Today, I present the most satisfying find I have made in 2022.
Short version
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Krsnaa has bid for an enormous tender in the state of Rajasthan, comprising a total of 33 districts, 117 hubs and 3009 spokes.
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Offering is for pathology + xrays, as an initiative by the state to provide free diagnostics to citizens of Rajasthan.
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My highest confidence estimate of the minimum revenue from the contract is 204 Cr. Realistic revenues are much higher, but I leave it to the reader to make their own estimates.
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There are three other bidders along with Krsnaa, and results of the tender should be clear in a month.
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We have data on the total number of tests ordered by government hospitals in the state of Rajasthan in FY22!!!
Long version
The contract is divided into two divisions named Jodhpur and Jaipur, but actually comprises every single district in the state.
Government classifies hospitals into District, Sub-District, Civil Health Centres, Primary Health Centres, etc. The larger labs see more volumes of tests than smaller ones.
These spokes are not merely collection centres, but also have certain amount of blood work done on site. Larger tests are transported to hubs and mother labs through cold storage.
Method for estimating minimum revenue
- Contract includes the number of pathology tests ordered by all government hospitals in Rajasthan in FY22 (see below)
- I collect all test volumes across District Hospitals, Sub District and so on, and compile this to get the total number of tests ordered in Rajasthan.
- Use the CGHS rates for price per test, which are very very low, and multiply this by the volume of each test done. This gives me the revenue accrued by each class of government hospital. Contract includes a list of CGHS rates in Rajasthan for reference.
- Sum individual revenue contributions to arrive at a total:
| Hospital Type | FY22 Revenue |
|---|---|
| District | 63.27 Cr. |
| Sub District | 22.5 Cr. |
| Satellite | 5.6 Cr. |
| Civil Health Centre | 92.5 Cr. |
| Primary Health Centre | 20 Cr. |
| Dispensary | 0.67 Cr. |
| Total | 204.75 Cr. |
Pointers to Upside
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This is a conservative estimate. Tests are of different varieties with different costs. Think of X-rays, they come from 100 rupees to 500 rupees per test. I have assumed all tests are at the lowest possible price.
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These numbers are limited by government throughput. If Krsnaa can have better asset turns / test per minute / efficiency than the government hospitals, multiply the revenue times Krsnaa’s efficiency factor.
Example: if Krsnaa can do 2x more tests, it’s a revenue potential of 400 Cr. -
I have assumed CGHS rates. Krsnaa may bid higher than CGHS, Krsnaa may bid lower than CGHS (very low probability). Using different rates leads to different revenue outcomes.
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FY22 had covid lockdowns during Q1. Figures may not be representative of a general year, and we have no data to compare it with another year with the same dataset of hospitals as of now.
We can answer some of these questions once the results of the tender are announced. We will know Krsnaa’s pricing (if they win), and can eliminate some unknowns.
Pointer to Downside
- Krsnaa may bid for a portion of the entire contract and not both of the divisions. It’s unlikely, but a non zero probability.
Other details
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Those bidding can bid for a portion of the contract, or all of it.
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Contract is for 5 + 2.5 years.
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Includes annual price hikes of 3%.
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Winner of tender must submit number of tests conducted on the 7th of each month, and 90% of the payment will be released within 45 days, and balance 10% after 60 days of receiving this. This amounts to a blended receivable days of ((45 + 7)*0.9 + (60+7)*0.1) = 53.5.
Who else bid?
A total of four players have bid for this tender:
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Krsnaa Diagnostics
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POCT Services
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Hindustan Wellness Pvt. Limited
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Genestrings Diagnostic Centre Pvt. Limited
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POCT services has a 20% win rate on tenders.
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Hindustan Wellness is a regional Rajasthan player with good reviews on Google. Has <100 Cr. in revenue.
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Genestrings Diagnostics is a player from Delhi.
These are all smaller businesses in comparison to Krsnaa. I think there’s a high probability that Krsnaa is the winning bid.
This data set to me is very nice, and there are a lot of ways this is useful to us. Will investigate in future posts.
Link to contract: http://rajswasthya.nic.in/PDF/RFP%20444%20Dt.28.03.2022%20Website%20%20Hub%20&%20Spoke%20Model%20Under%20NHM.pdf
Link to corrigendum with hospital data:
http://rajswasthya.nic.in/PDF/36%20Dt.04.05.2022.pdf
Link to my spreadsheet:
Disclosure: I am invested and biased. I have made transactions in the company in the last 48 hours.