Thyrocare : Debt free Asset Light Healthcare Play


(Chemist) #208

(Chemist) #209

(Deepen) #210

Apart from facts and figures, is there a potential risk to a company that is so heavily driven by (dependent on) a single person ?


(Vivek Mashrani, CFA) #211

His son is already handling the Nuclear business since 2011 and his daughter is on board. So, I think they have good leadership pipeline in place. I have heard that even his brother is capable of running business if required.


(Vivek Mashrani, CFA) #212

For the benefit of all, please find attached the presentation that I did at VP Chintan Baithak Goa 2018 on strongest business I know. Hope this is useful. Thanks.

Special mention to @VikasKasturi who helped during the research and enhancing the thought process around the business model.

Business I like…pdf (2.6 MB)

Disclosure: Invested


(Shyam) #213

Very energetic presentation.
Can you please let us know the competitors landscape for Thyrocare?


(Raj) #214

You are right. During my interaction with the management, it was told to me that his brother was co-founder and is equally capable. He has retired but in case of a emergency he can pitch in to fill in for a leadership vacuum.
Regards,
Raj


(Gorthi) #215

Nice prensentation…

This seems to be good company…

Only thing bothers me is the competetiation…I see more and more hospitals starting their own diaginstic chains.

I saw Apollo starting their own diognostic chains…which I belive doing well…I believe this will be the lucrative all the hospital chains who ever achive some scale…

Can senior members could through some light on the competiation aspects of this business…

Dis: Invested


(Mridul) #216

Thyro is 80% b2b. Meaning hospitals having thier own diagnostics setup will find it much more lucrative to outsource testing to thryrocare due to economics of scale and cheapest cost…they will act more as collection centers.

A lot of pe money is flowing in this sector, no doubt …so pathology margins will reduce going fwd. But thyrocare is still the cheapest and still maintaining 40% ebitda margins when others are just burning money for volumes.

I feel this is a good business but anywhere where there are high margins and long runway, competition will increase.

Velumani is special and is always ahead of the curve be it thyroid, be it aarogyam, be it nuclear, be it tb. He is incubating ideas which can grow big 5 years down the line. At these valuations, it’s not cheap and mkt perception at the moment is that competition will hurt them. Pressure is visible with Velumani talking about reducing margins for volumes. Need to be seen how things pan out.

Another threat is of disruption. Diagnostics industry is most prone to disruption. Many tech companies are making instruments to bring testing costs cheaper and kind of self-do testing. So, despite a long rumway in a country like ours, threat from competition along with threat from disruption is resulting in dampened investor sentiment.


(mrai74) #217

Looks good but I am at risk when they say that diagnostic equipment are being bought for 20 years, don’t we feel that 20 years is a long term in rapidly changing technological world. I am aware that words e.g. X-ray or MRI have been there for longer term but certainly not the equipment used. I am aware that I am nowhere when commenting this and Mr Velumani & team might have done better analysis on this point. If I have to invest, I certainly agree to disagree on this point.

Will keep an eye on ow they deliver for next few quarters


(Mridul) #218

Nuclear equipments have a life of 5 years. The mentioned that in last concall. For other equipments, look at their maintenance capex, which is close to 15 cr and depreciation.


(ashish kila) #219

Collation of excerpts from some videos I went through…

It is the lowest cost player in an industry which is slated to grow in high double digits for a very long time.
Luckily, there are enough videos of its promoter Mr. Velumani which explain the business model in details, it’s USP, the humble n inspiring journey n vision of promoter.

Would urge you to go through a few videos and u will understand the promoter is a really intelligent fanatic

.2016

Focus on disorders (biochemistry) and not on disease

70% of pathology is disorders (dealt in biochemistry)

B2B model mostly helping 36,000 labs as they don’t have volume to process, they outsource to me

Only in preventive care, I am B2C

Rest, I am B2B - more value

Companies prefer to make money from consumers, I prefer to make money from vendor

Reagant consumables used in tests, I get at 70% discount on MRP -buy 5 mn tests each month

100,000 unorganised small labs

90% of them don’t have facility to do higher tests so they outsource

Top 1/3labs and hospitals see me as competition and bottom 2/3 see me as partners

750 employees - all employees,he is the first employer

Promoter is intelligent fanatic

Focus on doing things differently from competition

Disorder not disease

Preventive care not sick care

Worried for metabolism not infection

Acute illness vs chronic illness

My patient is once for all vs once only

Patient at home and office vs in hospital

My patient is vertical - walking n working vs horizontal

Only 30% of market is able to get solutions as everyone more focused on metro

Organised share hardly 15%, can grow to 40%

Pe funded players burning money to get more samples but not learning lessons

Art of focus https://youtu.be/ut2CzzsZYec

Power of Family https://youtu.be/qoLgRmhOFLo

By 2025, 20 companies will be there with a billion $ mkt cap

20% growth in the sector for next 25 years

Velumani says I am just 58 and Buffett is 88, every 5-6 yrs, I have added a zero

Different thinking in business model and life

Being frugal is very powerful

Being poor means you have nothing to lose

Did a Jio in daignostics


(vikas sinha) #220

Owner thinks up brand “Nueclear” :thinking: and sells it to own company for Rs. 1 :exploding_head:
Hope they saved paper by going green. :clown_face:

Disc: Was invested, pulled out to book profits/PF consolidation, and lack of conviction. Re-evaluating!


(AmitContrarian) #221

anyone thinks economy of scale will work in diagnostic business ? Plz let me know how.
Otherwise I feel these guys going to grow at moderate pace as they won’t be able to eat market share from others and competitive intensity going to remain forever. Hence it doesn’t deserve very high PE > 30 , it’s trading today.

I have mentioned my worries here -


(PavanM) #222

Assuming that somehow, the economy of scale works, how well prepared is Thyrocare to handle volumes + quality + response_time?

Response_time = would depend on the collection of sample, transport, testing, analysis + write up by technician. Delivery time would be nil - as reports are emailed (or sent via WA, as a scanned pdf)

Volumes = As per their website below, they handle on an average more than 1 lakh samples per day.

Quality = This would be the crux of the tests. Have read/heard, from both individuals and doctors that the results are not-trustable. However, Thyrocare is of the view that those doctors complaining about the validity of the results, do so, because of loss of income (for the complainers).

Of what use is the result, if it cant be trusted. Or better still, it won’t be trusted by the doctor treating the patient.

So, is Quality of testing at Thyrocare - truly of quality. Do not have a definitive answer, but some of the pointers are below.

Apparently in 1960’s, the testing methodology invented was Radio Immunology Assay (RIA); roughly, radio active chemicals are mixed into the sample (?) or shined through (?) or something is done, to light up the components of the sample, which can be then counted. Results by RIA, tend to be accurate at the median values and non-accurate at the extremes; i.e. if there are no abnormalities, then RIA produces the correct measurement - in comparison with other/latest testing methods. However, if there are abnormalities, extremes, then the results cannot be trusted via RIA. The description given to such results is that it swings like a pendulum; also referred as saw-tooth reading. RIA machines are inexpensive.

Later, came the testing method of Chemiluminescence Immunoassay (CLIA). This involves adding some type of chemicals, which via chemical reactions, light up the components. Safer, as no radioactive stuff. Equipment is expensive.

Some ‘operational’ highlights can be found on this site: CLIA

Key points of scale:

High throughput as a key decision factor
High throughput is greatly desired for
companies that are trying to determine a large number of analytes in a
short amount of time. Chemiluminescence is the preferred technique
because you can identify hundreds of analytes per hour with an automated Chemiluminescent Immunoassay.
Previously, ELISAs were used for this purpose. Although ELISAs are
excellent assays, you cannot automate an ELISA, or analyze such a large
number of substances in a short amount of time. Therefore, ELISAs are
now considered ‘old’ technology and are no longer deemed efficient
enough for high throughput analyte identification.
Using a high throughput method such as Chemiluminescence is
very advantageous for settings such as hospital labs that need to
analyze, for example, thousands of patient samples a day. If you want to
look at 5-10 analytes per patient, you will be performing tens of
thousands of tests daily. This becomes an impossible task using ELISAs
or other older techniques, but with high throughput techniques such as
automated Chemiluminescent Immunoassays (CLIAs), this task becomes
feasible.
Therefore, if your lab needs to isolate an analyte present
at a very low concentration you can choose between an RIA and the CLIA.
However, since RIAs use radioactive chemicals and generate radioactive waste,
the best choice is to use CLIAs which are much safer than RIAs and more
environmentally friendly. Larger labs more concerned with high
throughput analysis should also use CLIAs since they can analyze large
numbers of analytes in a small period of time in an automated fashion.

Thyrocare says they started of with RIA; then they introduced CLIA. No where is it explicitly said, that RIA has been discontinued (as I read the website, as of this writing). To the companies credit, among the listed machines and quantity taken from the website, CLIA machines are the highest; CLIA has a high throughput.

Open Q’s
Have, the previous RIA machines been decommissioned?
If they have not, and are still in use, how many of these ‘more than a lakh’ samples pass through them?
Are these CLIA machines top of the quality in their line? Any recalls (is it the same machine?) ? General website for checking recalls / faults.
If I recollect it correctly, machines have been given / loaned / subsidized to Thyrocare from manufacturers; do these machines do their job as required?

The following is the list of machines and technology used in testing.

http://www.thyrocare.com/Technologies.html

“However, with exponentially increasing number of samples which demand on an average more than one lakh investigations per day”

CLIA
Advia Centaur [Siemens] - 37
Immulite 2000XPi [Siemens] - 1
Architect i2000 [Abbott] - ?
EEE Modular [Roche] - 1

Enzyme Linked Immunosorbent Assay (ELISA)
Dynex- Merilyzer - 2
Chorus TRIO [Diesse] - 1

High Performance Liquid Chromatography (HPLC)
Bio-Rad VARIANT II Turbo - 15

Principle of Capillary Electrophoresis (CE)
CAPILLARYS 2 system from SEBIA - 2

Principle of Ion Selective Electrode (ISE)
Ins ADVIA 2400 - 1
Ins Olympus AU 2700 - 4

Flow Cytometry / Fluorescence Flow Cytometry
BD FACS Calibur - HIV detection - 2
SYSMEX XN 1000 - Complete blood count analysis - 7

Nephelometry
This is another technology which works on the principle of immunoassay and is widely utilized in diagnostics.
BN II [Siemens] - ?

Photometry
Majority of biochemical analysis pertaining to heart, kidney and liver function test rest on this technology.

Olympus AU2700 [Beckman Coulter] - 4 (same as ISE - probably)
Advia 2400 [Siemens] - 7 (but in ISE the count is 1 - may be a different model)
Advia 1800 [Siemens] - ?

Liquid Chromatography - Mass Spectrometry (LC-MS)
LC MS/MS-8040 from Shimadzu - 2

Inductively Coupled Plasma - Mass Spectrometry (ICP-MS)
iCAPTM Q ICP-MS [Thermo Fisher Scientific Inc.] - 2
Agilent 7700 [Agilent Technologies] - 2

CYTOGENETICS
No specific machines mentioned


(AmitContrarian) #223

Economy of scale doesn’t mean any of this, This is more related to how they can improve their productivity.

plz go through the thread


(Mridul) #224

Economics of Scale by definition means proportionate cost savings owing to increased level of production/execution.

This in the context of Thyrocare means number of tests performed. Volumes are important as that results in buying power bringing down reagent costs. Also, higher volume results in operational leverage through better utilization of assets. Moreover, it also involves spreading internal function costs across more tests performed as it helps reducing costs. “Internal functions” include accounting, information technology, and marketing.

Now assume - there are these fixed costs with buildings, electricity, etc…say 100cr per annum. Now, say they perform 100k tests per year…If they improve automation and efficiency, they might perform 150k-200k tests using the same resources (Buildings, machines), say 2 years down the line. So scale brings in better utilization levels which flows into bottomline due to operational leverage.

**Savings on reagent costs need to be checked (should be around 20-25% of rev). Even a few % point savings would help. Why not! If they save 200 bps on revenue, they won’t need to reduce test pricing for a few years in order to attain 15-20% growth. This is what the discussion has been revolving around during last 2 qtrs.

Agree that this sector is thriving on loads of helicopter pe money with competition kicking in big time. But, who is the most efficient player? These pe guys are burning money for volumes. Why? They want to attain EOS and operational leverage. Would they be successful? Some of them might be! But in an industry that is growing at 15% pa and is destined to grow for a few decades in India, i will buy the argument that lowest cost players will manage to find ways to thrive on this tremendous opportunity.

B2B forms 80% of Thyrocare’s rev. Small hospitals find them very useful and act as collection centers for Thyrocare…It’s a win-win for both entities involved. Small hospitals are the ones who are thriving and have Ayushman Bharat as a very strong tailwind if implemented well.

There are many teething problems - Thyrocare is struggling to maintain margins while growing volumes, that’s why willing to take a 250 bps margin cut to propel growth (2-3 yr runway for 15-20% growth). Now, this growth would bring Economics of Scale and operational leverage resulting in propelling margins back up again (this is what Velumani says).

This guy is incubating ideas. Investing in them when no one else is looking there. This is how he milked Thyroid, Aarogyam…may be now PET CT? PET CT - most of your questions have been answered in concalls. Go though if haven’t gone through already.

There are issues for sure, no denying that. But at the moment lowest cost player is the one with capabilities to endure pain and even make profits while all other are burning money just to stay alive.

ROE/ROCE may come down from here…i agree unless they are able to retain margins or increase asset turns significantly. Lets see.

Valuation discussion is subjective and i won’t comment on that.

Disclaimer: Tracking position.


(AmitContrarian) #225

Hi Mridul , Please read the discussion over this thread .

Also, Supposed you gain efficiency via EOS. Today your margins are 45% and you passed on to customer whatever EOS allowed you to do so with same margin 45%.

what stops me with running mom & pop store to lower the margins lets say 30% and compete on cost basis ?

Basically i want to say in the businesses like diagnostics EOS doesn’t give any competitive advantage as barriers to entry is low and ROC is high, It will keep attracting competition and some competitors will be happy to earn little low ROC vs Thyro with EOS.

Thanks,
Amit


(Mridul) #226

Mate, i have gone through your posts there. I would recommend you to go through last few year concalls if you haven’t already. There is very detailed information on the business workings in there. Not many MDs are that open, forthcoming and speak like Dr velumani in explaining business, risks, issues, competitors and stuff during those qtrly concalls. I am sure you will find most of the answers in there.

Mum n pop stores would flourish due to low costs but cannot scale up after a point. Also, mom and pop usually focus on pathology. Have you compared their offerings vis a vis thyrocare in prevention/wellness? Again, all this has been discussed in detail in concalls. I won’t clutter the thread reinventing the wheel.

Reg your point on competition, i agree. And i believe everyone else agrees as well. This is clear and is accepted by velumani himself. Otherwise why will he say they need to compress margins to meet growth targets? But again, that’s why these guys are focussing on b2b. Easier to gain volumes as they are the cheapest. Pathology business is all about who is the cheapest, but not aarogyam. Aarogyam (wellness) is about quality and trust as well.

Reg EOS, i think your question has been answered. Scale will bring volumes. Volumes would result in cost efficiencies per test. I am not sure why one won’t concur.


(AmitContrarian) #227

plz look into this link you will get the idea - so many are doing prevention/wellness.

small hospitals not going to flourish ( Aayushman bharat - let it become reality) , trend is people prefer big hospitals already in metro will happen in other cities as well in fact EOS works in hospital business ( narayana is the perfect example) , people come from small cities to big cities for these big hospitals and big hospitals have their own Pathlabs.

This i agree but EOS will not help in gaining market share.