Krsnaa Diagnostics - what is the diagnosis?

It’s a two year guidance and a majority of the time is left. The nature of the business is such that it is a bit lumpy at times. The revenue is still likely to come through by the end of the guidance period. Contracts delayed are not contracts denied :slight_smile:

Disclosure: Invested recently at under 450 average price. Looking to scale up the position over time.

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It seems weak hands are exiting the positions so far this year. See On Balance Volume (OBV) indicator. Once the downside halts, will add some more where the price stabilizes

Disc- Invested

Since most of the business done with state govt (possibility of shady dealings) and in a sector which is capital intensive and where competition is increasing by the day (all pharma companies, hospitals trying to enter in diagnostics), I feel it will be very difficult to make money in this business. On top of it, promoter hold only 28% stake in the listed company which also brings in possibility of related party transactions… Not my cup of tea for sure…

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@Parag_Joshi thanks for sharing these charts. Can you please share how the OBV indicator is to be read and what is the interpretation here?

@Marathondreams If you haven’t already, please read the whole thread. You’ll find answers to why not many companies / hospitals are competing / will compete with Krsnaa.

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Promoters should buy the stocks from market as it has fallen more then 60% from its peak…Stocks generally do not fall more then 60% from its peak…

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I feel like this is a government EPC business and such business rarely get any premium valuation.

Disc: Not Invested

There is no name of krsnaa in bidders list of Rajasthan tender :no_mouth: . Am i missing something here ? . I mean how can they not submit the bid ?, considering they have submitted in the last tender & also spoke about it in the concall. The tender has already moved to technical evaluation state.

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@shashikanth : What is interesting here is to note that while POCT is a competitor for Krsnaa, TCIL is a PSU entity with no relation to the diagnostics industry.
IMO, the Rajasthan tender is too big to ignore and the Krsnaa management has given a lot of bandwidth to the same as well - to finally not submit their bid.

I am hoping the TCIL bid is a consortium with Krsnaa at the core of it (details should be revealed soon). I would be very disappointed if that is not the case. On the other hand, if indeed Krsnaa has chosen to bid by including a PSU partner, more power to them!

Disclosure: Invested, and biased. Krsnaa is the largest weightage in my portfolio. Avg. buy price is above 500.

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Have been meaning to share my investment thesis for Krsnaa on VP for quite sometime now. Finally, managed to write it down - Here it is:

The diagnostic industry has always been one with low barriers to entry. It is one of the biggest reasons why the market is still fragmented - with the unorganised players having 80%+ market share.

Before answering why Krsnaa, let us go to the first principles to understand the macros of the business - What does it take to set-up and run a lab successfully?

  • Setting up a lab - Almost every manufacturer/distributor offers their devices at zero capex - where they bear the cost of the device and charge the lab owner only on the reagents - also known as a reagent rental model. The reagent pricing is a function of the volumes. So labs with a higher workload would have much lower cost per test and can be much more competitive in their pricing.
    In-spite of a significant pricing (supply-side) advantage, then why have the large players not been able to corner most of the market share by now? To answer that, we would need to understand the demand cycle.
  • (Price inelasticity of) Demand - 90%+ of the market is still doctor/trust driven. Often in these cases the patient/customer doesn’t shop around for pricing. They rely on the doctor’s recommendations to choose their lab.

It is this demand side behaviour, which has resulted in the limited market share gains for the efficient operators and has allowed the small/inefficient players to survive (and thrive) - based on their doctor relationships. This also explains why even the established laboratory networks have found it difficult to expand organically and have often resorted to acquiring the regionally dominant player, when they decided to expand in that region - Dr. Lal acquires Suburban for entry into West; Metropolis acquires HiTech for entry into South

While COVID exposed the shortcomings in our diagnostic infrastructure, which in-turn brought in a lot of rhetoric for investments in this space, the last year was when the euphoria died down. Looking beyond the hype and lull phases - following are the key changes expected in coming months:

  • Accelerated formalization of the industry - From incumbents (Dr. Lal, SRL, Metropolis, etc.) planning to enter into Tier 2/3 markets leveraging their brand, to pharma giants (Mankind, Lupin, etc.) setting up diagnostic labs and utilizing their on-ground sales (Medical Representatives) team, to emerging startups (Redcliffe, Orange Health, etc.) building on their convenience proposition - there seems to be an unprecedented rate of setting up new laboratory infrastructure.
    Here, it is very difficult (at-least for me) to identify the potential winner(s).

  • State governments being hands-off - The success of the various PPP (Public-Private Partnership) models in delivering quality healthcare at affordable prices has created a playbook for other states to outsource their laboratory infrastructure set-up and management to dominant private companies.

Counter-intuitively, the government business is one where the moat for dominant companies (read Krsnaa) is the strongest, based entirely on their economies of scale - given that demand is no longer dependent on doctor relationships and is driven through the humongous crowds visiting the government hospital set-up every day.

Advantages Krsnaa has:

  1. Minimal rental costs on laboratory infrastructure (similar to DMart)
  2. Lowest reagent pricing - driven by high volumes
  3. Lowest reporting costs - driven adoption of technology (tele-reporting)
  4. Negligible CAC - access to patients coming in government hospitals

Now, Krsnaa has plans to leverage their dominant position in the B2G space to disrupt the B2C space - however there is a massive execution risk in the same - IMO it has to be a franchisee led model targeted at forging doctor partnerships, focusing on illness and not on wellness!

Even assuming that if they fail on the B2C side, the B2G business itself has massive growth levers which could allow the firm to deliver 30%+ growth (could be lumpy though) over the next few years.

Disclosure: I had started a diagnostic startup (home collection) in 2014, and I currently work in a MedTech company, where Krsnaa is one of our customers.
Invested and biased. No transaction in the last 30 days

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I found the link between TCIL and the Rajasthan tender.

It remains a mystery why TCIL has decided to branch out into diagnostics, but TCIL has floated a tender to find their strategic partner for the old Rajasthan contract. I would not be surprised if they set up a similar strategic partnership for the new tender, and Krsnaa is their partner.

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If you read RFP for Rajasthan project (shared in this thread) - they do not allow the extend the services to private customers and it could be deal breaker for Krsnaa. If they have not tied up with TCIL. I think it is good choice if you can’t make good returns - it’s good to avoid getting stuck with government on this kind of long term projects.

Thanks,

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Krsnaa Diagnostics Ltd bags tender from BMC
Krsnaa Diagnostics Limited has announced that Brihanmumbai Municipal Corporation (BMC), Mumbai, Maharashtra has awarded a Tender to the Company to provide services of Lab Investigation Facilities under “Hinduhridaysamrat Balasaheb Thakeray Chikitsa” for BMC Dispensaries and Hospitals in Mumbai, Maharashtra on Public Private Partnership (PPP) basis.

The Company will set up approx. 600 Collection Centers across Mumbai city and will carry out 139 Routine as well as Special Pathology Tests

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This can be a pretty big deal if we know the details and terms of the contract. 600 centres in Mumbai opens up a huge market for private walk ins too - disruption coming to the doorsteps of established chains + eyeballs and brand building

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Eventhough collection centers seems to be high, but as per BMC media reports contract value of this BMC contract seems to be low