Thyrocare : Debt free Asset Light Healthcare Play

(Bharat) #316

I was trying to look at the Bigger Picture !
India’s Population around 130 Cr
I believe at least 1/10th People go for diagnostic tests in a year (Around 13 Cr) and average spend on yearly basis may be around Rs 5000.
This gives us an current Industry size of around 65000 Cr.

While the Indian healthcare market is estimated to touch USD 280 bn by 2020 and USD 372 bn by 2022, it is estimated that diagnostics including imaging based diagnostic services would grow at 14-16% over the next couple of years and touch around USD 12 bn (85000 Cr) by 2020.
~Lal Path AR 2018

The diagnostics industry is witnessing a great deal of visibility and interest with more organized players driving regional growth. This is also resulting in gradual shift of the market from unorganized to more organized players thereby driving quality and efficiency standards. This sector has also attracted investments further fueling competition but at the same time improving industry standards. India still has large rural markets which are either under served or not served at all by diagnostics and this provides the opportunity for growth at the bottom of the pyramid although at significantly lower price points. In the urban markets too there are pockets of growth opportunities given the overall awareness on health care and health attitudes which result in more frequent testing for chronic diseases.
The biggest Player Dr Lal is around 8500 Cr , Thyrocare around 3000 Cr. Even if we include the Hospitals having own Diagnostic Labs , i believe that there is sufficient market for existing as well as new players. As per UN reports , India population would grow to 180 Cr by 2050 .
With more focus coming in for preventive checkups , i believe the diagnosis market may grow by 8-10%. Both Lal Path and Thyrocare promoters believe the Industry to grow by 15% for many years.
The debate regarding competitive space does not hold much significance as market looks very big and growing.

  • Major threat look around pricing and margin cut due to competition but thyrocare being lowest service provider may not be affected much.

Management in the past has highlighted that a lot of new players are keep on coming and the shift to organised players is not happening as expected.

Industry is dominated by small and regional unorganized diagnostic laboratories, which controls more than 70% of the total diagnostic market. Due to significant latent demand emerging on the back of improving economic conditions in the country and a rapidly emerging urban population, though the significant chunk is getting converted from unorganized to organized, since there are no entry barriers, more and more unorganized players are entering into the space and there seems no significant shift in the share of organized.players in the total diagnostic market.
~ AR 2018

Though Management believes that these all are short term issues and the game is all about Volumes after some time.

Regarding Valuations , it may vary from person to person. Beauty is in the eye of the beholder.
The Business throws a lot of cash , growing at 20-25% with ROCEs around 25-30% & good dividend yield , 30 PE does not look that expensive as many feel.
I think if the shift from unorganised to organised happens , it may do wonders for the organised players. If one has a Long Horizon and if management plays the cards well it can be an interesting bet.

A good read


(RadheyShyam Aggarwal) #317

Was trying to calculate the market size in other way, if we take people over age 40 , around 33% of Indian population ie. about 40 crores. Even if assume 25% (less in rural more in urban, males> females) of these guys getting some diagnostic tests done, the market size comes roughly equal to your estimate .

(RadheyShyam Aggarwal) #318

Though won;t agree to this assumption. As the economies become more progressive,real literacy level goes up , urbanization increases and consumerism also goes up. In these scenarios, living expenses go up , so people tend to have less number of kids thus affecting the rate of the growth of the population .There’s a chance that by 2040 , we might see de-growth in population.

(Vishnu Ch) #319

(dprashant) #320

any thoughts / view on why such a big divergence between Thyrocare and Dr Lal ?
seems Dr Lal trading at almost 50XTTM earning v/s thyrocare at 28XTTM.

apart from return ratios which are little better for Dr lal v/s Thyrocare what can be other considerations for Dr Lal getting such a premium over thyrocare ?
just interested in understand and learning so asking as even after lot of efforts I am not able to understand.

Disc - invested in both Dr lal and thyrocare and both having same weightage in PF

(Bharat) #321

Lal Path trading near 52w High , Thyocare near 52 w low :stuck_out_tongue:
One reason i used to think for the valuation Gap was that Lal Path is more of a b2C Business and thus enjoy premium valuations. B2C is considered more profitable and should have higher Margins but if one compares Lal path with Thyrocare , it is thyrocare which despite being a B2b player , enjoys superior OPMs. That too after being the lowest service provider. Still figuring out how ?

One possible reason for the divergence may be the better ROCE for Lal path as well as high growth rate compared to Thyrocare. Also , thyrocare has cut down prices for some of the tests despite claiming to be lowest service provider citing reasons of increasing competition and delay in shift of business from Unorganized to Organized. Management is not that bullish for next 1-2 years as they feel industry is going through consolidation and facing threats from lot of PE Players . While Lal Path management sounds more bullish. So may be market is discounting that too .

Disc: Invested in Thyrocare


(Bharat) #322

Poor Set of numbers. No Dividends
Q3 2019 vs Q3 2018
Revenue : 96 Cr vs 83.8 Cr
Profit : 20.15 Cr vs 21.5 Cr

Revenue : 297 Cr vs 259 Cr ( 14% Growth)
Profit : 68.82 vs 68.15 (Flat 0% Growth)

Management despite assuring good growth is not delivering on actual from long. Looks like they are facing lot of competition despite claiming to be lowest service provider.
Definitely a reason for low premium valuations as compared to Lal Path. Lal Path showed decent growth both on quarterly and 9M basis.
I believe that the management should spend more time in business than attending different investors events.

Disc: Invested , will remain so !

(dprashant) #323

I fully agree as have felt they seems to be focusing bit more then rest of the lot in keeping analysts / investors event all across the world .
I remember in one of the results calls chairman was discussing on share price movement saying don’t know why it’s not going up etc.

Have few friends who are doctors ,their view was Thyrocare don’t give any referrals to doctors which others give so doctors aren’t recommending Thyrocare for tests etc. Also his view was he has found them rigid ( may be because they don’t get extra referral money ) etc.

(Amit Jain) #324

Doctors do not go for Thyrocare because the chief promoter, Mr. Velumani, says it does not do the general tests. In that way it is different from Dr.Lal pathlab.

It is into healthcare testing but at affordable prices. It does not do testing for Viral fevers, for ex. It does whole body check up.

Need to get into the details of that. But, I think it is not completely comparable to Dr.Lal pathlab.

Thyrocare wants to be B2B. It wants volumes, hence wants local outlets to handle the hassles and haggles of individual costumer.

(Harsh04) #325

Other highlights

  • Pathology business grew 13.5% yoy to Rs87.4cr, while imaging business grew by 35% yoy to Rs8.2cr.

  • Overall gross margins declined from 75.2% in Q3FY18 to 73.1% in Q3FY19.

  • Employee cost as % of sales grew from 9.5% in Q2FY19 to 10.9% in Q3FY19. On yoy basis however, employee cost as % of sales declined from 11.3% inQ3FY18.

  • The EBITDA margin at 36.9% recorded in Q3FY19 is its lowest after Q4FY17.
    Is margin compression a Indication of the ensuing tough competetion ? While Dr. Velumani has himself acknowledged the competition, do we have a fair idea about how low with these margins can go ?

  • This is also the sixth quarter in row that the company’s revenue has grown below 20% on yoy basis.

  • Company has bought back and extinguished total 9,58,900 shares for a total amount of Rs62.9cr (1.78% of its share capital) for an average price of Rs656.9 during the quarter.
    Promoter has bought back at a price greater than CMP. This surely shows his confidence in his buisness.

(stockcollector) #326

Disappointing result! There is some top line growth, that is all.

(phreak) #327

Mr.Velumani has been talking about diluting margins for growth but it has taken about 500 bps reduction in margins for retaining the same profits. This is a running to stand still situation which is a very unpleasant one to be in as a business. Technically it has broken down and is looking like a falling knife that has just slipped out of the hand.


Well I like to simplify.

  1. Promoter group holds shares via Calcutta based ex shell companies

2.Nuclear deal has been horrible for holders of thyrocare. Remember nuclear takes up a lot of asset resources on balance sheet at consolidated entity and its been a horrible capital allocation

  1. A Super specialist doctor I talked to said he doesn’t trust thyrocare reports as they do shortcuts and test results are wrong. Twitter searches of patients will confirm same

I know some people will be sceptical of doctors vested interest but he said that either do it from Dr Lal or hospital both follow same standards. Somebody who is earning 80lpa isn’t going to care about kickback on a 1000rs blood test. He just wants what’s best for patient.

  1. Promoter is so desperate that he appears not only for investor carnival but even trader carnival. What do traders have to do with thyrocare blood tests??

He’s also made investment pitches to family offices and wealth management professionals

  1. I have seen real rags to riches stories and Mr velumanis one from a landless farmers son to 2kc networth is beyond suspect. Does he ever talk about how accurate his blood tests are and how he loves to help patients? He has on domain name for self promotion

Yes I am aware there are three different pe funds invested in it but this is India and from my experience as a consultant in infra PE space, investment managers can be bribed to make bad investments as long as they can flip it out.

Sorry if this is coming as a strong opinion post but remember if thyrocare tests are faulty then people’s lives are under threat which is a whole different ball game than another pump and dump.


I second some of these thoughts. I had similar reaction about the promoter when I see him appearing every now and then to market (milk!?) his rag to riches story. That is all known and he must execute what he has been promising after IPO. I am not sure why… not one but 3 docs in our extended family suggested not to invest in Thyro. I thought they might have vested interests but two of them run their own clinic/mid-size hospitals and hardly care about small change in commissions. I have started to believe that not everything is ok here. Pathology results of even good quality hospitals go wrong so occasional miss in quality is fine. An experienced doc would always suggest a repeat test if he/she is not convinced. I would give another stats for whatever its worth … a small unbranded lab shares upto 40% of commissions with the doc who writes the prescription. Dr. Path Labs and some others share 25-35% depending on their locations but Thyro only gives 15-20% commissions. I can’t prove but these are informal rates in a particular state. I am not sure if quality is bad but when docs stop trusting these reports it is very difficult to make it big in this sector despite following better ethical practices. An investor can’t fight the whole market even when the promoter is okish.

(Bharat) #332

@james_kerala Thanks for clarifying. Had removed the earlier post due to no value edition !

Can you elaborate a little on this front. I see a lot of Promoter’s holding is in Individual’s name .

I too used to think about twitter users complaining but i think the numbers of user complaining is not that significant and such issues are also there with Lal Path too. Moreover B2C is 21% of overall business. People hardly appreciates for Good Service while start complaining on even a small issue.

Promoter’s participation on such platforms is definitely not helpful for the business. In fact i raised that on twitter. I asked Promoter to stop Participating in such events and give more focus on business which is slowing down but what i got in return was a BLOCK by Mr. Velumani. He is admired all over about his simplicity but it seems he could not even handle a little criticism.

There is little to doubt on this. Thyrocare is a 2500 Cr brand with majority of holdings with Mr. Velumani. There should not be any doubts on the books of the company as most of the profits is shared as dividends and the recent buyback without participation from promoters.
I think that if the dividend would been announced , we could see less fall.

In today interview with CNBC , he told about the cuts in prices by 15% which affected the performance. Though , i am unable to understand most of the things he explained except that this year will be poor and will end with 15% growth only. He is saying that he has started some disruptions and results will be visible in next FY.

(dprashant) #333

I suggest , do check his past interview he keeps giving new stories every time he comes for an interview , even if you see his response during last concall (Q2,FY19) and what he said then and what he said now is very different. 3 months back he was expected 20-25% growth and now this.
I don’t doubt his integrity and feel he is honest man. however he is loosing focus on business it seems as he seek too much lime light all the time.

I hope after he experiencing the performance of his stock he do some reality checking instead of coming up with different stories for every interviews.

I am holding it and will continue to hold for another 2-3 qtrs. at least only because I really feel his honest man whos got carried away with all the lime light that hes got and has lost focus due to it ……Hopefully after all this and more he may do some reality check.

(dprashant) #334

Even few doctor friends of mine has said so that thyrocare reports cant be trusted and are not reliable , they are from south Gujarat region where Dr lal isn’t present so they were suggesting that Metropolis or SRL are far more reliable when it comes to accuracy of test results.

they also hold Dr Lal but are not interested in Investing thyrocare due to this perception.

Anyway let us wait and see how things shapes up 2-3 qtr down the road

(Zero Point Someone) #335

We are missing the big picture here. Agreed that results have not been that good how ever my investment thesis in diagnostic space is on account of 3 factors

  1. Complex test s
  2. Economies of scale
  3. Preventive tests

Moreover as economic statutor of person rises he or she is now inclined to go for branded stuff

(CP) #336

Not correct. I too thought earlier they didn’t support fever. Thyrocare has a fever profile and a fever plus profile to detect advanced illnesses like dengue, chikungunya et al. I have availed this and got a pretty accurate diagnosis.

I have to admit that the fever/fever plus profile isn’t easily discoverable on their platform.

Personally for me it is pretty hard to determine who’s a ‘good’ doctor and who isn’t. Also there’s too much vested interest involved.

My strategy is to trust science and data. Medical diagnosis is based on biomarkers and a reference range to determine what’s normal and abnormal. If I can verify Thyrocare’s disgnosis with the person’s symtoms using a little bit of Google search, I feel more confident.

I would only go to the doctor to confirm the diagnosis or if the symptoms do not subside.

I know you may find this risky. I have the advantage of having medical professionals in my family as well, eventhough I wouldn’t use them to develop my primary hypothesis.

Simply put, a Thyrocare diagnosis would fit very well into my strategy to confirm symptoms and develop a hypothesis. Please note, I order a profile or a test battery and not just a single test. This is something a doctor does anyways.

I’d only go to the doctor to confirm/not confirm this. The latter is harder for me because I have to first determine who is the best doctor and then fix an appointment and go over there. Thyrocare comes home, gets my bood/urine sample and gets me the report the next day. I can easily do a little google search and verify this on my own.

Dr. Velumani’s background as a nuclear physicist provides me added reassurance about the accuracy of this diagnostic model. I’ve tested the reports in local lab and found it to be accurate.

Disc: Not invested but looking to add when the PE makes more sense.

(Amit Jain) #337

Recollecting one of his interviews, he said common fever testing is not his focus because it has too many hassles, from a business point of view. He wants to go for the bulk, where there are volumes.

He said, to the effect, that with volumes his cost will become drastically low, increasing his moat. Thence, the entry barrier for new comers, who keep popping with a few lakhs to several crores, will be very high. He wants to become an insurmountable force in the industry. By having volumes, and hence low cost.

He is willing to sacrifice margins for volumes. Logically, once he develops a brand, which comes with volumes, he will flex the pricing power. But, now only volumes is his focus.

Therefore, in the quarterly numbers sales will increase, but profit will fall. Tough time for investors. Current OPM is 40% ROA is 20%. These are high numbers. There is plenty of room to trade these for volumes.

People criticize his constant media presence. But, he comes across as honest, ambitious and a man with a plan.

I do not understand how test reports can be muddled. It is a standard mechanized procedure. Not rocket science. There might be some teething issues, in the logistics, which I think the management is on top-of. Moreover, this business spits plenty of cash, so there is no reason to expect anything short of the best machinery in their labs. In fact, I would distrust the small guys.