separately. There's 1 line item in the balance sheet, which is about INR 12 million.

Yes, yes. And part from that second question relate to this food lab, if -- what will be the revenue sharing with the government with this? And -- or it will be more of a profit sharing? How it will be working with?

It's a top line share. We went through a bid process, so it's a top line share.

Okay. And these are all having the similar margin to company level? Or it will be a lower-margin business?

It should be better.

Better. Okay. And because of this lab, any of our existing business will get transferred to this or no?

No, no.

Okay. Fine. Okay. And the size of business you are not sharing? Okay. Fine.

The next question is from the line of Vinay Nair from Emkay Global Financial Service.

My first question is related to you mentioned that you're targeting a revenue of INR 600 crores by next 2 to 3 years. So with the CapEx, which you had mentioned of around INR 10 crores to INR 15 crores, is it achievable or you would be requiring additional CapEx for that? And secondly, pardon if my question is very basic, but if you can give me some understanding about the competition and the industry per se. I mean what is our market share and who -- I mean who are our closest competitors? If you can throw some light on that.

Okay. That's a very big question, the second one. I'll answer the first one first. Yes, we have an ambitious target of reaching close to INR 550 crores or INR 600 crores by 2025. This would require additional infusion of CapEx. It depends on which business units we'll be pushing hard to reach there. The second one is about market and our share. We operate in multiple verticals. On the pharma side, analytical especially, we are the leader in the market. All the U.S.-oriented business, we work with practically everybody who is in that market. Market share-wise, we have honestly not done any specific marketing. But if I were to take a good guess, then I would say that U.S.-oriented services, we probably have the lion's share. We have good number of competition in Hyderabad, in Bombay and [ Dhanbad ], but I think we take the lion's share there. Coming to clinical research and preclinical. Again, preclinical, we are one of the premier research centers, one of the preferred ones in the country because of our strong regulatory track record. We have strong competition from one multinational and then there's a few -- half a dozen local players. So pharma side, we could be enjoying a share of maybe 10% to 15%. So that would be my guess. Clinical research, bioavailability, bioequivalence market is big one. There are many players. I think there must be at least around 100 or 150 service providers. So market share there might not be very big for us, but we are one of the premium laboratories. We work with the highly quality-conscious organizations. Most of our business comes from overseas for these services. Then coming to food, highly fragmented. There are hundreds of NABL-accredited labs, small mom-and-pop type of setups as well. So it's -- given the number of players, I think if you just divide among the top maybe 8 to 10 players, then I think we have a good share there, maybe 10%. Environment, we are a leader. There also you have a good number of laboratories, but the revenues are pretty small for all of them. So we might be in the top 5 labs who do environmental studies. Coming to diagnostics, we are not big at all there. There are very big companies there. So our market share might not even be worth mentioning at this point of time.

So the rest of the business segments, the competitors you're talking about, even the largest one, would be somewhere close to -- the revenue size would be somewhere similar to what you're reporting, right? I mean, no one would be like INR 1,000 crore-plus revenue generator? I mean if I'm understanding you correctly.

Which...

All the rest of the -- apart from the diagnostics, the rest of the segments, which you were talking about, you said that either it is segmented or there are -- or you are the market leader. I mean either it's segmented or the ones which are specialized, there you are already one of the market leaders, which means that in -- I mean, even amongst your competitors, no one would be like more than INR 500 crores, INR 600 crore revenue enterprise. Am I right in my assessment?

Not entirely because the unique mix of services that we have are not exactly matched by the competition. So it's very difficult to compare like that.

Okay. So just to give you an example, if I compare you to the -- recently there's this company based in Ahmedabad who had filed for an IPO. Would you call them your competitor, a Veeda Clinical Research. So just from my understanding so that I am also able to analyze it better. So...

The complete -- go ahead, please. Please finish.

Yes. So I just wanted to understand if Veeda like a competitor in one of your segment or it's a competitor as a whole.

Just one of our segments. They do only BA/BE studies.

Okay. And in the rest of the segments, you are saying that individual -- each segment has a -- has prominent players, and you are one of them. That is what you meant to say, right? I mean you are amongst the leaders in all the rest of the segment. That is what you said, right? Like in clinical research, you would be like -- I'm sure Veeda is also somewhere around INR 200 crores to INR 250 crore revenue company. I don't know about the other players in the other segments. But going by what you have told me, I mean it's very clear that you are amongst the industry leaders in most of the segments. Am I right?

Yes.

Okay, okay. That answers my question.

The next question is from the line of Aman Vij from Astute Investments.

My first question is on our clinical research/pharma business. So in terms of number of beds, could you talk about where do we rank? And any plans to do additions on that number of beds?

Number of beds, we might be in the top 10, definitely. And yes, we do have thoughts about expanding it, not necessarily in the state of Telangana, but maybe we'll look towards north when we do that.

And the current bed number is around 180 to 200?

Correct.

And the utilization level, ma'am?

100%.

Okay. So this expansion can be full then if we are already utilizing.

Yes. We -- I think we have -- we think there is a possibility of a requirement of expansion maybe sometime in next year.

And if you can give roughly -- if we have to expand by, say, similar capacity, 200 bed, what is the normal CapEx for such expansion?

The CapEx in these studies, there are 2 halves of the service. One is the clinical part and the other is bio analytical. Clinical part doesn't need a lot of investment. The bio analytical, it depends on how many mass specs you wish to deploy. It all depends on that.

Sure. I'm just saying, for a rough approximation, if we have to set up similar facility like we already have, what will be the CapEx required in a new region front?

Then just on the bio analytical side, if we have to build a equal number of instruments, then it might cost about INR 10 crores to INR 13 crores.

Sure, sure. Yes. Sorry, we are in top 10, not in top 5 or top 3. Because I had the assumption we should be in at least top 5.

Clinical research, no. We may be in the top 5. But the top 1 and the 2 players, their capacities are really high. So even 3, 4, 5 are probably at our shoulder level only.

Yes. They have like 400, 500 beds, but they also cater to -- we have some beds outside India also, if I am...

Correct. Yes, yes.

While we are -- we will be focusing only on domestic expansion?

For now, yes.

Yes. Sure. And then second question is, if you look at our 4, 5 business segments, so CRO part, if you remove that, so ma'am, diagnostic will be, I think, the second biggest. So which we -- in that 4-, 5- -- 4-year vision of INR 500 crores, INR 600 crores top line, so you had earlier talked about INR 100 crores each from the newer segments. Which segment do you think will cross that threshold of INR 100 crores cost according to you?

Food, I think. Food should go first.

Okay. And followed by, ma'am?

Diagnostics.

Sure. And finally, the final question is what is our CapEx plan for -- total CapEx plan for this year FY '22 as well as, say, next year?

Next year, we would be planning only towards the end of this quarter. But this year, we have already spent INR 12 crores. We might spend equal amount in the second half.

The next question is from the line of Milan Shah from Urmil Research Consultancy.

And this is for Mr. Naidu. Sir, I requested...

Sorry. Your voice is cracking.

Third con call -- better now, sir?

Yes. It's better now. Correct.

This is for Mr. Naidu. Because in third con call, I asked madam to update our website because I am doing a PMS service for a client. And our site is not going to update any news, which has happened in last 2, 3 quarters. So my request to update this one or maybe make a very prominent website for our company. And second, every company are going to make a presentation for after declaring the results. So it is very useful to understanding for client also. So it is maybe possible, then do it.

Noted, sir. So we are in the process of launching our new website. So probably in a fortnight or a couple of fortnights, we'll be launching our new website.

Okay. Congrats in advance, sir.

Yes. Thank you.

And regarding maybe, if possible, then do present for quarterly results because many companies are going to make a presentation of -- because all customers are not going to understand our business model because...

The line for the participant dropped. We move to the next participant. The next question is from the line of [ Dilip Sahoo ], individual investor.

Yes. Yes, it's regarding the investment we have made in the new food laboratory. You talked about INR 18.4 crores investment, but that's using your existing resources. And if it hadn't been that, it would have been INR 20-odd crores, if I heard it correctly. We typically do 1.5 to 1.8x asset turn in our regular business and -- can we say that on a INR 20 crore kind of investment, the asset turn will be 1.8, 2x for the new food laboratory?

For us, it typically tends to be around 1 to 1.5 only depending on the service line. So that we can expect.

So around INR 30-odd crores of business for -- assuming that we have a similar kind of turn. So that's what in near future may not be quarter or 2. Maybe a year or 2, it will happen.

Like I said, we are yet to start the operations committee. FSSAI and Vimta companies, we had to freeze on the prices. We are yet to explore the volumes because you do get some numbers when you're bidding, but you will have to experience that. So once we go through a few quarters, I think we'll be in a better shape to respond to that question.

Sure. No problem. Coming back to the diagnostic business, we had an RRL in Hyderabad and then Kolkata, now Delhi. We have CRLs now. But we have run 40-odd customer collection centers. I'm just trying to understand the business model. This is not -- this is different than the ratio of RRL versus collection centers. So is it predominantly a B2B business for us or how is it? Is it a B2C business?

It is predominantly a B2B business. What we have in Hyderabad is the main reference laboratory. The ones that we set up in Delhi and Kolkata are mini versions of this, but they are having a good size of menu at these 2 locations. They have biochemistry, microbiology, molecular biology, everything. Now our collection centers are 40, but we have a lot of franchisee network. So we get samples from clinicians, which work with our franchisees. So the number of franchisees that work with us is in higher numbers, close to 500, 600-plus.

Okay, okay. Now if I remember correctly, you had said in Q2 last year or Q3, you have reached a INR 10 crore kind of revenue for diagnostic business. Obviously, that would have dropped because of COVID and getting relaxed now. So reaching INR 100 crore for diagnostic means you would be growing around 25% to -- or more in next 3 years. Am I missing something here? The 25% to 30% growth in the diagnostic business you will see in the next 3 years?

The number that you have, INR 10 crores is wrong. But at the same time, I won't be able to correct you with a specific number. So growing from where we are into that, it will be a very challenging task. But I think we are geared up with our strategy. We are geared up with the team to reach our targets.

The next question is from the line of Sunil Kothari from Unique Portfolio Management.

Congratulations to madam and the team for such a good and qualitative better numbers. My question is on cash flow. We have 2 items which talks about impairment loss on receivables and bad debts written off, which is almost INR 3.5 crores for half year. Would like to understand from you the strategy we want to follow and to tighten our receivable systems to not lose this type of money maybe annually INR 5 crores, INR 6 crores, which is a big amount for us. So your thought process on that. And second is we have paid some INR 5.2 crores for a purchase of intangible assets. If you can talk a little bit more on which is this intangible assets and related to that?

Yes. So I'll be answering those 2 questions. On the first thing, there's a provisioning of INR 1.7 crores for the first half of the financial year. This is in line with the IND AS requirements, which is, as per expected, credit loss method. On the second line item, there's a write-off. So we have been very prudent in terms of assessing the receivables and providing for that and when it is needed. So it's a continuous exercise. So accordingly, we have written off certain receivables. On the action plan, the entire management team is very closely working on to improve the situation. So I'm sure that, going forward, we'll be able to improve the situation on the receivables. There are a lot of internal efforts, which are being -- or internal resources, which are being deployed to improve the situation. Having said that, this is a very regular in nature, so there's nothing alarming when it comes to the provisioning as well as write-off. That's on point number one. Point number two, investment deployed for purchase of intangible asset. This is what we had incurred, the cash, what we incurred in setting up the lab what we had already discussed of National Food Laboratory. So the total investment comes to around INR 10.4 crores. There is something, which we had incurred out of cash. There is something, which we had pulled out of our existing resources and transferred it to set up this lab. All the questions are answered.

Okay. So total investment we made is INR 10.4 crores. Out of that, this INR 5.3 crores is intangible-related?

No. Total INR 10.4 crore is cash plus intangible, but cash impact is INR 5.2 crore. There is some transfer from our existing assets, which is about INR 5.2 crores.

Yes. Understood. Thanks for this clarification. My question is to ma'am. This almost INR 3.5 crore rough yearly, we are losing on this impairment and that is bad debt. So on the size of company to lose INR 6 crores, INR 7 crores per year, I don't think it is acceptable to you or your management. But I wanted to understand your thought process on what steps we are taking and how you feel this is acceptable?

Typically, in our industry, 1%, 1.5% is not at all alarming. And like CFO was mentioning earlier, we just follow the formula in order to provide for the provisioning. As such, there is no lack of control over this item. Things got a little sticky, especially on the retail business, during COVID because we were not traveling. Our teams couldn't travel. Our teams couldn't meet the customers sadly. So some accounts became a little sticky, but we keep working on those things. So it's all part of business for us. I wouldn't say there's anything alarming about it.

Okay, okay. Great. And my last question is would you like to throw some light on your ambition to have some type of EBITDA margin maybe over the next 2, 3, 4, 5 years? Or this range is maintainable? Or any scope to improve with there?

We want to maintain it, and in fact, try and better it.

[Operator Instructions] The next question is from the line of Viral Bhansali, individual investor.

Yes. Congratulations for a brilliant set of numbers, and it is really refreshing to see Vimta so aggressive again after having seen it so aggressive in the -- between 2000 and 2010. So that's a very refreshing change from Vimta even without the INR 10 crore onetime revenue that Vimta has had. My question is regarding the JNPT lab, which is -- which you -- Vimta won on the PPP basis. So what is the -- I mean the [indiscernible] lab went on a 15% minimum revenue share that was mentioned in the RFP. So what could be the revenue share for JNPT lab?

You're asking us to share with you our secrets, Viral. I won't be able to share that because it won't help me in the next bid, right?

I understand, I understand. Yes, I was -- coming to that only. So because I think that the RFPs for Chennai and Mumbai were floated together.

Yes. We bid for both, but the size of the JNPT lab is much, much more bigger than the Chennai lab. 66% of the imports happen through JNPT. And the model that we have entered into with FSSAI here at JNPT is not similar to the one that they have at [ Kaldia ], but they're slightly different.

Okay. Yes, because [ Kaldia ] is an [ ICD ], I guess.

Yes.

It's not a port. So that the volumes will be 1/10, maybe 1/15 over there.

Yes, yes. Much less.

Yes. So now based on the figures mentioned in the RFP, the JNPT does close to pre-COVID levels, close to around 1 lakh samples for consignments of -- input consignments of food every year. And the charges at that time, like before COVID were around 5,000 everything apart from milk and the beverages part and INR 2,000 for the visit in case you have to visit the client's end. So are these charges now there? Or maybe we may even see an upside the potential to these charges?

The charges have recently been revised. They have been doubled, in fact, very recently.

Okay. So I don't want to get you into any uncomfortable situation about the numbers, but I can get a sense of numbers from -- based on 1 lakh sample in here per year. So any idea if the Kolkata lab is going to be put on the block in a similar way?

They have no plans of going in for a PPP there and nothing that we are aware of at least.

Okay. So now coming back to the JNPT lab, since you have provided INR 10.4 crores for the infrastructure setup over there. And the RFP mentioned that the lab is on a set up, operate and transfer. So what I presume is whatever you have set up, you have built it to the JNPT. So the infrastructure -- sorry, FSSAI, sorry. So whatever infrastructure that you build belongs to FSSAI, you'll just be -- Vimta will just be the operator of it, you'll have the license to operate it for next 25 years and then transfer it back? Is that correct?

Correct. The site was provided by them. Of course, it was an old hospital building that we got. So we had to do a lot of modification. We put our equipment, our people. And then at the end of 25 years, if we are not able to renew the contract, then we transfer it on an as-is basis minus the people, of course.

Just to add to that. So this revenue, what we had recognized is more of an accounting treatment. We haven't reimbursed anything on FSSAI for that. So this is more of an asset recognition in the form of intangible, which is routed through P&L.

Okay. So we are not going to receive any payment on this?

No. Because this is our -- this is the asset what we had recognized, but there's a corresponding right to receive the revenue for the next 25 years. This is in line with the accounting principles, where we had recognized intangible and the corresponding revenue and cost.

Yes. So basically, that comes as an intangible asset. And so we will get the cost for it and we create that as an intangible asset.

Absolutely. Correct.

Okay. So based on what you said that the prices have almost been double and the samples are based on the RFP, the samples are close to 95,000 a year. And obviously, I expect some growth year-on-year like samples or so. That can be a significant amount of Vimta's revenue coming next year, FY '23. Am I correct?

Yes.

Okay. And my last question is regarding the capital work in progress that I see is INR 25 crores right now as on 30th September. So can you give us a breakup on this capital work in progress?

See, this is -- this largely represents our E&D vertical, what we call sales, which is our electronics division, which is yet to get commercialized. We are expecting this to be commercialized in the [ third ] end of the quarter or early quarter 4. So we're in the last leg of getting accreditations, qualifying the assets. So there's a technical [ period ], which is available for this. So the entire amount of INR 25 crores belongs to E&D vertical.

So the electronics testing?

Correct.

Yes. And then my last question is regarding -- recently, there was a government notification which mandates compulsory testing of egg and egg powder exports from India by a national laboratory. So can Vimta get a share of this in the export market? Is there a possibility?

If they have specified that RRL -- reference lab, NRL, sorry, national reference lab, take it, then there are identified labs for each product, then that would go to that particular lab. But if it is a tendered project, then we could have a chance at it as well. I'm not really aware.

Okay. And it was just the recent one in September. Okay. So now regarding the export front like, for example, the RFP, I'm just quoting what I had in RFP and maybe -- correct me if I'm wrong, okay? The RFP suggests that Vimta can also use the laboratory -- the national reference laboratory setup with JNPT for other services -- by giving or providing other services to its clients. So is there a possibility of getting a significant chunk of this business since we are already -- since you already have a brand name on FSSAI and we are a support. So is there an opportunity to get good business from this?

There are plenty of opportunities. But for us, the capacity is limited because it's just a 12,000-square foot lab that is set up right now. If we have to expand the capacities, then we have to work with FSSAI and do that. But right now, I think that we'll be using the entire capacity running the lab in multiple shifts to handle those volumes.

Yes. But considering that there is also a food part coming up in the JNPT area itself. So...

And like I said, we have a lab close by in Pune. So maybe we will have to send it there depending on the capacity utilization and the time of the opportunities -- timing. It all depends.

And do these guys, SGS, Intertek, Eurofins subcontract the testing part for the export consignments?

I wouldn't imagine because I think all of them are full-scope labs like us. One-off rare test, maybe they do, I don't know.

Okay. So there is no possibility of getting a significant chunk of an export market since we are already at the JNPT?

No.

No, right?

No.

And please keep up the excitement and the enthusiasm that Vimta has once again. Got it. Good luck.

Thank you. Thank you.

Thank you very much. Ladies and gentlemen, that was the last question for today. I will now hand the conference over to the management for closing comments.

I just want to thank, again, everyone who have participated in the call. I appreciate all the questions that have come in. Thank you very much. Good day.

Thank you very much. On behalf of Nirmal Bang Institutional Equities, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you.