15-20% for 10 years is most bullish case scenario and its very rare phenomena and historically if you look generally happens in case of new value creation.
10-20% growth for long term is very much achievable for blood diagnostic industry in India! In India blood tests are done only very sparingly by the doctors due to cost/budget constraints.
Most doctors rely on clinical symptoms or signs to diagnose and treat. Many diseases are missed due to this (certain diseases could be diagnosed only by testing blood, clinical signs or symptoms could be misleading) and many diseases require ongoing blood tests for monitoring the disease and/or monitoring response to treatment - this again is not happening in India.
The runway is very long…
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Are we sure that results are really that bad? Last quarter same time there was exceptional income of 8cr on sale of a business. If we factor that in, profit fall is not that much no? Reagent and Employee cost both are definitely key monitorables and have shot up much more than expected.
I like the promoter, he is genuine, passionate, came up through lot of hardships and a self made man.
However, as mentioned in one of the initial post, I can see lot of complaints and bad reviews about the service and test results. This includes poor service from the collection personnel, inaccurate results etc.
More important than that, there are rampant negative and harsh reviews in glass door, about the work culture and management - unprofessional work culture, a management unkind to the employees. Dr Lal Path lab, SRL, Metropolis all of them have a few negative comments however not upto this intensity and harshness about the work culture/management. Though the reviews are lesser in number, it looks better than Thyrocare (which has 128 reviews).
https://www.glassdoor.sg/Reviews/Thyrocare-Technologies-Reviews-E533159_P9.htm
If this is anything to go by, it is not auguring well. Diagnostics is about scale and scaling up will not work without a great culture.
Nonetheless, are these glass door reviews a true representation? Has anyone got any genuine feedback from the employees?
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anyone has today’s thyrocare conference call rranscript or highlight of today call
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I liked dividend given by Thyrocare. I am aware of debate around dividend vs buyback vs growth in price and booking profit instead of dividend. But I am looking for cash so I am glad that they have declared it.
Thyrocare
Think Thyroid. Think Thyrocare.
May 20, 2019
The National Stock Exchange of India Limited
Exchange Plaza
The Bombay Stock Exchange Ltd
Phiroze Jeejeeboy Towers
Sandra Kurla Complex,
Sandra (E), Mumbai - 400 051
Dear Sirs,
Dalal Street,
Mumbai- 400 001
Sub: Update on Outcome of Board Meeting held on 18-05-2019
Please refer to our letter dated 18th May 2019, intimating about the decisions taken at the Board
Meeting held on 18-05-2019.
We wish to add that at the above Board Meeting, when the Auditors pointed out the impairment of
investment in Nueclear Healthcare Limited (NHL), the wholly owned subsidiary, Dr. A. Velumani,
Chainnan, Managing Director & CEO has offered to buy the entire shareholding of the Company in
NHL at the current investment value of Rs. 194.67 crores to ensure that there is no loss to the public
shareholders. However, all required fonnalities will be complied with by the Company for such a
transaction.
We were waiting for the concurrence from the Auditors to intimate this and hence the delay.
Yours Faithfully,
For Thyrocare Technologies Limited,
Dr Velumani proposing to buy Neuclear radiology business from Thyrocare for 194 crores!! That would be a fantastic outcome for Thyrocare shareholders. Thyrocare will become a very focused blood diagnostic company with good return ratios, cash flows and growth. Yet to be finalised though…
What’s wrong with Nueclear? This is a faster growing business as well
How many promoters can do this? Leaving aside growth and competition, this is remarkable standards of corporate governance shown by the company.
“We wish to add that at the above Board Meeting, when the Auditors pointed out the impairment of
investment in Nueclear Healthcare Limited (NHL), the wholly owned subsidiary, Dr. A. Velumani,
Chainnan, Managing Director & CEO has offered to buy the entire shareholding of the Company in
NHL at the current investment value of Rs. 194.67 crores to ensure that there is no loss to the public shareholders. However, all required fonnalities will be complied with by the Company for such a
transaction.”
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PET CT business is labour/capital intensive - this business is much more complicated than blood diagnostics. Blood diagnostics is much more simpler and volume driven. Radiology is a good business in the right hands but… Dr V has expertise in blood diagnostics and he thought he could extrapolate his expertise to radiology (completely different business) and he is paying the price…
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Its important to understand context here. Some shareholders or public in general were criticizing that they merged NHL business just before IPO and now its not making profits as expected and hence eroded value from its initial investment.
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Hence, the context of current investment value is important+ if it goes through there are regulations in terms of third party valuation report etc. which should follow
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Its nowhere classified as impairment. “Impairment” is very strong word in accounting and there are accounting standards to classify something as impaired. Any business will take risk to use its incremental cash-flows into profitable venture. Its never an intention generally, unless any bad motive is involved (like siphoning etc. which clearly doesn’t look like an intent here)
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Something which you can probe during concall, but clearly market has given thumbs up on this.
8 Likes
anyone has the link to confress call transcipt in last call dr said that reducing the price in arogyam 1 and 2 will hwlp them to gain market share as well increase in toplinw growth and the effect will be visible in coming quater clearly there is no sign of the same by looking at result
i dont have the link but if i remember correctly he had said it takes atleast 2-3 quarters for the effects of price reduction to be visible.
Went through Q4FY19 Earnings con-call recording. Below are my notes. Please note that I may have interpreted Dr. V’s statement’s incorrectly.
NHL Purchase by Dr. V (Dr. V’s response to last question during the call)
- Dr. V was informed by Auditors during board meeting prior Q4FY19 earnings release that NHL assets were impaired. Auditors total him that after impairment annual PAT would come down to 63-64cr. (PAT for the year is 95cr. So my guess is that NHL assets are impaired by around 30cr according to auditors.)
- Mr. V would like to pass NHL transaction funds to shareholders as dividend or buyback.
- Dr. V. has got enough funds to cover this purchase.
Industry
- Unorganized sector has lower costs benefit compared to organized sector like:
- No accreditation required
- Lesser training and cheaper labor costs
- No investments in IT
- Tax aversion
- Until government enforces above mentioned criterion for unorganized sector to comply, organized sector will not be able to grow at faster level.
Pathology/Diagnostic Business
- Confident of getting back to 40%+ kind of EBITDA levels in a year or so.
- Thyrocare has around 80% of B2B business where maximum competition lies.
- Growth in metros is drying up. Tier 2 towns are still growing. And Tier 3 towns are fastest growing. To tap growth in Tier-3, more manpower is needed.
- Expected CAPEX of 18-20cr in FY20 to get 20% of growth.
- Volume growth has suffered in last 5 quarters is because competitors have matched price correction of Arogyam.
- Have added 200 employees for marketing. All of them were freshers and took 6 months of training. They will start generating numbers going forward. Cost is 2.2 lakhs for each employee.
- Franchisee will continue to dominate as non-IT savvy people are still part of mass. App/IT savvy people still form may be 15-20% of the market.
- Retail ala-carte tests not growing for organized players, but growing for unorganized players. Packaged tests are growing for organized players.
- Tests should not be distinguished as B2B or B2C. It should be distinguished as ‘easy-to-do’ (which are done locally) and ‘difficult-to-do’ tests (which come to Centralized labs of organized players).
- Thyrocare doesn’t get ‘easy-to-do’ tests like sugar or lipid from B2B players. Thyrocare gets only complex tests business from B2B players.
- Thyrocare will remain lowest cost player in ‘difficult-to-do’ tests for long period, according to Dr. V.
- Online business is around 17-20%. About 10% comes from online medical service providers (this was 1%, 5 years back) – and 7% comes directly from our own site. As more online service providers increase, Thyrocare will benefit from their growth.
- Cost structure value-chain 1st example:
- 1000 charged from patient
- 200 goes for collection charge
- 800 remain
- 300 goes to franchisee as their cut
- Franchisee pays Thyrocare 500
- Thyrocare cost 400 (marketing + customer acquisition cost + over head + taxes)
- Rest 100rs is profit
- Cost structure value-chain 2nd example:
- B2C local unorganized player doing 5cr business in 10km radius, he makes 3cr profit
- Arogyam by volume is 20% and by value is 53%
16 Likes
PET CT business - just a few thoughts.
PET CT is a functional CT scan - tumour tissue lights up vs normal tissue (hence PET is better than normal CT scan in patients with cancer). Mind you inflammatory tissue also lights up…
PET CT machine costs a lot and the FDG material (used as a reagent/contrast in the PET scan- manufactured by cyclotrons) have a very short half life (2 hours or so) - so you cant cancel the scan once the patient turns up for scanning. Timely transport of FDG is a key issue as well.
Much more importantly PET CT requires a very well qualified Radiologist doctors to interpret (this cannot be done without special training in interpreting PET scans) and report scans. Good and experienced radiologists who could report PET scans are in short supply and they are well paid.
Also, most Oncology hospitals will have PET scanners and standalone PET scanners (Nueclear) are having to compete by lowering prices…
You could clearly see the contrast between Thyrocare’s core business of blood testing (biochemistry - automated, large volumes of samples could be handled by the analyser, each tests are very low value by price, reports don’t require validation by doctors - so not labour intensive)
vs
the PET business - high cost of PET scan and FDG, very labour intensive (requires an expensive radiologist to interpret and report the results), difficult to get volumes since it is a very specialized test and competition from the hospitals is very intense because each test is high value in price
Hence it makes perfect sense to divest PET CT and if Dr V is willing to buy it for the cost of investments in the business it is a very good deal for Thyrocare shareholders.
Discl - accumulating since IPO and 15% of my portfolio currently
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Strange !! Earlier they were expecting 50% of total revenues from this business and now suddenly they are thinking it as impaired. Is it because they realize the mistake or they are giving long term benefits at the cost of near term benefits?
Discl - this is my opinion only and I am biased, the details below are my assumptions and only that…
Regarding PET CT (Nueclear) business and the offer of Dr Velumani to buy from Thyrocare
If anyone is seriously interested in investing in Thyrocare they must listen to the last concall (Q4 2019) and hear from Dr V about the rationale for lumping Nueclear business with the core diagnostics business. This is what I understood (i could be wrong in the interpretation) - initially it was his intention to keep the two businesses separate, but it would have created doubts in the minds of his new Private Equity business partners (2 different businesses, and plenty of conflicts of interest, and distraction of Dr Velumani’s attention to different/new businesses). So he amalgamated the nueclear business within Thyrocare prior to the IPO…
Nueclear business (PET CT) has struggled from the start and now the investment phase is over with 15 centers. Profits are not coming through as expected and hence the auditors thought that the investments in the Nueclear business is partially impaired (30crores out of the total investment of 194 crores in the business). If Dr V had accepted this impairment it would have resulted in lowering of the profit…That is why he offered to buy the Nueclear business for the cost of total investments in that business so far. He is willing to pay 194 crores for this business from his own pocket (he has got the money).
Think about it. 194 crores invested so far. Annual revenue is only 30 odd crores and loss making currently. You guys decide whether Dr Velumani’s offer is a good deal or not
Have I got this wrong?
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Dr Velumani was also talking about the PE multiples of other diagnostics players (Dr Lal and Metropolis - both at PE multiples of 40-45 vs Thyrocare at 25 odd). He didn’t sound happy that the market was giving a much lower multiple to his business and this could well be the reason why he has offered to buy the Nueclear business - this might result in re-rating to 40 PE (this may not happen) and he will regain the money several times over what he paid for Nueclear business (because he has 65% stake? in thyrocare)!! Win-win for thyrocare and Dr Velumani personally
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This is a short sighted way of looking at things. Re-rating etc. wouldn’t matter 10-20 years down the line. Earned valuations matter. One should take stock of the situation depending on if it would increase shareholder wealth in the long term.
Personally I’m not sure if it’s a good or a bad thing in the long term. Wait and watch for me.