VP CHINTAN BAITHAK GOA 2018: Vivek Mashrani : Strongest business I know

Dear All,

For the benefit of all, please find attached the presentation that I did at VP Chintan Baithak Goa 2018 on strongest business I know. Will post the same on company thread as well. Hope this is useful. Thanks.

Strongest Business I know…pdf (2.6 MB)


On a lighter note, though I know Vivek for last few months personally being in same city, after this presentation, I was wondering if he is an analyst who can do marketing or is he a marketeer who can do analysis :stuck_out_tongue:. Thanks Vivek for the exhaustive effort on this


Thanks for this awesome detailed presentation of one of my favourite company !

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What you think about this ?

I picked it from blog, not sure about authenticity.
Source - Are you overpaying for diagnostic businesses ? | Value Seeker

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Barrier to entry in this industry is low. Hence, it needs to be seen if Thyrocare can kick away competition in the niche where it operates for next 3-5 years and becomes very big to be untouched.

I feel there is big enough market to re-invest. Question is whether they will conservatively target small niches one by one or go everywhere (like Dr Lal Path). My view is that former makes sense, which they are doing it already.


I am still little confused, How economy of scale will work here ?

I see low entry barrier in retail grocery store business but economy of scale works because one can obviously have better trade terms from lets say Britannia buying 10’s of lacs biscuits over the small grocery store buying 1000s of it.
Grocery stores runs on very thin margins because they are just enabler buying bunch of stuff from one and passing on to others, their Major cost is inventory they hold.

Now with diagnostics how economy of scale going to help ?
Their major cost is mostly one time in nature i.e, setting up the lab and then they do recurring buying of small small stuff like syringe cotton etc which even they get favourable terms of trade from syringe cotton manufacturer that will not be a deciding factor in terms of price.
That’s why they all (small or big) enjoy very high ROC , high margins.

As far as i see economy of scale works mostly in trading kind of play where you are just enabler like logistics , grocery shops etc .
7 companies mentioned here having same traits - https://www.dividendmonk.com/7-companies-with-unrivaled-economies-of-scale/

I am just curious do we have a example globally like Cosco, Wallmart etc for a diagnostic company which proved economy of scale works here too ?

also another point you mentioned Niche, I see most of the Niche diagnostic tests happens in Hospital labs for a reason. Patient reach their on emergency.
No matter how close to the hospital they open their lab its not going to work. I saw in your presentation they derive 50% of the revenue from B2B but if that becomes so, profitable what stops hospitals themselves to rent a equipment and start doing it themselves ?

What i know is small hospitals who cannot afford additional path lab, send out test samples to these guys like Thyrocare and SRL but its hard to believe these small hospitals going to flourish over time.

As far as i see all Major hospital chains have their own Path Lab, SRL is as bigger as Thyrocare or Dr Lal and if it’s such an exciting business , why would a guy like Piramal (who understand value better than many of us) would sell out the SRL away many years ago ?

and there is a chance of disruption, which often gets ignored while doing DCF.


Just researching more about economy of scale - Still i couldn’t see how a diagnostics business can get fit into any of this.

Internal Economies of Scale
Internal economies result from the sheer size of the company, no matter what industry it’s in or market it sells to. For example, large companies have the ability to buy in bulk. This lowers the cost per unit of the materials they need to make their products. They can use the savings to increase profits. Or, they can pass the savings to consumers and compete on price. There are five main types of internal economies of scale.

Technical economies of scale result from efficiencies in the production process itself. Research shows that manufacturing costs can fall 70-90 percent every time the business doubles its output. Larger companies can take advantage of more efficient equipment. An example is sophisticated data mining software that allows the firm to target its customers more effectively. Large shipping companies can cut costs by using super-tankers, such as the post-Panamax ships that carry as many as 16 trains. Finally, large companies achieve technical economies of scale because they learn by doing. They’re far ahead of their smaller competition on the learning curve.
Monopsony power is when a company buys so much of a product that it can negotiate a lower price than its smaller competitors. For example, Wal-Mart can have lower prices because its huge buying power gives it monopsony economies of scale.
Managerial economies of scale arise when firms can hire specialists to manage specific areas of the company. An example is a seasoned sales executive.
Financial economies of scale means the company has cheaper access to capital. A larger company can get funded from the stock market with an initial public offering. Big firms have higher credit ratings, meaning they get lower interest rates on their bonds.
Network economies of scale occur primarily in online businesses. It costs almost nothing to support each additional customer with existing infrastructure. So, any revenue from the new customer is all profit for the business. A great example is eBay.


Everything is mentioned in presentation, but some pointers which you might want to research.

  1. Good to investigate why they receive 70% discount on reagent, what are the terms of agreement for this (mentioned in concall transcript). Why competitors are not getting?

  2. What is % of logistics cost as well as per sample cost. What is Incremental cost per unit.

  3. What is sample collection wage for sample collecting agent and what is incremental cost after certain number of sample is achieved.

  4. How are they able to do PET scan at half the cost with same machine which competition is using with 60%+ EBIDTA margin

To see this live…one interesting data point…revenue last year increased by 46 cr yoy but EBIDTA increased by 40 cr…how did this happen?..will be interesting to dig…!!

All the best…


I am finding hard to believe you missed out these basics in your thesis, although presentation was very good specially the quotes from great investors but i don’t feel those quotes directly fit to the diagnostics businesses.

Sir, out of respect for you. Have seen your presentations in youtube as well. So, please don’t take it personally. My questions are more from a point of view from gaining insights into the business which obviously you have analyzed thoroughly.

As i mentioned before equipments , syringe , cotton , reagents etc are not a the major costs , getting discount on them not going to give drastic pricing power to them.
Actually it’s the fixed costs like Building rent , power etc

You can refer this paper -

I don’t know the % , would love to know from you but i believe it doesn’t matter .
All i can say logistics comes into picture when you scale via hub and scope network but that doesn’t give any advantage over an mom and pop store which doesn’t have to do anyway. As everything is there and they happy carting small sets of customer.

That’s why mom and pop store do equally well near a star physician (generally they have the deal with physician as well) and they still continue to exists, I have not seen a Thyrocare opened near a already established diagnostic lab and taken away all customers from it. Why with scale margins have declined ?

Again this is irrelevant as economy of scale doesn’t give any advantage, 10,000s of mom and pop stores can have higher ROC individually compared to one who (Thyrocare) trying to run 10,000s of them becoz that incurs these extra costs like - logistics, wage for sample collecting agent etc.

I wrote about this already while disagreeing with ur Niche - Mostly PET scans happens on emergency ( cases like head injury etc) and in emergency hospital labs charge more which nobody care , not only Thyro even hospital labs can do Half of the cost but y would they ?
I don’t see like Vitamin - D test people would go for PET scan, I hope you get my point.


Amit bhai…would suggest you to watch videos on business model posted on one of slides. This will answer all your queries. Btw reagent costs are more than 25% of total expenses for these players.

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i watched both the videos, I am not convinced on your economy of scale point.

Already these business run on 45% margins , issmein kya mil jayega cost advantage economy of scale se ?
bhai mein thoda kam margin 30% mein apni dukan khool lunga. Jo ki sab kar rhe h … As barrier to entry is low and return on capital is high.

Low margin businesses mein economy of scale works, Jaha already industry 1-2% margin pe kaam kar rhi ho aur waha competitor k pass gunjayish nahi apne margin kam karne ki. (like grocery businesses).

These are good businesses but not available at good price.

All the best :slight_smile:


Thanks @vivek_mashrani, v informative and detailed presentation. Could you please comment on the valuation?

Valuation is very subjective matter and depends upon risk appetite and return expectations. In my view next 2-3 years needs to be watched in terms of competitive landscape and how company beats it. As such earnings are optically low due to new PET-CT expansion, new RPLs etc

Lot has been discussed on Thyrocare thread. Let’s take any further discussion on original thread to maintain the flow. Have posted the presentation there as well. Thanks.