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
Q1 FY25 Concall Highlights
• Revenue increased 22% from 129 cr to 170 cr
• EBITDA margins increased from 23% to 26%
• PAT increased from 14 cr to 18 cr
• Bid win ratio is 75%+
• Tender duration- Maharashtra (15 years), Odisha (12 years), Madhya Pradesh (12 years) and Assam (5 years)
• Mature centres- 3 to 5 years, New centres- 0 to 3 years
• Receivables- Absolute receivables was around 190 cr in Q1 and the receivable days was around 100 days. The company has seen a good recovery on receivables post elections. Krsnaa has also received 35-40 cr of receivables from Himachal Pradesh in July thus reducing the receivables by that amount
• Company aims to achieve 25% growth in FY25 (30% aspirational)
Krsnaa Diagnostics -
Q1 FY 25 concall and results summary -
Revenues - 170 vs 139 cr, up 22 pc
EBITDA - 44 vs 32 cr, up 39 pc ( margins @ 26 vs 24 pc )
PAT - 18 vs 15 cr, up 20 pc ( due jump in depreciation charges )
Total Radiology centers @ 168 ( MRI + CT scans + X Rays )
Total Pathology labs @ 120 with 2270 collection centers
Revenues, EBITDA from Mature centers @ 90 and 35 cr respectively. Margins @ 38 pc. Most of the mature centers are Radiology focussed
Revenues, EBITDA from newer centers @ 79 and 9 cr respectively. Margins @ 12 pc. Clearly, there is a huge scope of improvement here. Newer centers are the ones lesser than 3-5 yrs old. Most of the newer centers are pathology focussed. Their margins won’t go to as high as radiology levels but are likely to be slightly below 38 pc levels ones these centers mature
52 more radiology centers are expected to come up in near future. 41 of those shall come up in Maharashtra
Over 700 collection centers + labs each shall come up in Assam and Odhisha
Cash on Books @ 240 cr
Gross Debt on books @ 170 cr
Company is net debt free
The new contracts received in Maharashtra, Odisha, Assam are for 15, 12 and 5 yrs respectively ( gives a fair long term visibility for the company ). The MP contract is also for 12 yrs
Company is bidding for AP tenders. Hoping for some good news on that front
The company has started venturing into B2C business. Pricing here will be different vs the B2G business. However, they aim to still operate in the affordable space
Current radiology : pathology revenue breakup @ 55 : 45
Have received payments to the tune of 40-50 cr from HP ( which was earlier stuck ). Have started seeing receivables coming down wef July ( ie post election results )
Capex lined up for FY 25 @ 170 cr (mostly towards setting up radiology centers in Maharashtra and MP). Have spent about 20 cr in Q1
Should grow topline by 25 pc in FY 25. Aspiration is to grow by 30 pc !!!
This growth guidance doesn’t take into account a favourable outcome from Rajasthan ( where the company’s tender win is facing some legal troubles and the matter is sub-judice )
Disc: holding, biased, not SEBI registered, not a buy / sell recommendation
Hi Ranvir, Hope you’re doing well. I did NOT see any disclosure to the exchanges by Krsnaa on the 600 Collection Centers that it is setting up in Odisha. Can you please share some details on the same?
It has been disclosed in the Q1 investor PPT
Regards
Krsnaa Diagnostics has halted services in 14 district hospitals across Karnataka as a form of protest due to unpaid bills by the Karnataka government for the past six months [no specific source]. This drastic measure highlights the severe impact of delayed payments on healthcare services.
Krsnaa to acquire 23.5% shares of Apkuli Healthcare, which is engaged in establishing, operating and maintaining hospitals focusing on oncology and cardiology, gets exclusive rights for operating and maintaining diagnostics services in company’s hospitals. Valuation/Amount to be invested yet to be disclosed! Turnover of Apkuli Healthcare - NIL.
Not much information available of Apkuli Healthcare in the public domain. One website has this
Request fellow boarders to add…
Thanks for sharing. But some information is available about Apulki on Tofler.
Hope it helps
dr.vikas
Hopefully, this should be resolved in a few days. I think management has said that they have an agreement with the government that if payment is not received within 90 days, their services will stop.
The same incident happened in my district, Kolhapur, in Maharashtra. But the matter was resolved in 2/3 months. Some politics, etc., may be involved as some health authorities need to sign the agreements.
dr.vikas
Yea. That’s a serious concern.
I think it may not be a big issue, after commencement of operations power lies withthe KRSNAA as health center may not able to start services in the absence of KRSNNA.
They will clear dues and services will resume.
Any body has pipe line tender details ?
I think AP tender is still under pipe line since long time. Another tenders are awaiting for results
