Krsnaa Diagnostics Limited (KRSNAA) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Krsnaa Diagnostics Limited Q1 FY '27 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Yash Mutha from Krsnaa Diagnostics Limited. Thank you, and over to you, sir.

Thank you, Sumit. Good afternoon, everyone. -- and thank you for joining us. As we begin the FY '27, I want to start with the larger vision behind what we are building at Krsnaa Diagnostics. We've always believed that is an essential part of India's health care infrastructure. Our ambition is simple, to make quality diagnostics accessible to every Indian, irrespective of where they live or their ability to pay. The purpose has taken us to parts of India where building and operating health care infrastructure is not always easy. Think about what happens in Rajasthan today, a patient gives a sample in a remote location. The sample may travel significant distances across the state before reaching our laboratories, where it is persisted, validated and reported back to the patient. Behind that 1 report, is the infrastructure network, logistics, technology, clinical expertise and execution working together. Serving these markets were easy, healthcare access in many parts of India would have already been solved. Someone has to go there. Someone has to build the lability network or the imaging network, someone has established the connection centers. Someone has to create the logistic network and connect the technology and the clinical expertise. Krsnaa has chosen to be that someone. And what excites me today is that purpose is increasingly translating into business performance. Our revenue grew approximately 22% year-on-year in Q1. More importantly, our like-for-like projects grew approximately 12%. That number matters to me. It demonstrates that Krsnaa growth is not dependent only upon winning the next project. Infrastructure that we have already established continues to serve more patients and generate more businesses. On the same lines, I'm also pleased to share that Krsnaa has recently awarded Himachal Pradesh CT project for 34 CT scans across the entire state. This is particularly significant for us because Himachal Pradesh is where Krsnaa began its PPP journey almost 12 years ago. We just 12 centers -- our performance and service quality over the years have earned us this opportunity to expand our footprint from 12 to 34 centers. And predominantly, most of this project is going to be a cash paying project. This is a strong validation of something we have consistently communicated. Execution excellence and quality of service create the foundation for repeat business and long-term partnerships. With this award, we have further strengthened our revenue visibility in the state for the next 10 years and giving Krsnaa the opportunity to serve the people of Himachal Pradesh for almost 25 years in pot. There is also a third dimension emerging our retail business grew approximately 64% year-on-year. Our retail network has expanded to more than 4,000-plus touch points, and we are seeing increasing contributions from home collection, wellness camps, digital channels and our partner networks. For many years, Krsnaa strength has been its insulation business. We're now building a second engine alongside it, the consumer-facing cash paying business. One gives us scale and reach, the other gives us diversification and a direct relationship with the consumers. And increasingly, innovation [indiscernible] we are also looking beyond the conventional diagnostics packages and asking a different question. How can diagnostics become a part of the consumers broader hint? I am particularly excited about what comes next. Very shortly, we will be launching what we believe is the first-of-the-kind proposition in India, bringing together preventive diagnostics and financial protection in a singular. We believe this can create an entirely new dimension of how consumers Krsnaa and with preventive healthcare. We are also expanding the use of artificial intelligence and technology across consumer engagement. Reporting and business analytics. So when I look at Krsnaa today, I see something very different from the company we were a few years ago. I see an existing healthcare infrastructure that is growing organically. I see new projects adding another layer of growth and I also see consumer business emerging as a second engine, and I see technology and innovation, creating new possibilities on top of this network. As regards to margins, as mentioned in the previous quarters, due to the project implementations carry the full fixed cost base from the very first day in ablate equipment, the manpower and the logistics, while still operating below mature realization levels and therefore, you see compression in the margins. However, if we set these projects aside, our like-to-like business delivered stable and consistent margins broadly in line with the previous quarters. So the moderation you see is largely a function of the infrastructure that we've recently built and now we're in the process of fulfilling it rather than any pricing or structural pressure in the core business. A related point on capital is infrastructure-led model. And by nature, the capital expenditure is front-ended. We build the laboratory or the diagnostics network, installed the equipment and put the team in place before the volumes arrive. That front ending creates a drag on the margins in the initial quarters, which is essentially what you are seeing in the quarter's numbers. As these projects ramp up and utilization improves, that drag evens out and incremental revenues begin to flow. Aim to an asset base that is already in place. That is the rhythm of our business rather than a departure from it. And it is worth reading our margins across a few quarters rather than a single one. Our group CEO and CFO, will take you through the business and financial performance in detail, but I wanted to leave all of you with 1 thought. Every diagnostic test ultimately has an economic consequences beyond Krsnaa. When somebody's diagnostics at the right time, gets treated and returns to his family, his work and that productivity returns to the economy. So this is the impact that Krsnaa carries on, on a larger aspect. And this is where I believe our purpose and our business models come together. The more people are infrastructure reaches the more patients we serve with the more our existing infrastructure is utilized, the stronger the economics can become. And as retail technology and new services grow, that infrastructure and the opportunity becomes larger. So for us, building a healthier India and building a stronger Krsnaa or not 2 different objectives. And our responsibility now is to translate this platform into a sustainable growth and long-term value for our shareholders. With this, I will now hand over to Mitesh. Over to you Mitesh.

Thank you, Mr. Yash, and a very warm afternoon to all of you. Quarter 1 FY '27 has been a quarter of execution, transformation and importantly, transition from infrastructure creation to revenue generation operations. Over the last several quarters, we have invested significantly in building foundations for our next phase of growth. This quarter, we are beginning to see those investments translate into the live capacity, stronger market presence and a broader platform for sustainable growth. Let me brief and appraise here everyone on the key operational developments in Rajasthan projects to begin with. As Mr. Yash highlighted, Rajasthan has moved decisively from implementation phase into the go-line operational phase. Our Northern laboratory, hub laboratory and collection center network is now substantially operationalized across the state. As of end quarter 1 FY '27, Rajasthan had 31 mother labs, 62 hub labs and 1,228 collection centers are being operational and this significant milestone considering the sustainable future growth. More importantly, this network gives the scale and infrastructure to progressively drive volumes improve utilization and unlock the operating leverage embedded in the model. And what ties go to everything is nonnegotiated quality standards. Along with such large scale ups, we remain extremely focused on maintaining high quality standards across an ever. In radiology, we continue to make strong presence and progress against the pipeline order of 70 MRI centers 6 MRI centers in Maharashtra have been inaugurated and made operationalized during the quarter. Work on balance centers is in progress, and these are expected to go live by end of the [indiscernible] . With each new center, we are strengthening not just our geographical footprint, but also our ability to offer comprehensive diagnostic services under 1 integrated platform. Further to add, in Q1, we added 12 new NAB accreditation taking our overall accreditation counts, including NABL, -- can ACR to 124 and it further double takes our commitment to society and scale cannot come at the cost of quality. We are building a network we have quality, congregation, clinical excellence, technology and accessibility grow together. Talking of our retail business, that also continued its strong growth trajectory. Our network touch points have now expanded to more than 4,000 across 7 states. We continue to build this business through the differentiated combination of set light franchise models, Krsnaa business Associates, KBS, Krsnaa Center, KRC, strategic alliances and our existing PPP infrastructure. One of our key competitive advantage is that we are not building retail in isolation. We are leveraging an ecosystem that already includes lab pathologists, radiologists technology, logistics and technicians. This allows us to serve customer efficiently while keeping our customer acquisition cost structurally lower than those of pure-play retail competitors. And as the network compounds, we believe the benefit of scale will increase exponentially and visible. This is our initial market research and evaluating findings to cast out the model, that's not just the existing ecosystem, but even large working that exist across India. Our proposition remains differentiated as we bring together quality, accessibility, assurance and affordability. 360-degree diagnostic platform, supported by 24/7 365 days service window. This is particularly relevant in India where access to high-quality and affordable diagnostics remains a significant unmet need and having high demand. Our ambition is not merely to participate in this market but is to help to find how diagnostic services are delivered across India at the scale with consistency and with trust. We are also deepening our specialty and wellness offering our uniquely designed packages combining pathology and radiology across both wellness and lines are generating encouraging results. I am particularly pleased to share that our specialized test portfolio and also evolved us customized specialty driven healthcare packages covering areas such as oncology, cardiac care, best metabolic health gastro related wellness testing as well as routine and basic healthcare. We are also preparing to launch a new set of innovative packages in the coming months, and we believe these offerings have the potential to resonate strongly across both end of our customer base from our PPP beneficiaries, including senior citizens and Aysuhman Bharat beneficiaries to our growing retail and genZ audience. This is an important part of our strategy to make diagnostics more relevant, more accessible and more closely aligned with the evolving healthcare needs of India. Our strategic partnership have also begun to deliver meaningful results. With that, I am happy to share that [indiscernible] Hospital pool scales operations. Under this partnership, Krsnaa has exclusive diagnostic rights for both radiology and pathology, including super specialty segments such as oncology, cardiology, alongside from basic routine diagnostic services to genetic. More importantly, this relationship provides us the platform to strengthen our presence across Apulki Hospitals over the next 30-plus years. This is exactly the type of partnership we value long duration, high visibility revenue opportunities that complement our core PPP business and create sustainable value over long term. The infrastructure has been built. The network is scaling -- and now we are entering the phase where we are expected to invest investments to increasingly translate into the operating leverages and financial performance. We remain confident in our underlying strength of our business model and opportunities. Our focus for coming quarters will be on execution, utilization, profitability and sustainable growth. We believe and now well established that the platform we have created gives us a strong foundation participate meaningfully in India's rapidly evolving diagnostics and health care opportunities. We are building for scale, but we are equally focused on building for quality, profitability and launch activity. With that, I'll hand it over to our Interim CFO, Chandra Prakash, to take you all through the financial highlights of the quarter. Thank you. Mitesh.

Thank you, Mr. Mitesh. It is my privilege to walk you through our financial performance for the quarter. If I talk about revenue from operations for Q1 FY '27, it stood at INR 2,355 million against Q1 FY '26 revenue of INR 1,930 million, representing a year-on-year growth of 22%. EBITDA for the quarter stood at INR 588 million with an EBITDA margin of 25% against 27% in FY '26. As guided in our previous call, this quarter did carry an element of upfront cost, largely around 4,000 manpower onboarded in Rajasthan, logistic across collection center. Ahead of revenue realization from the project. This cost has largely been absorbed within the quarter, and we expect the impact to normalize further as Rajasthan revenue sales scales through the rest of the year. PAT for the quarter stood at INR 166 million, translating to a margin of 7%. When I talk about retail business, I am pleased to inform that in continuation with our focus on retail, our retail revenue for the Q1 FY '27 stood at INR 193 million against revenue of INR 118 million in quarter 1, '26, growing at impressive year-on-year growth rate of 64% and contributed approximately 9% of overall group revenue. With the road map ahead and leveraging the various levers, as highlighted by Mr. Mitesh, we are confident of becoming EBITDA positive by Q2. With this, I would like to conclude the CFO opening remarks. We are deeply grateful for our continued for your confidence in Krsnaa journey, I would like to now invite the moderator to open the floor for questions.

[Operator Instructions] The first question is from the line of [ Raman from Sequent Investments. ]

I just have 2 questions. First of all, 1 of the question is pertaining to the increase in fee to hospitals during the quarter, there is INR 41 crores expense under 2 hospital during the quarter, which has significantly shot up on sequential quarter as well as year-on-year. So the significance is -- can you just provide an explanation...

Yes. So actually, the -- whilst the accounting normal hospital, this is also the actual increases on account of Rajasthan project. So for a project like large like Rajasthan or even other PPP projects, we have certain partners that we work in these remote locations. And there's a certain revenue share or the amount that goes to these partners. So what do you see as an expenses because of like the manpower on certain of the operations that they handle and that expense goes in that line. So the increase is probably because of Rajasthan and projects like Manipur and where we have these partners providing us different kind of services.

And can you quantify how much of the revenue has been booked on Rajasthan PPP during this during this quarter. And going forward for the entire, how much do we expect will be coming from Rajastahan PP.

Rajasthan revenue, I think we have reported around INR 26 crores. And from an annualized basis, I think even if you just multiply this by 4, what number we're expecting is about INR 100 crores to INR 150 crores of Rajastan for the full year.

Okay. So you are expecting this 26 quarters to come for every quarter going forward?

And it will grow. I mean since this is the first quarter of implementation as labs other centers go live, the revenue will, of course, double up in the coming quarters, and this is how we expect that business to grow up.

Understood. Sir, I think in the earlier call, you mentioned that you plan to do around INR 200 crores to INR 250 crores from Rajasthan PP in FY '27. So I just want to understand, is there any particular -- is this guidance intact? Or because you have mentioned that we will be doing only INR 150 crores.

No, as I said, from a guidance perspective, we'll prefer to be on a conservative basis. Of course, we want to achieve the numbers that we've stated earlier. But if I have to give a guidance, this is something that I have a clear visibility in terms of the revenues that I quoted earlier.

Mitesh this side, further to add, like we are hoping to get our revenues doubling up in the coming quarter for the distant I'm talking around. And on a steady state, when we are looking at it, it would be somewhere closure to INR 150 million, INR 175 million and further bases are ramping up the overall numbers that we have suggested or previously stated, still...

Understood, sir. My second question is on the fund raise part. I think promoters have infused funds via warrants. Can you quantify what is [indiscernible] for?

Could you just repeat question, please?

So I think the promoter has infused funds via warrant issue -- so can you specify why there was a fund raise? Why there was a promoter...

Yes, it's a -- the warrants was proposed as a contribution from the promoter, -- 2 reasons. One is, of course, the funds will be utilized for certain capital expenditures for projects and certain acquisitions that we have in mind and that was the reason why the funds have been raised.

[Operator Instructions] The next question is from the line of Surya Narayan Patra from PhillipCapital India.

My first question is on the radiology revenues possibly that sense we have implemented new centers. Now for this quarter, what would be the kind of a revenue share that we should be seeing. Can you just let me know that was the first question.

Okay. Mitesh this side. Yes, we have added new centers in the radiology as an MRI and certain more are into the pipeline. However, revenue contribution considering radiology and pathology more or less would be in the same line as pathology project for Rajasthan, which is a huge one, is also getting ramped up. And telly, the MRI, which is getting operationalized is also going to up -- so for now, we don't see much of a variation coming into the radio or settle. However, in the coming quarter, we're going to have a detailed understanding how the overall operations are shaping up.

Then if I just take the earlier quarter's understanding, sir, let's say, around 48% to 50% kind of range for the radiology then we are seeing a kind of a really strong growth for the radiology business, which is higher than the kind of overall growth that we would have reported. So then should we anticipate a kind of a stronger growth for the entire of the year? Read by radiology, which is generally billed to be a high-margin business.

Yes. So Mr. Surya, our focus is on driving both rate login pathology together. In terms of the overall contribution, whilst currently the 1 would be 45-55. I think the way at which Rajasthan would eventually ramp up if it takes a faster pace, if the balance might tend to go towards pathology. -- both the engine growth relay also we are focusing and now with MRI getting operations. You also see the MRI business is ramping up, and therefore, the contribution also will come from the MRI business.

Sir, my second question is about RPL. Congratulations for the kind of a strong progress that you are witnessing in the initial quarter itself. So that is really applicable -- but simultaneously, I just wanted to check whether the RPL is still -- it is in red at the EBITDA because there is a kind of a drag or there is a kind of a decline only that we have witnessed is you have in the initial remarks, I alluded that this is -- could be because -- largely because of the Rajasthan, but -- my question is that, okay, RPL is negative at the EBITDA level or it has already been broken even and contributing to the bottom line?

No, so RPL currently in the quarter 1, it's a negative EBIT able for reasons because we have deployed manpower. Like if you on the retail side, considering our operations in the state, you have to deploy the ground fleet and that is some of the costs. And like I think it was mentioned by Mitesh as well. By Q2, we expect ARPA to also be EBITDA positive. And from there on, it will continue its or journey.

Yes. So thanks, Surya, for acknowledging the efforts that we are putting up towards our RPL number one. Secondly, just to add, while yes, there is a drag, but drag has come down substantially considering the previous few quarters, and it is at a nominal level, considering this quarter as in quarter 1. And as Mr. Yash has just mentioned, by quarter 2, we are looking to be run positive for the entire RPL.

Congratulations for that. And so then, sir, is it possible to give a sense that while we would be seeing it lower margin profile for this quarter compared to the kind of the trend that you would have set for our business so far. Here put together led by Rajasthan what could be the absolute number drag that you'd be seeing and which can over up in the subsequent period. Can you share that number, sir?

Surya, you're asking from an overall -- for the Krsnaa Diagnostics company as a whole? The margins that we expect -- yes, the margins we expect to improve from quarter-on-quarter, like Mitesh also alluded earlier, with Rajasthan revenue doubling up in this quarter 2 as we expect. -- as well as RPL getting positive. So overall, the drag will be lesser in the coming quarters and we see an uptick in the margins going forward as well.

One point on the CGF, sir. See, I think...

Sorry to interrupt, please join the queue for the follow-up questions. The next question is from the line of Lokesh from Vallum Capital.

Yash my question was on just a clarification, radio and pathalogy 45, 55 this quarter.

I's 41 59, sorry.

41, 59. So just in the that you see that radio has been flat revenue environment. Even after the expansion 2 years back from 148 centers to 180 centers that expansion has not contributed much to the top line of ideology, if I go by the revenue mix. So what is your...

The -- what you're seeing is there is a slight difference in your understanding. The reason is the Rajasthan contribution in this quarter has been significantly higher completely because the MRI projects have been operationalized over the, let's say, the last 3 months in a staggered manner. So we have not seen the full utilization or full revenue contribution from the MRI projects. And as these projects get up and coming, you will see a contribution. There was also the -- overall, if you see some of the reality projects that we lost in the last quarter, like completed their tenure. So that also impacted there. But directionally, rate launch is also improving quarter-on-quarter and pathology. Just papering a larger project, its contribution, the revenue has been higher, and that will continue in the coming quarters. But as I said, we are expecting to have both radiology growth in terms of the contribution increasing in the coming quarters as these projects get mature and they get operationalized.

So then is there a change in the mix of your centers where you added and you've lost some and we've added new -- so the mature ones we are contributing now the new ones have come in so you're kind of flat. Is that -- would that be understanding correct?

From a site count perspective, it's sort of material. We've just -- it's not a material project that we've got. The projects are still there. We still have the same number of even in our the network of alloy centers that we have to continue. We have added more centers, and that revenue ramp-up is still underway. The earlier or the existing centers that they are there, they're also growing on a like-for-like, like I mentioned, they have grown almost 12%, and that is we expect to continue to grow in the coming quarters.

The next question is from the line of Aditya Chadda from InCred Asset Management.

This is Pooja, basically, I want to understand the drivers of volume growth and value growth for this quarter.

Yes, Pooja?

Mitesh this side. Volume growth is mainly on account of the expansion that has been carried out, considering in pathology, mainly the Rajasthan in radiology, the new MRI centers, which has added. Parallelly, in the like-to-like also, it has witnessed a strong growth -- that is based on multiple activations, activities and efficiency that we have brought in. Value growth is mainly on account of the new footfalls, which has added and the repeat cycle followed by the -- or back by the and overall retail, which has added the overall value growth too.

Got that, sir. I have 1 more question. So can you clarify why the fees for the hospital has jumped to the INR 40 crore run rate now?

Yes. As I explained earlier, the fees to hospital is nothing but an expense, which as Krsnaa Diagnostics, we also partnered with certain local people who have expertise in certain operations. especially considering a large statewide deployment. So there's a certain operations that they undertake. And therefore, there's an expense or revenue sharing that happens to these partners, and that expense is sitting in the fee to hospital -- so while the normal creature might not be appropriate, but it's essentially for the Rajasthan project, when the project was launched up, some of the activities are undertaken by these partners, and therefore, there's a certain regulation that goes to these partners who work alongside with us and the statewide deployment.

Ask you on the status on receivables of Himachal and Karnataka?