Krsnaa Diagnostics - what is the diagnosis?

since delay in pubjab project, i think Q2 will also be a muted quarter. Unless any drastic thing changed. and IT raid is also still under investigation

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The management seems aggressive in sharing the guidance like x2 Rev and x3 Profits. It is still unclear to me how the Assam contract can impact the overall realizations, and I don’t buy the reasoning on that front. Then there is a risk of this raid on the investor sentiments.

The only positive which I can derive is looking at the peer comparison to the likes of Lal path and thyrocare; even though the nature of our business is not precisely similar, the topline and margins impacts are significant there. In comparison, our business was more resilient owing to the growth in the core business. I also understand some ambiguity concerning realizations with the test counts, but the management has still not changed the 2024FYE guidance. So I guess, I lack some understanding of the business, and any interpretations or opinions are well appreciated.

Disc. Invested.

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Based on discussions of ICRA with Management, no adverse impact on credit rating as yet - https://www.icra.in/Rationale/ShowRationaleReport/?Id=113737

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Some additional pointers from the con-call (including forward looking statements as this might be helpful in evaluating walk the talk by management),

  1. Assam realisation issue - Realisation is low due to reason of low bidding which was done to match the lowest price (regulation issue by the government). This low bidding was feasible only because there is no need for capex on equipments and setup which was done as a part of previous tender win which lasted 5 years. The realisation going up from Assam is not mentioned and the realisation is expected to go up from contribution of other states.
  2. Punjab Business - Delays due to setup not being completed in time (eg. electricity connections, etc.{Reasons including change in Govt. in PJ}). This led to a delay from being total implemented in Q1 to being delayed to Q2 or Q3 atleast. Revenue growth is steep from Punjab (“we have started off with just a mere 50 lakhs on a quarterly basis, it has almost gone up to three crores per month”). Peak revenue expected from Punjab projects - INR 100 Crore annually (Expected - 6 months after all centers start running)

NOTE - Delays in Punjab projects has changed the revenue growth forecast from 30 - 40 % to 20-25%

3.INR 100 crores incremental revenue from non- punjab projects
4. Rajasthan Tender (Big project / More competition compared to other bidding tenders) - 3500 collection centers. Annual revenue expected - INR 200- 300 crore.
5. Non PPP projects - 20 such establishments in Maharashtra. Rolling of this current model in states of Rajasthan and HP for the second phase. Projects being taken up in Punjab as a part of phase 1.
6. Revenue breakup in between direct payment from patient / payment from Govt. authorities - 30 % / 70% respectively. Debtor days are in check due to timely payments from govt, authorities.
7.Guidance of 2x revenues by the end of 2 years - Current operational centers will contribute to 20% -25% of this growth. Rest is expected to come from new partnerships and avenues.
8. Recently won MH tender ( 9-12 months for going live) - Capex - INR 65-70 crores , Annual revenue expected at maturity - INR 70 crores
9. Margins - Expectations is of 30%. Dent from previous quarters mainly due to on boarding of new employees for PJ projects and with delays.

Summary and personal opinion - Krsnaa is operating in an area which has exposure to regulatory authorities which might change from time to time and hence play a role in overall business growth (BIG RISK). But on this aspect, every investor who entered Krsnaa always knew about this. The bet is on the aggressive growth which seems little bit over ambitious (imo) but apart from that as an when the tenders are won, it will add to the growth in overall business. Finally it will boil down to valuations and money being paid to invest in the business.

Discl. - Invested

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