But I would like to know how this recent MH CT & MRI services contract is different from the earlier 39CT contract of MH at their district hospitals.
MH has 39 districts, so earlier they have given contract to operate 39 CT labs (31 machines will be procured by KRSNAA & 8 machines are from Govt side).
MRI is an addition in this contract but I don’t see any scope for additional CT scan machines deployment.
In continuation to your condensed notes, there is an interesting view presented at
:
20 crore tax notice received from the
income tax department. Can there be smoke without fire ?
LIC, Zomato, BOI, Infosys, Polycab, bunch of insurance companies, FMCG companies, Eicher Motors, Asian Paints, ICICI Pru are some of the dozens of big companies that have received tax demand notices recently. The government gave GST officers more time to issue demand notices for discrepancies in annual returns for 2018-19 and 2019-20 financial years, so we should expect a lot more notices until August 31, 2024.
GST Dept was active, but not sure about income tax. This case pertains to Income tax so should be looked bit differently than the GST lot.
New order for Krsnna for providing MRI and CT scan for govt. hospitals in 17 districts.
I am very optimistic about this business for following reasons. I am looking for opposing views on my thesis and what’s the downside if we invest in it. (I am already an investor and looking to increase my holding).
The company is cheaply valued compared to all its peers. One of the obvious reasons is return ratios. Both can be seen in the below table.
| Company | Mcap Rs. Cr. | ROCE | ROE | PE | PB | P/Sales | |
|---|---|---|---|---|---|---|---|
| Dr. Lal Pathlabs | 21,861 | 25.2% | 20.4% | 61.1 | 11.8 | 9.8 | |
| Metropolis | 9,873 | 15.4% | 12.3% | 77.2 | 9.0 | 8.2 | |
| Vijaya | 8,317 | 21.6% | 20.0% | 69.1 | 12.7 | 15.2 | |
| Thyrocare | 3,253 | 18.6% | 13.8% | 45.7 | 6.3 | 6.2 | |
| Krsnaa | 1,837 | 10.1% | 7.5% | 31.4 | 2.3 | 3.1 |
Source: Screener
Now the return ratios are poor because the company is new and in high-growth phase. There is huge setup cost for diagnostics centre and income start coming with a lag. So, operating leverage kicks in after 2-3 yrs of operations.
Below is the chart from Q4 FY24 investor presentation. It can be seen only 37% of net block (centres) are mature. They are generating very good ROCE. Once, the newer investments mature, ROCE for them will increase too.
Additionally, the company has huge order bank and they are establishing more centres on an ongoing basis. All the details are available in investor presentation and concall, so not going to flood my post with the same.
They are also venturing into non-PPP segment, i.e. B2B and B2C. I understand this is a competitive segment, but they already have capex (diagnostics centre) in place. They just have to juice it out with more customers which can be fetched through non-PPP route too.
As centres mature, it will increase there ROCE / ROE / Op margin. As they add more centres, business will also growth. So, there is a case of increase in margins and return ratios and also increase in profits. Isn’t it a right scenario to invest in a stock? For e.g. Lal pathlabs is already big. It will be tough for them to grow at 25% via – a – via. Krsnaa for whom it will be relatively easier. Lal pathlabs also has good ROCE / ROE so there is limited upside. For Krsnaa, this upside is also huge.
Look at the below table. Mature centres has 33% EBIDTA margin. Let us assume Rs. 234 cr is matured now. They will also have 33% margin instead of 8% margin. i.e. addition of Rs. 58 cr more EBIDTA. This Rs. 58 cr will directly go to PAT, doubling PAT from Rs. 57 cr to Rs. 115 cr. Just the maturity of existing centres can double the PAT. It will also improve ROCE and ROE. PE will reduce to 16 (Rs. 1844 cr mcap / Rs. 115 PAT).
Please provide counter points.
Disc: Invested
Interestingly now, the promoter bought shares before yesterday in a market purchase and promoters too looking for opportunities in the market as transactions done on panic day
Krsnaa Diagnostics -
Q4 and FY 24 concall and results highlights -
Company’s operating infra -
148 CT / MRI centers, 1400 X-Ray machines - contributing to 57 pc of revenues
120 - Pathology Labs, 1900 collection centers - contributing to 43 pc of revenues
Present across 150 district locations across India ( in 17 states and UTs )
Company is now averaging 1.5 lakh CT / MRI scans / month and 5 lakh X-Ray scans per month
Company is the largest Radio - diagnostics company in Asia
Company is only into B2G segment ( catering only to Govt patients / Govt hospitals ). Currently having a bid win ratio of 75 pc. Company is present in most states except - Gujarat, Bihar, Jharkhand, WB, Telangana, Chattisgarh, Haryana, Kerala - among major states
FY 24 outcomes -
Sales - 619 vs 487 cr
EBITDA - 146 vs 124 cr ( margins @ 24 vs 25 pc )
PAT - 56 vs 62 cr ( margins @ 9 vs 13 pc )
Revenues from old centers - 386 cr, EBITDA margins @ 33 pc
Revenues from new centers - 233 cr, EBITDA margins @ 8 pc ( as they scale up, there is massive scope for margin expansion )
Q4 outcomes -
Sales - 166 vs 158 cr
EBITDA - 44 vs 37 cr ( margins @ 26 vs 24 pc )
PAT - 18 vs 13 cr ( margins @ 11 vs 8 pc )
In last 12 months, company has put up 15 new CT/MRI centers and 25 new Pathology labs + 800 collection centers
Company is the process of setting up 22 new CT/MRI centers in Maharashtra + MP ( 17 + 05 )
Company is now venturing into B2C segment. Company will leverage its existing infra for the same and will try and keep the pricing lower vs pure B2C players
Receivable days are currently @ 68 days ( excluding the recievables from HP which are elevated ). Increase in receivable days is also due to the 2024 general elections as a similar increase was witnessed during 2019 elections as well ( this is a key monitorable, hope it reduces towards the end of Q1 )
LY in July, Rajasthan Govt had arbitrarily cancelled the State’s health mission tender given to the company ( worth Rs 450 cr ). The matter is sub-judice and a verdict is expected shortly
Generally it takes about 3 yrs for a new center to mature and to start reporting healthy EBITDA margins. Company expects its centers in Punjab and Chandigarh to start turning around soon
Company looking at 25 pc kind of CAGR on Topline for next 2-3 yrs. Also expect the EBITDA margins to stabilise at around 25 pc
Expecting the receivables from Himachal Pradesh to start moderating towards the end of Q1 / beginning of Q2
Capex lined up for next FY @ 150 cr ( excluding Rajasthan )
Disc: initiated a tracking position, biased, not SEBI registered, not a buy/sell recommendation
