Timeline of what happened in Mumbai BMC for those seeing this for the first time:
Jan 30th - Krsnaa wins BMC tender to run 600 centres.
March 6th to March 13th - Operationalises 300 centres.
March 18th - News comes out that reports have been delayed.
March 30th - BMC issues a show cause notice.
NHM contracts give the service provider 4 months to clear sites, roll out and make sure things are working smoothly. Here, the show cause notice was given in two weeks.
It’s unfortunate that Krsnaa makes headlines for these delays when it’s only been two weeks.
Welcome (Risk) to doing business with (B2G) Government and related authorities - If one disrupt traditional/legacy businesses - One needs to also have strategy to counter these.
Any info how krsnaa going to handle these.
It only takes couple of such incidences to ruin your reputation and political interference also happens during election years, things will spiral pretty quickly - If i remember correctly, it happened to SKS micro finance one time few years back, not saying the same case here, just a word of caution.
If NHM contracts give 4 months, but BMC is giving only 2 weeks, this could mean only one thing @Chins , BMC elections will be announced shortly. So one needs to understand the motivations in case of B2G contracts.
I am holding Krsnna since January 23 with around 16% profits.
But this news CONCERNS me.
So these are my ANTI-THESIS pointers
If the BMC’s internal assessment pegs the test at 220, how Krsnna is able to do it at just 86!!!
This looks like - Too Good To Be True.
Are they actually performing these tests? What about reliability?
We all know when Quantity goes up, Quality goes down.
Same way in their Radiology business.
Yes. They can purchase CT / MRI machines at huge discounts directly from companies. But what about the maintenance costs and also the payment to radiologists? More money can be saved by paying less to radiologists only. So you will not get good quality at that price. So again Reliability? ( Check the Vijaya Diagnostics newsletter by Marcellus - you will understand the difference between Krsnna & Vijaya valuations )
So basically, yes sales growth is very much possible and high margins may be possible. But for HOW LONG is the big Q?
My personal opinion.
Frankly, I am also confused about whether to add more / book profits & get out!
This intrigued me a bit as well. Briefly checked last year’s AR for Vijaya and Krsnaa. Some things stand out base on my very crude assessment (no positive or negative opinion on these)
Krsnaa is heavy on Radiology compared to Vijaya, which is heavy on Pathology. So, was expecting the depreciation cost to be more for Krsnaa. But, it turned out to be lower…
One big expense for Krsnaa is the fee to hospitals. This is directly affecting their profit margins. But, this is also their business model which is different from Vijaya’s.
IMO, the major part is to track the quality of their tests. So far, they have a very good record. Otherwise, the management is pretty vocal that they are building their moat in terms of pricing (below from investor presentation).
It does appear too good to be true considering how much of a discount they have. But they do seem to generate decent cash flows and I am not able to locate any doubtful entries in their statements yet. Eager to see their upcoming annual report.
The weighted avg revenue as quoted in the article comes to be Rs. 120\pathology test. Whn the mgmt last presented the no. of tests in its Q1 FY23 the pathology WAP is Rs. 154.
Now, if u can let us know the avg. salary of pathologist nd bring this down to a breakup of test per employee thn we can verify if the mgmt claims are correct or not.
@Chins has done this breakup down to costs per unit at more granular level and might pitch in if needed
Sometime back, there was a newsitem about BMC pulling up Krsnaa for giving reports on time. Going by the additional order that Krsnaa has got, it is clear that the so called pulling up is just a gimmick for public consumption.
Very interesting. Any idea on how to estimate the TAM for this NGS tests market in India?
So SOPHiA enables Krsnaa to provide high-quality NGS tests that help to evaluate for hereditary cancers. Krsnaa works to be accessible and affordable to anyone who seeks a high-quality NGS test. With SOPHiA GENETICS technology Krsnaa will advance its NGS offerings and help to democratize data-driven medicine.
I was in Mumbai recently and did a couple of scuttlebutt visits to Krsnaa’s Aapli Chikitsa centre in KB Bhabha Hospital, Kurla on 11th and 12th April. Krsnaa has had a radiology setup in the hospital for a long time (1 CT machine) and the Aapli Chikitisa Path clinic has opened up recently (1 month).
Some observations from my visit (These are anecdotal, so remember that before drawing inferences or conclusions)
I first enquired about the Aapli Chikitsa clinic with Krsnaa’s customer care. They were super evasive at first and their first response was to direct me to their labs in Nerul and Dombivli (These are likely older labs they already had in Mumbai). After a lot of persistence, I was able to ferret out the details of the Aapli Chikitsa clinics in Bandra (E & W), Kurla and Santa Cruz. From what the lady said, they have about 10 such centres in Mumbai. I went to the Kurla one on 12th April.
Krsnaa has a ton of radiology branding as soon as you enter the hospital and along all major walkways. A lot of the branding is joint BMC + Krsnaa branding (Pics attached) Its likely that a number of patients going to the hospital will register the name Krsnaa Diagnostics and associate it with a radiology service provider. There is zero branding of pathology so far in the hospital.
The Aapli Chikitsa centre is a small 200sft room in the hospital (Pic attached) - next to the radiology unit - where there are 3-4 Krsnaa staff (some wearing Krsnaa uniforms and some in plain clothes) who are collecting samples, filing patient records on the computer and then dispatching them for analysis to their mother lab in Dombivli. There was a mad rush in front of the Aapli Chikitsa centre when I reached around 12 PM and the staff was visibly struggling to control the chaos.
The centre closes sample collection for OPD patients at 12 PM (The customer care wrongly informed me that sample collection was done till 2 PM; that’s only for IPD patients). When the Krsnaa staff heard I had reached them via customer care, they decided to make a special exception for me (I could hear the staff talk amongst themselves; Clearly the Aapli chikitsa service levels getting -ve media attention has caused Krsnaa to treat such cases with care). Even though I did not have a doctor’s prescription and it was after 12 PM, I was told to go and make the payment for the sample collection.
The card rate is 50 Rs for a host of basic tests (89 in total - you can get all 89 done for 50 Rs in theory, but I guess they would need a doc’s prescription to do tests) and 100 Rs for 48 advance tests (Test slip pic attached). To make the payment there was a long line at the payment counter where I waited my turn for about 30 mins. The payment staff then refused to accept my payment because it was post 12 and they asked me to get it in writing from the Aapli Chikitsa clinic staff that my sample would be accepted inspite of the cut-off time having passed.
With the help of the Aapli Chikitsa staff I could get my payment deposited (They clearly gave me preferential treatment; Heard the staff tell one of the other patients that I was able to get the test done today as I was a “relative of somebody higher up”). Unfortunately, by the time it was my turn to get my blood sample collected, the last set of samples were already leaving for the lab and I could not get my sample collected (I missed to see the vehicle in which they transport their samples). I was asked to report again the next day morning at 9 AM to have my sample collected. While leaving, one of the staff members acknowledged to me that the pathology services were not yet streamlined and reports were taking time and getting delayed. She said after sample collection, I could expect my reports within 24-48 hours.
I went back to the clinic on 13th morning at 8:30 AM. Even though the staff start sample collection at 9:30 AM, there were already about 30 people ahead of me in line at 8:30 AM. This should give you an idea of the demand for such low cost services. About 95% of the people queuing up seemed to be from the lower middle class. After waiting for 1 hour and 45 mins, I was still #20-25 in the queue (I realized later that several people had blocked their places in the queue by informing the person standing ahead of him/her; So the queue was even longer than it seemed at first), so I had to leave without getting the tests done.
While in queue, I was chatting with a few other people. A few of them told me that they’d been prescribed 5-6 tests by the doctor but Krsnaa’s report had results for only 2-3 and so they had to come back for a second round of tests by paying another 50 Rs.
Overall, the impression that I got was, the Aapli Chikitsa initiative has wild demand due to the discounted rates. Krsnaa, who have just been awarded the contract, are yet to streamline their services and hence there are some disruptions at the moment (which have been reported in the media), but the lab (at least in this Hospital) was functioning. The unit economics of these tests for Krsnaa would be worth finding out, maybe could go as questions to Management in future interactions.
Validates the first principles assumption that demand for low cost tests will be more than the supply can handle. As teething issues get ironed out, efficiencies will hopefully improve and the chaos may reduce. Will be worth repeating such an exercise in a month or so from now. I am happy to join you - I am based in Mumbai too.
This is where we need some more clarity. Their quoted rates for this contract were way lower than the nearest bidder, and Rs.50 for a bunch of tests being unit economics positive is hard to imagine unless volumes are ridiculously large (when do they break even?). Anyone having more information on this, from management interactions or otherwise, please do share.
Krsnaa gets Rs.86/- for these tests.
Rs.50/- is the subsidized rate paid by patients.
Rs.36/- is the subsidy borne by BMC.
Couple of other things I heard:
Initially Krsnaa was to share the reports in digital format but later BMC directed to share the reports in hard copy format too.
Media reporting on centers being shut in Mumbai - Space is provided by BMC therefore as an when Krsnaa is given the possession of the centers they have been operationalizing them.
I don’t think BMC gave 2 weeks.
Teething period in this case was probably 45 days. It’s just that the said points were raised within 2 weeks.
As you said BMC elections can be announced anytime (been overdue since long) and state assembly elections also coming up in next 1 year, so there would be noise around these things (in some or most of the cases due to no fault of Krsnaa) due to other motivations.
Despite the noise in this case, I am hoping there wouldn’t be any adverse impact on Krsnaa’s contract. There is no ruling party in BMC, so it’s not like one party can use this to blame other party.
Don’t think it would be in the interest of any party to stop basic services like this one.
Post elections hopefully the noise should settle down.
DII holdings have fallen by ~5% and FII holdings have fallen by ~3%, and this has gone into public holdings. So your observation is true, but not to the same magnitude.
Can anybody clarify my doubt?
Dr lal, metropolis, Vijaya diagnostic they will not enter in PPP model because they have already centres if they offer cheap price with PPP model why people go to their premium price centre. So they will not enter in PPP model okay .
But Krsnaa mgmt said that they are establishing retail segment so how it will possible because if the same centre provide cheap/free services why people going to their retail centres.
(They also said that we go with price disruption in retail segment how it will possible because in retail segment many cost will going to add like share of franchise ( Rent, electricity) Which is not in PPP model how it will become possible? , And they said the EBITDA for retail is approx 40% , i don’t understand the retail expansion.
What’s your view on that??
…
I am assuming in retail center, they are just collection center so they do not need to do heavy capex and collected sample can be transferred to Krsnaa’s lab (in government hospital) so it will have high utilization of equipment and improves returns.
Krsnaa will be able to increase their volumes on the existing infrastrature and centres only. Hence it should be an operating leverage, i believe much more difference should happen in Radiology.
I think private walkins would be charged slightly higher than PPP patients.
Now that (most) large tenders that I track have been decided, this is a game of execution to operationalise and successfully scale each project. This is my highest confidence revenue forecast for Krsnaa based on my understanding of each state’s dynamics, budgetary allocation, and the tender documents.
I invite anyone reading to improve my estimates or push back against the numbers. I am happy to discuss each state in detail and share how I’ve arrived at these figures, but it would be nice to have an independent evaluation too.
