VIJAYA — earnings call

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Prepared remarks

Moderator · Conference Operator

MS. CYNDRELLA CARVALHO – JM FINANCIAL Vijaya Diagnostic Centre Limited August 10, 2023

Ladies and gentlemen, good day and welcome to the Vijaya Diagnostic Centre Limited Q1 FY

Questions and answers

Moderator · Conference Operator

The first question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Prakash Kapadia

A couple of questions from my end.

Wellness share has been inching up for us.

Is that a conscious strategy at our end?

Or is it customer requirements, which have changed?

And in the wellness side, what is the range of products we have in terms of packages, in terms of pricing?

And also, are these repeat customers who do these wellness tests from time to time, is now the app walk-in or these are centre walk-in, if you could give us some sense on the wellness side?

Secondly, on the Kolkata market, what is the revenue we are targeting in the next 2, 3 years?

And who would be the top 1 or 2 players there?

And thirdly, had the depreciation policy not been changed, the PAT would have been more like INR 20.5 crores, right?

These were my 3 questions.

Suprita Reddy

So Prakash, like we've mentioned earlier, the concept of Vijaya was an integrated centre from its birth in '81 to have both radiology and pathology, everything under one roof.

And from the early 80s itself is when we have packages, wellness packages.

So Dr. Reddy's always believed that prevention is better than cure, and we've been having this from the early 80s.

Over time, it has evolved, it's changed, and it's more organized probably for lifestyle diseases below 45 years.

There are various kinds of packages now.

But if you ask me, the trend of the package growing is also because of the thought process and the clientele, the age group, the education level, a lot of things adding to that.

So especially after COVID, we've seen an increase in number of people coming in for regular health checks.

And when it comes to pricing, we have packages starting from as low as INR450 going up all the way to about INR18,000.

And everything starting even from your INR450 will have a combination of both pathology and radiology, which is the beauty of the integrated model itself.

And the dense network created in this home market is what is driving these customers to walk in and get these packages done.

And that's also been a go-to-market strategy that wherever we see a dense housing coming up, that's where we open up spoke centres.

And those spoke centres are actually acting as the centres that are generating this wellness business coming in.

And to answer your second question.

Kolkata, like I mentioned earlier, is a market that we are looking at to make it as a home market in the next 4 to 5 years to come.

There's a lot of room for us to grow in these home markets of AP and Telangana for the rest of the 3 to 4 years.

Simultaneously, we wanted to create a stronger base in a second market, which is why we started the first centre in Kolkata now, which will slowly grow.

And obviously, after probably 5 to 6 years, I would love to say that we would want to be #1, but that's not something that I can comment on right now.

And when it comes to PAT, I would like Raju to explain that to you, please.

Vijaya Diagnostic Centre Limited August 10, 2023

Narasimha Raju

Prakash, the current profit after tax is approximately like INR 26.5 crores.

If you would like to do an apple-to-apple comparison by replacing the SLM method of depreciation with WDV method of depreciation, the adjustment is approximately like INR 5.9 crores.

The number you told INR 20.5 crores is approximately that's the number that we will get.

So that we get translated into almost close to like a 16% to 17% year-on-year growth in the profit after tax.

But I would like to highlight one point, in the last year Q1, the major hubs, like Tirupati, Rajahmundry and Punjagutta, were not there.

Whereas in the current quarter, these 3 hubs are there.

Because of the integrated model, we have seen a faster ramp-up at these centres and then we achieved an operational breakeven.

So in this current quarter, the EBITDA is at a breakeven at these 3 centres.

So when you look at the PAT level, if you consider the WDV depreciation, it will be again, that will be impacted there on the PAT.

So if you exclude the WDV impact of these 3 major hubs in the current quarter, the year-on-year growth on the PAT level, it will be approximately like 30% to 31%.

Prakash Kapadia

And just a small clarification on the Calcutta foray.

Historically, we've seen companies operating south try to go west or companies operating west trying to go south.

There is already a leader, #2 player, #3 player in most of the markets.

It's very difficult to make some meaningful sales or dislodge the #1, 2 or 3 players in that market.

So on the Calcutta market, what gives us the hope or belief we'll be the #1 player?

What is the thought process there, if you could just highlight?

Siva Rama Raju

So Prakash, if you actually see Kolkata is also a large metro, just like any other market.

If I have to just take example of Hyderabad, right, Vijaya being for 40 years now and say being leader in this market.

But under Vijaya, you still have so many other integrated players, who are about 1/5 or 1/6 of our size, right?

So this itself shows that there will be a room for a new player to grow in any of the markets.

But what differently we will take is the technology and the medical skill where we are banking on.

So for a player like Vijaya, obviously, yes, in a given time, what we believe is that we'll slowly start inching the market share, and our target is to become a leader of that market at some point.

So that's the target.

But yes, it will take some time and there is a fair possibility to reach to the target.

Moderator · Conference Operator

The next question is from the line of Jainil Shah from JM Financial.

Jainil Shah

My first question is on the centres that you have opened this quarter, can you please quantify it?

And which other hubs are we planning to open now?

We have Gulbarga in mind, and we had one more planned hub.

So if you can call out?

Suprita Reddy

So the upcoming hubs Mr. Shah would be Mahabubnagar and Gulbarga, and there would be a few more coming up, and those leases are signed.

We will be probably in a better position to give you those names in the next earnings call.

Jainil Shah

So those hubs will come in FY '25 or FY '24 and once we have clarity?

Vijaya Diagnostic Centre Limited August 10, 2023

Narasimha Raju

In FY '24.

Suprita Reddy

In FY '24.

Siva Rama Raju

So Jainil, we just launched one of the hub in Kolkata, and we are going to launch Gulbarga and Mahabubnagar in next 2 to 3 months, right?

So and if you see the plan was to open, I mean, 4 hubs a year.

So we are on track for that plan.

Jainil Shah

Okay.

And just that, we've been guiding for mid-teens growth consistently.

Last quarter, you were in our 20%.

This time around, it's around 19.2%.

So is the current exceptional growth rate coming from the Punjagutta, Rajahmundry and once they're in the base that growth will kind of slowdown or your guidance is conservative?

Suprita Reddy

For the guidance, we would say we would grow in line with the market.

But Mr. Shah, what happened was last year, we also opened close to about 29 centres.

You are also seeing a lot of ramp-up happening from all of those centres plus existing mature centres.

And of course, Punjagutta, is a state-of-the-art futuristic centre probably doing a little better than the other hub because of the technology itself.

But that is also what we would be seeing in the centres that are yet to open.

So Gulbarga is going to also be a very high-end centre for that geography, and Mahabubnagar would not have a state-of-the-art centre like Vijaya in the nearby vicinity at all.

So keeping that in mind and the 15-center growth that we say with a combination of both the hub and spoke and growth coming in from the new centres and existing centres, we would definitely grow in line with what we have committed earlier.

Moderator · Conference Operator

The next question is from the line of Rahul Jeewani from IIFL Institutional Equities.

Rahul Jeewani

The growth, which we have seen on volume side this quarter, which is around 20%, that seems to be the growth on test volumes and given the increasing share of wellness business as well as our integrated model, our number of tests per patient would continue to inch up.

So can you also quantify the non-COVID volume growth in terms of patient volumes?

Siva Rama Raju

So, Rahul, so I think roughly last Q1 of FY '23, we had about 50,000 footfalls, who have just come for COVID tests alone, right.

If we just exclude that from the base, I think the growth of footfall is also in double digits.

Just to tell you, see in a B2C business, obviously, you're seeing that revenue, the driver of the revenue is the test volume growth.

And obviously, in a B2C business, this test volume in turn will be driven by the footfall.

But just because we're comparing the wrong bases, it looks like a little low.

But otherwise, if you exclude this COVID effect, it's in double-digit growth is what we had in footfall.

And the other one more point to mention is that the digital initiatives we have taken.

So there were a few inefficiencies when coming to sending a patient to 1 to 2 different centres for different services then.

But now in the new software, we are able to do single bill to a patient, and you can still go to 2 to 3 centres and get different services then.

Vijaya Diagnostic Centre Limited August 10, 2023 For example, somebody has a bunch of blood tests, which he has to you have to give in passing and also, say, advanced radiology test, you can still get a single bill done at the spoke, give his blood test and then go to a hub for his MRI scan.

So with all this, the volumes look a little low.

But otherwise, it's in a high double-digit growth.

Rahul Jeewani

Okay.

So last year, the number was 50,000 on COVID patient volumes.

So what would be the number for this quarter because this quarter, and I know this quarter, the number would be low, but if you can just call that out as well?

Siva Rama Raju

After netting off that, it is close to 49,000 to 50,000.

So this quarter, it was about close to 5,000, but not all these patients are just who have come for RT-PCR.

So if you actually see, the net effect is 50,000.

Rahul Jeewani

Okay.

Y-o-Y is 50,000.

And ma'am, on this Tirupati centre, which we added, we seem to have achieved EBITDA breakeven quite quickly as compared to what played out in Rajahmundry and Punjagutta.

Rajahmundry and Punjagutta took us 2 to 3 quarters to achieve EBITDA breakeven.

So what has helped us in the Tirupati market, that the breakeven was achieved so quickly?

Suprita Reddy

Rahul, we cannot compare a Punjagutta to Tirupati because it’s not apple-to-apple.

See the technology and the equipment and the facilities that have gone into both of these centres are absolutely different.

And those are decided and dependent on what that particular geography requires.

So Tirupati is a centre, which has only a gamma camera and no PET-CT and you see a high-end PET-CT sitting in Punjagutta.

So probably the ramp-up time is a little higher, but Punjagutta is equally, I think, doing very well in terms of its footfalls and numbers.

And Tirupati, of course, there is, I do not know if we shared it with you the last time.

It is a very, very high-end 3 Tesla MRI we took to that region, just like Rajahmundry and we clocked in doing very high-end cases and all of the cases that come in are specialized cases.

And this is where our backbone of our 120 consultants sitting across geographies, reporting these cases ramped up and accelerated that growth.

So case that was having to travel all the way to Chennai is now getting tested in Tirupati itself.

And the system has actually flown in well and that region is now ready to take on a couple of spokes in the coming quarters.

Rahul Jeewani

Okay.

So ma'am, any plans in terms of number of spokes, which you intend to add?

Suprita Reddy

So Rahul, like we mentioned earlier, the 15 centres annually what we had planned is in line and will happen this year, too.

It is just that it might vary in time in terms of quarter-to-quarter, the number of hubs versus number of spokes, but 15 centres is well planned out for and that will be done by the end of this year itself.

Rahul Jeewani

Sure.

And ma'am, last question from my end would be on your Kolkata centre, which you put up.

So can you call out in terms of what are the initial sense which you are seeing in that market, let's say, in terms of patient feedback and the number of spokes, which you now intend to add around that large hub centre in Kolkata and the time which it would take for that centre to achieve EBITDA breakeven.

Vijaya Diagnostic Centre Limited August 10, 2023

Suprita Reddy

I would say that we just opened it in July end, Rahul, so it's pretty quick probably to comment on the newest baby to the entrant, but the response has been extremely good, in fact, then what I would have expected for first Vijaya centre in West Bengal.

And normally, whatever we look at as a breakeven in our home market, I would say, being a region outside of the home market, we would have to give it a quarter or 2 extra for a breakeven to happen.

And in terms of response, it's doing well in line with what we had expected, probably I would not like to comment on the numbers right now.

Rahul Jeewani

Sure.

So then at Kolkata as well, you will be targeting EBITDA breakeven within a 12-month speed...

Suprita Reddy

Yes, absolutely.

Moderator · Conference Operator

The next question is from the line of Aashita Jain from Nuvama.

Aashita Jain

So I have just one question on the Kolkata.

So ma'am you mentioned Vijaya is the first one to introduce such high-end technologies in whole of North Kolkata.

So could you please talk a bit about your competitors in Kolkata in terms of these technologies, their size and organized market play just to understand this market better?

Suprita Reddy

It is a metro, Aashita.

So there are a lot of integrated players now and pure path players for pure radiology players.

But like I mentioned, in North Kolkata where we chose, we are an independent diagnostic centre with no other centre offering a 128 cardiac CT, digital mammogram, a 3 Tesla in-bore experience, wide variety, there are about 36 coils that the machine has.

So again, what we look at is doing more specialized work, the backbone of the company, again, the teleradiology playing in and the high-quality reporting.

So that's a differentiator.

When we do go to a new geography, we go in with the best, and we definitely say quality is what we bank on.

And it's a market where we want to grow slowly.

It's not that we are saying we will open 10 to 15 centres in Kolkata alone.

It's a market that we plan to make it ready after the next 3 to 4 years and by which time we get a strong brand recall, like we do have in Andhra and Telangana now.

Aashita Jain

And how has been the response from the doctors?

Moderator · Conference Operator

Excuse me ma'am.

I'm so sorry to interrupt.

May I please request you to speak a bit louder.

Your audio is not clearly audible.

Aashita Jain

Yes.

So just the last one, how has been the initial response from the doctor's side?

Suprita Reddy

Until now whatever we have done, the feedback has been absolutely wonderful, Aashita.

Any new centre that comes up, initially, we do see that it is a little radiology high in terms of high- end investigations coming in.

So we've had absolutely wonderful feedback, and that is also reason why we feel that the operational breakeven will happen in the first 12 months itself.

Moderator · Conference Operator

The next question is from the line of Cyndrella Carvalho from JM Financial.

Vijaya Diagnostic Centre Limited August 10, 2023

Cyndrella Carvalho

Ma'am, if we look at our ramp-up of the newer hubs, what is the vision in your mind to take these going ahead?

Because even if we target 4 to 5 hubs a year, we have bunched up a lot of houses recently and in our earlier discussion, I highlighted that the way we the hubs-- so the growth on this remains to be in the double-digit -- high double digit because it would change...

Siva Rama Raju

Cyndrella, there is some disturbance in your voice.

We are not able to hear you.

Suprita Reddy

We're not able to hear you.

Moderator · Conference Operator

Ma'am, may I please request you to use the handset.

I'm sorry, ma'am, your audio is not clear.

The next question is from the line of Saloni from Val-Q Investment.

Saloni

So my first question is, ma'am, we recently opened 3 hubs in the past 2, 3 quarters.

So can you just help me with the sequential growth from new centres?

Siva Rama Raju

So Saloni, if you actually see see all these centres are ramping up month on month.

But if you see last year to current year, if you take all the centres that we opened in the last financial year, I think out of the 19% growth roughly around 7% to 8% growth was from the centres that opened in the last 1, 1.5 year and the rest 11% to 12% was from the older centres.

Moderator · Conference Operator

We'll take the question again from the line of Cyndrella Carvalho from JM Financial.

Cyndrella Carvalho

Hope I'm audible now.

So if I see our hub centres, like we have done a bunch of hub centres in the last year, and now we have a plan of 4 to 5 more hub centres coming in this year.

So if we see this, the spokes that will follow these hub centres should drive double-digit, high double- digit growth for us.

Is this understanding clear or you see any changes to this thought?

Can you help me understand this?

Siva Rama Raju

So Cyndrella, yes, as you rightly said, year-on-year, this will help us in growing.

But the other thing to note is, obviously, the base also will be going up, and we are a B2C diagnostic chain.

So as what we are confident is delivering that 14% to 15% kind of double-digit growth at least for the near future.

Cyndrella Carvalho

But in the near term, it should be slightly faster and before it settles to the mid-double digit, that's what you're trying to say?

Siva Rama Raju

So it may change quarter-to-quarter Cyndrella.

So one quarter, you may see a little higher, one quarter you may see almost in line with what we are guiding.

Cyndrella Carvalho

Okay.

Okay.

And ma'am, you said that now being on the Kolkata side, you were giving us some color of the market.

But we understand that this market is not new to us and you being there for a very long time.

So what do you expect in terms of overall size that you can or a portion that you can achieve of this market over 2 to 3 years' time, not something immediately, not from a starting perspective.

But what is your thought process of this market specifically, the Kolkata market.

Suprita Reddy

The thought process or the vision on that market, Cyndrella, is to make it as large as the home markets of AP and Telangana over the years to come because we probably would have, say, Vijaya Diagnostic Centre Limited August 10, 2023 another 3 years of time to take over Andhra and the rest of Telangana and the adjacent geographies by which time we would like West Bengal as the region to be ready for us to create a dense network like how we have created here.

So probably I would not have a number right away to give you in terms of centres, but as and when we see opportunity in this region, we'll continue to grow.

And this is something that we're getting ready as a Phase 2 for growth of the company over the next few years.

Cyndrella Carvalho

That's really helpful.

And any plans on the inorganic side?

Are we evaluating anything?

What is the sense with the new...

Suprita Reddy

No, like we mentioned earlier, we've always been evaluating.

We never let go of an opportunity, but there are certain things we do look at in terms of value, brand recall, quality of the asset, a lot of things and most importantly, not being unreasonable in terms of valuation.

Until and unless it makes some sense to us, and it's meaningful, probably we would definitely do it.

Right now, I do not have anything concrete that I could comment on, but we are definitely always open to looking at opportunities.

Cyndrella Carvalho

Very helpful, ma'am.

One last one from my end, and that is how is the local if we look at our strong hub Hyderabad and the AP, Telangana market, what is the competitive scenario that you are seeing right now versus the last year, if you could just give us some color?

Suprita Reddy

Competitive scenario has always been the noise.

It's always been the same on ground, like I mentioned earlier, so it hasn't made much of a difference.

So I really don't have anything concrete to say that there is a new competitor.

The market is same.

The unorganized players have not increased probably but are all scattered.

It's all there.

A lot more noise than what is actually on ground level.

We've not taken any price cuts.

We've not taken any increase in pricing.

Nothing has changed.

Cyndrella Carvalho

And just a follow-up, do we envisage to take some of the price increases at least in the specialized tests that you do?

Do you see the scope for that?

Suprita Reddy

There's always an addition of test that happens.

It's not something that is planned.

As and when there's a requirement, it's always been that about 20 to 25 tests on an average get added every quarter.

So this is need-based and the categorization of normal to specialization is a very -- I don't know a subject where there's no clarity on.

So if you look at the test menu, it continuously keeps growing, and that is what is making the company do that combination of tests, right?

It's not just the routine work coming in.

So I would not be able to quantify it, but there is an addition of test that happens almost every quarter.

Moderator · Conference Operator

The next question is from the line of Rahul Jeewani from IIFL Institutional Equities.

Rahul Jeewani

Ma'am, can you highlight what are you seeing in terms of competitive intensity from the online space, so also, we don't get impacted much because of an integrated model of radiology, but anything which you can call out in terms of online competition.

And some of our peers have Vijaya Diagnostic Centre Limited August 10, 2023 taken price increases towards the beginning of this year.

So had we also taken price increases on our portfolio?

Siva Rama Raju

So Rahul, yes, we have taken price increases on few tests, but I think that will only contribute to 1% of our revenue.

So we have done on very few tests.

Suprita Reddy

That is because of the input costs increasing.

That is why you see that 1% increase, Rahul.

And in terms of online aggregators, they have never created an impact, hardly contribute to less than about 1% of our revenues coming in from them.

There's a lot more noise than what happens actually on ground zero.

It's not because we are integrated, but also because I think patients or customers prefer having that feel, health care, that personal touch, the customer experience, and that's also the reason why you see that strong brand recall in the home markets is because they are visiting centres.

Home collection per say during COVID did about 3% at its peak.

Whereas even though today we try to push our customer base in our home markets, home collection hardly contributes about 1%, 1.2% of the revenue.

So that gives you a clear example to say that they prefer coming to a centre, they do like coming to a centre, the personal touch.

They have a favourite who'd like they would probably want them to collect the sample on, and that's been a strong, I think, acceleration for us to open more spokes in this market.

So definitely not too much to think about aggregators from our point of view at this time.

Rahul Jeewani

Sure, ma'am.

And ma'am, one of the pharmacy players in the Hyderabad market also was trying to scale up their radiology model on back of aggressive discounting.

So has that player seen any significant action to have impacted our business in any meaningful way?

Suprita Reddy

I would say that none of those competitors have probably dented anything that is coming to us because we've seen a healthy growth probably, I would not be able to comment on the model of their business, but we're definitely not -- just not from him, from any of the aggregator or an unorganized player, we've not seen too much happening in this space.

Moderator · Conference Operator

Ladies and gentlemen, that was the last question for today.

I would now like to hand the conference back to the management for closing comments.

Suprita Reddy

I would like to thank everyone for attending this call and for showing interest in Vijaya Diagnostic Centre Limited.

I hope we've been able to answer all of your questions.

Should you need any further clarifications, please feel free to reach out to us.

Thank you once again for taking time to join the call and see you all next quarter.

Siva Rama Raju

Thank you.

Moderator · Conference Operator

Thank you.

On behalf of JM Financial, we conclude today's conference.

Thank you all for joining.

You may now disconnect your lines. *****************