Krsnaa Diagnostics Ltd
NSE:KRSNAA
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Krsnaa Diagnostics Ltd
Earnings Call Analysis
Q3-2024 Analysis
Krsnaa Diagnostics Ltd
During the recent period, the company has reported an EBITDA of INR 102 crores, marking a robust 14% year-on-year growth, with an impressive EBITDA margin of 23%. Additionally, the company registered a net profit of INR 38 crores, corresponding to a margin of 8%.
The firm maintains financial stability with a gross debt of INR 133 crores, offset by substantial cash reserves of INR 228 crores, ensuring a net debt-free status. Noticeably, receivable days stood at 121, with an expectation of normalization by year-end due to the commencement of payments from certain delayed accounts.
Its business is divided into radiology and pathology services, with radiology contributing around 60% to 65% and pathology around 30% to 35% of the business. Detailed information can be procured from the investor relations contact.
The company faces operational delays primarily due to government site handovers and on-site electricity issues. However, efforts are underway to resolve these with completion anticipated in the next 2 to 3 quarters.
The company revealed that new projects, such as the Maharashtra MRI tender, may necessitate additional investment, contributing to the gross block. The future capital expenditure for fiscal FY '25 is estimated to be between INR 150 crores to INR 180 crores. Further, prospective capital expenditure in Rajasthan, should they win a tender there, is projected to be around INR 200 crores to INR 250 crores.
The revenue contributions are expected from several key projects, with margins anticipated to stabilize at about 25% due to paths towards achieving balanced contributions from both radiology and pathology divisions.
To finance new infrastructure investments, the company will utilize a mix of internal accruals and vendor credit, with the option to consider debt. Leasing plans indicate a strategic shift towards private lease premises to support B2C and B2B initiatives alongside government contracts.
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A very warm welcome to the Q3 FY 2024 Results Conference Call of Krsnaa Diagnostics Limited. Before we begin, I would like to remind all the participants that today's call may contain statements that are forward-looking statements, including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to Krsnaa Diagnostics' future business developments, and economic performance.
While these forward-looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Jainil Shah from JM Financial. Thank you, and over to you, sir.
Good afternoon, everyone, and welcome to the Q3 FY 2024 Results Conference Call of Krsnaa Diagnostics Limited. Joining us today on the call are Mr. Rajendra Mutha, Chairman and Whole-Time Director; Ms. Pallavi Bhatevara, Managing Director; Mr. Yash Mutha, Joint Managing Director; Mr. Pawan Daga, Chief Financial Officer; Mr. Vivek Jain, Head, Investor Relations.
I would like to now hand over to Mr. Rajendra Mutha for his opening remarks. Thank you, and over to you, sir.
[Foreign Language]
Ladies and gentlemen, good afternoon, and thank you for joining us today for Krsnaa Diagnostics Q3 FY '24 earnings call. I want to express my gratitude to each one of you for being a part of this call. Our investor presentation has already been shared and is accessible on our website as well as on the stock exchange's website. I'm sure you have had a chance to review the presentation.
I would like to confirm the news shared by our honorable Chairman that I have resigned from the post of Managing Director. However, I will continue with the company as Executive Director from the start of next financial year. I would like to take this opportunity to thank my fellow Directors and the management for extending their cooperation during my tenure as the Managing Director.
Now I would like to brief you about the industry and our company. Health care is one of the key sectors in India in terms of both revenue and employment. The share of expenditure on health with respect to the total expenditure on social services has increased from 21% in FY '19 to 26% in FY '23.
Diagnostics forms a very essential part of the health care industry and is usually the first step towards treating diseases, starting from the diagnosis of the disease to the prognosis and the determination of treatment redeemed to post-treatment monitoring of the patient.
The diagnostic industry is highly competitive and fragmented in nature and the market share of organized players is only limited to around 17%. The major amount of the market share is with the unorganized players. More number of players in the industry are focusing on geographical expansion and inorganic growth, acquiring regional local players to capture higher market share.
The focus of government is development and performance. It resonates well with our business model. In the interim budget of 2024, the focus on increasing and improving health care facility was clearly visible, wherein the announcement to increase more medical colleges across our country, inclusion of maternal and child care -- child health care scheme under one plan, also increasing the Ayushman Bharat screen to include ASHA workers and Anganwadi workers and helpers.
Diagnostic industry under PPP model is an ever-evolving and dynamic sector that consistently concerns new opportunities as well as unforeseen challenges. Krsnaa, as a PPP service provider, tirelessly strives to preserve life and promote the well-being of individuals. Customers today see more accessible and affordable solutions to address their immediate health care needs.
The industry demand has accelerated the adoption of digital technologies, opening doors to innovative approaches in diagnostics, treatment and preventive care. Amid this transformative time, Krsnaa remains adaptable and agile, embracing technology and fresh paradigm to effectively address present and future health care requirements.
Over the past few years, Krsnaa Diagnostics has evolved into a fast-growing and esteemed diagnostic care provider serving communities throughout the country. Our robust capabilities enable us to deliver affordable and superior health care services to the remote and underserved regions of the country. By seamlessly blending dependable diagnostic services with affordability, we have garnered high customer trust paving the way for an exciting and promising future.
We are making relentless efforts to extend our reach by strategically opening new diagnostic centers in the underpenetrated market across Tier 2 and Tier 3 cities. Our aim and focus is to ensure that even individuals in remote areas can benefit from our advanced diagnostic services. We ensure that access to high-quality health care is not just limited to metropolitan areas. We prioritize others to the highest quality standards using certified testing reagents and employing qualified radiologists and pathologists to ensure unparalleled accuracy and precision in our diagnostic services. All these initiatives provide Krsnaa better business opportunity in the near future.
Now I would like to hand over to Mr. Yash Mutha, our Joint Managing Director, to take you ahead on company developments. Thank you.
Thank you, Ms. Pallavi. Ladies and gentlemen, good afternoon. I would like to thank the Board of the company for considering me for the post of the Joint Managing Director. I'm pleased to present the impressive performance of Krsnaa Diagnostics Limited during the third quarter and the first 9 months of fiscal year 2024.
Now let me brief about the recent developments. We have successfully operationalized our Assam Pathology project. The large project of Assam, which we secured during the first quarter of this year encompasses the establishment of 10 laboratories, 44 collection centers operational 24/7 and [1,212] collection centers. The anticipated revenue for this project is expected to become visible in the coming quarter of fiscal year 2024.
We have also successfully operationalized 9 CT scans in the state of Maharashtra. The remaining 30 CT scans would be soon operationalized. And the revenue projections are expected to materialize from the first quarter of fiscal year 2025.
Over the last 3 months, we have successfully established 6 new pathology labs and established 116 pathologic collection centers and 64 new telereporting centers. These endeavors have been meticulously aligned with our expansion strategy.
As mentioned earlier, as a strategy, we are establishing 40 labs across these various locations in premises, which are taken on lease and not in the government premises. These labs will allow us to augment revenues from PPP as well as incremental revenue from the B2C and B2B customer segments, and therefore allow us to leverage infrastructure, which we are creating beyond existing long-term PPP contracts. These labs further will also allow us to grow our network of collection centers, franchisees, et cetera.
The Odisha project, which was operationalized in Q2 FY '24 is ramping up well, and we continue to see good traction from that state. Our B2C business is also growing slowly and steadily and gaining momentum. We see a good traction of packages getting sold along with increased in Krsnaa's brand awareness in the respective regions.
We strive to improve customer experience with exceptional health care solutions tailored to individual requirements. As part of our continuous improvement efforts, we are constantly exploring new testing capabilities to cater to the evolving needs of our patients and customers. We are aggressively embracing cutting-edge technologies, implementing analytical tools for critical departments such as pathology, radiology, supply chain and others to provide a comprehensive range of diagnostic services that meet the highest standards of accuracy and efficiency.
Our consistent growth in revenues and profitability is a testament to the effectiveness of a robust pricing strategy. Our ability to maintain cost competitiveness stems from several factors, including economies of scale, large pool of captive customers, strong balance sheet and efficient working capital management and an optimized cost structure. These factors enable us to pursue sustainable growth opportunities and drive continued success.
We stand at the threshold of infinite possibilities. We remain resolute in our approach to adapt, innovate and excel. We have charted ambitious plans to unlock opportunities for growth and expansion, ensuring that we continue to make a positive impact on people's lives and contribute to the advancement of the health care industry.
With this in mind, I would like to now turn the call over to Mr. Pawan Daga, our Chief Financial Officer, who will provide further insights into our financial performance. Thank you.
Thank you, Yash. Good afternoon, everyone. I will now present the financial highlights for the quarter ending in December 2023. In the third quarter of FY '24, our total revenue from operations experienced a notable upsurge reaching INR 158 crores, making an impressive 34% year-on-year growth.
Shifting our focus to operational performance. Our Q3 FY '24 EBITDA reached INR 38 crores, signifying a commendable 27% year-on-year growth, and we maintained a healthy margin of 24%. Additionally, our net profit amounting to INR 13 crores with a corresponding margin of 8%. The net profit has been impacted by INR 4 crores, which includes Ind AS impact of a long-term lease amounting to INR 3.32 crores and onetime expenses of a finance cost arising out of processing fee of INR 0.68 crores.
In 9 months FY '24, our EBITDA is -- exhibited a significant increase, reaching INR 102 crores, demonstrating an outstanding 14% year-on-year growth along with substantial margin of 23%. Our net profit has reached INR 38 crores with a margin of 8%.
Taking a closer look at our balance sheet, we currently hold a gross debt of INR 133 crores, while maintaining a cash and cash equivalent worth INR 228 crores as on December 31, 2023. It is worth noting that our company continues to uphold a net debt-free status, a noteworthy accomplishment.
Our receivable as on 9-month FY '24 is 121 days, which has increased due to delay in payment from Himachal Pradesh and Manipur. We would like to update you that we have started receiving the payments from this quarter onwards, and the trade receivable days will be normalized by the year-end. Thank you.
We can now open the floor for the question and answers.
[Operator Instructions] We have a first question from the line of Vandit Dharamshi from Alpha Invesco.
Congratulations, sir, on great set of number. I have some book keeping questions to start with. Firstly, on debt. Does the debt number that we give include the lease liability?
Yes. It includes the lease liability.
Okay. And what would be case liability in 9 months FY '24 number?
Sorry, could you repeat the last part? Your voice is not very clear.
What would be the lease liability amount in 9 months sir, '24 number?
So the lease liability on account of MRI equipment, which we -- MRI equipment, which is INR 20 crores overall.
Okay. Okay, sir. And one more question on debt. So right now, I think inclusive of lease liability, we have around INR 133 crore of debt. So is there any plan for us to -- I mean, what policy? Or what do we have -- what is our take on debt, sir? Is there any specific debt-to-equity ratio that we have in mind? Or what is our take on that?
So currently, from a position perspective, we maintained that we'll be trying our best to remain a debt-free company. However, depending on what is the kind of project that we're undertaking, and it is more efficient to take debt, we can take those decisions accordingly. But as of now, we continue to be a debt-free company.
Okay. Okay, sir. Second question, sir, on lines of payable, sir. What would be our payable number for FY '24, 9 months, and maybe in days or absolute amount, whatever you have?
It is in the range of INR 75 crores to INR 90 crores.
Okay. Okay, sir. And last question, sir. I think in our presentation, you have mentioned that on a 9-month FY '24 basis, we have served close to 1 crore, 1 crore 11 lakh patients. So in that, what would be the number of patients whose billing would happen directly and percentage of patients who would be under a subsidy scheme or maybe that the government is paying? If you can just give us a broad split?
So our -- this credit billing is in the range of 30% and the cash billing in the range of 30%. Sorry, sorry, the credit billing is in the range of 70% and the cash billing in the range of 30%.
The next question is from the line of Lokesh Manik from Vallum Capital.
I just have one question. If you can provide the revenue breakup between CT, MRI, telereporting and pathology would be great, either Q3 or 9 months, either will be?
The radiology business, which is in the range of 60% to 65% and the pathology business in the range of 30% to 35%. If you need the detailed breakup, you can reach out to our Investor Relationship, Mr. Vivek Jain, he can provide you with a further detail.
The next question is from the line of Omkar Kamtekar from Bonanza Portfolio Limited.
Congrats on a good set of numbers. Firstly, what I wanted to ask was with respect to the [timeline of the CT] in Maharashtra. So we have only operationalized 9 out of the 56 radiology centers in Maharashtra and Maharashtra accounts for the largest amount of radiology centers we have. So in approximate what time frame over the next 4, 5 quarters, will the full -- all centers would be operationalized?
Yes. So see, the reason for delays is mostly -- the government has to give us -- handover of the sites, as well as operational issues like having electricity on-site. So we are working ferociously to ensure that we get completion done as soon as possible. We expect it to be done within the next 2 to 3 quarters in a phased manner as we get the sites ready.
So all 56 -- so by end of H1 FY '25, is what we can expect all of the 56 to be online under [Indiscernible]?
No, no. The first phase 1 for the 30 CT scan out of which 9 have been implemented, that will get covered in the next 2 to 3 quarters. And the balance, the new tender that we won since we just signed the agreement, it will take some time to operationalize.
Understood. So you're saying by H1 FY '25, I can say, 30 would be operational. Would that be fair to assume that?
Yes.
Okay. So 30 would be done by H1 FY '26. And also the Rajasthan number that is showing that there is only one center. So that is the one that is under dispute? Or will this number will change?
I'm sorry, if you could repeat the question?
So in the radiology centers in Page #25 of the investor presentation, Rajasthan, it is showing radiology center being 1. So this is the one that is under the...
No, no. The Rajasthan center is one center of MRI in Churu. So that is a radiology center. That is not under dispute. What is -- and which is -- with the High Court is the Pathology project, not the Radiology project.
Understood. Understood. That was the question. And finally, with respect to asset terms. So from -- in the presentation, you have said that when our assets mature, we can reach approximately 30%, 32% ROCE in -- from the asset. What is the additional gross block that we are in the earnings over the next 1, 1.5 years?
Yes. So the incremental addition that we expect to the gross block would be in the range -- and as we've been maintaining earlier as well, it could be in the range of about INR 150 crores to INR 200 crores given that we continue to win more projects. So they will be added to these -- the gross block. And also incremental revenues will start coming in as when the centers get implemented and they start ramping up.
Understood. So what is the -- historical ones will be continued? We are not doing additional -- incrementally allocate anything further?
No, no. As and when the tender will happen, for example, like the Maharashtra MRI tender that we've been shortlisted, as and when the implementation happen that will require an additional investment, which will again add to our gross block. And likewise, as and when there are new projects that get shortlist -- where we get shortlisted or we enter into the agreements, addition CapEx will be incurred, which will be added to the gross block.
The next question is from the line of Aditya Khemka from InCred BMS.
Sir, first question on the receivable days. So this 121 days, does this include any outstanding from Himachal as and when you guys had to shut the lab to get the payment from the authorities? Or is it post the payment being received from Himachal?
No. This is as on the position on 31st December 2023. We have received the subsequent payment. But as on 31st December, the receivable days is 121 days, which is including the outstanding of Himachal Pradesh pathology.
Got it. Got it. And secondly, you mentioned the CapEx of INR 200 crores. So can you break that up between different tenders? How much would be Maharashtra, CT MRI? And how much would be, let's say, other states where you might have won some projects?
Sorry, if you could just repeat that question, please?
Yes. You mentioned that the CapEx for the next 2 years will be in the range of INR 150 crores to INR 200 crores. So can you break that up between Maharashtra and -- the Maharashtra CT MRI project and other states where you might have ongoing projects?
So Aditya, we have like the current scenario where the new projects were awarded, Maharashtra and Madhya Pradesh. MRI and CT -- Maharashtra CT of an old one, which is going to be deployed. So the CapEx range for this year -- next fiscal FY '25, which will be in the range of INR 150 crores to INR 180 crores kind of. And this year, we have anyways incurred INR 150 crores, considering all pathology projects.
Got it. I understand. Just an additional question on the CapEx. So let's say, if you win the Rajasthan tender, if the decision of the court comes in your favor, will this INR 150 crores to INR 200 crores [Indiscernible] '25 will further go up because of [Indiscernible]?
Yes, that is the addition over and above these CapEx that we plan to invest.
Okay. And how much could be the potential CapEx in Rajasthan, if you win that tender?
Rajasthan, the overall CapEx is what we expect is in the range of about INR 200 crores to INR 250 crores.
Yash, the next year your CapEx will be in the range of INR 450 crores to INR 500 crores. Is that the correct assessment?
Yes, if Rajasthan comes through, then that will be the expected CapEx that we may have to have in outlay. But again, that will be spread over a period of 1 year or so.
Yes, yes, exactly. So another question on this, then Yash, I think in between, there was a thought of not buying the machines outright and taking them on pay-per-use sort of model or a lease model. Just wanted to understand where that thought process lies today. And is this CapEx despite taking some machines for pay-per-use or are we outright purchasing machines?
So we have tried these models, and we continue to explore this particular aspect of getting this equipment on pay-per-use, especially now with these kind of orders in hand, we are -- again, the discussions are ongoing with the vendors. And we'll also try to see as much as possible how we can move to the so-called asset-light model, where we don't necessarily have to invest in the CapEx, but get it on a pay-per-use model. So those conversations are ongoing as of now.
Yes. But the guidance that you are giving for CapEx for FY '25 of INR 150 crores to INR 200 crores, that assumes that you are not going to outright purchase on machines, right?
So this is what we are bound to invest considering the projects in hand. Of course, if you go through the pay-per-use model then the entire CapEx will not be required to be invested by us and it will go on the pay-per-use model. But from an amount perspective is what we are quoting.
I understand. The last question I had was, given that Rajasthan is also pathology and you have certain other pathology tenders as well. So for your current mix between the radiology, pathology, which is 65%, 35%; 2, 3 years down the road, do you see it becoming like 50%, 50%? Or what would be the mix of your revenue if you win the Rajasthan tender 2 to 3 years down the road, what mix do you foresee?
So with Rajasthan coming through as well as Maharashtra, the and the MRI tender, I believe it would be in the range of 65%, 35%. Initially, if Rajasthan picks up in -- Rajasthan might have a larger share. But we will -- now we see there are more radiology or you rather want to focus back on radiology tender as well. So we would like to maintain in the ratio of about 60-40. Ideal would be 50-50 where radiology and pathology both contribute 50-50.
I understand. Just also on the margin front. So as you do more pathology, you feel the margin at 23%, 25% that is where you feel we will stagnate? Or do you feel that once your operating leverage comes in, we can go back to our historical margins of close to 30%?
No. So with pathology projects coming in and as you also know from an industry perspective, pathology margins are a bit lower. Of course, what we see is with these Assam, Odisha and all, the other projects stabilizing, the margins will be in the range of about 25% or plus.
25% and above. Is that what you're saying?
25% is what we believe which will stabilize. Now depending on how -- if you have more radiology projects, then there might be an improvement. But with the current projects on hand, we believe it will be stabilized at 25%.
Understood. Just one last question before I go back in the queue. On the B2C initiative, I see you guys have made a wholly owned subsidiary. And I know that the B2C initiative has been ongoing for a while now. So can you give us some numbers as to what percentage of our current revenue comes from B2C? And let's say, in 3 years' time, how do you see B2C shaping up?
Yes. So Aditya, the current numbers is not -- as I said, it's just a start for Krsnaa entering into the B2C space. Though the initial success that we had in selling the packages and whatever, that has been really great. The current contribution of B2C was in the range of about 1% to 2% of the overall revenues.
But with the successes that we've had and the kind of response we've seen in market where Krsnaa's brand was accepted, Krsnaa's services were accepted, we believe that this in a long-term range, it can create a good vertical or a pipeline for us. And that is what we are working on.
It's a bit too early for me to project any kind of numbers as of now. But hopefully, once the management team and the other processes are set in place, we'll be in the better position to answer that question.
I understand. But I just want to understand your B2C model a little better. So [Indiscernible] pay rent and B2C has -- and you don't pay rent on government site, you are [Indiscernible] accordingly.
Aditya, your voice is cracking a lot. I'm sorry, I'm not able to hear you.
I'm sorry. Is this any better?
Yes, go on.
Yes. Okay. So my last question was that on the pricing side of your test, bet it MRI or a CT or a pathology test, wouldn't your B2C prices need to be materially higher than your B2G prices given that your cost on the B2C side will be higher than B2G because there will be rental cost, there will be other referral costs in the B2C segment, which you don't incur on the B2G side?
Right. So yes, they will be higher, but not materially higher because what models we've tested since -- what we're trying to do here is leverage the existing infrastructure that we have, like the lab setup that we've done or the equipment or the CT scans can and MRI. So from that perspective the incremental costs will largely be more towards the marketing cost or [Indiscernible] cost.
And in spite of this, we see that our prices that we have currently offered in the market on the B2C space are significantly lower than the competition. And we believe that we'll be able to continue offering our services at these prices as we go along. I don't see it to be marginally or materially higher than the current B2G prices.
And Yash, would you be using franchisees to create collection centers? Or do you plan to open self-owned collection centers in these B2C spaces?
Yes. So currently, we are exploring all the three models. One is what is known as -- typically known as a company-owned company-operated collection center. Then there are franchises also that are ramping up, which is increasing day by day. And there are some other models that we are exploring. So I believe it will be a combination of various of these strategies. And with Dr. Prashant and team joining me also, then we'll try to see which strategy works best and accordingly, the expansion will happen.
The next question is from the line of Avadhoot Joshi from Bryanston Investments.
Am I audible?
Yes, Mr. Avadhoot. Please go ahead.
Just one clarification about this lease, rental impact you have mentioned in the remarks about INR 3.32 crores. So last quarter, I think it was around [INR 2.5 crores]. So I just wanted to know, is it because of the expansion, what we are doing for the B2C it is occurring? Or what's the exact reason for this?
So this is primarily because of certain equipment that we've taken on a lease payment basis and all these labs that we've opened on lease premises. So that is the impact which you are seeing in the financial statements. It's a combination of radiology equipment and certain of these labs that we've taken on lease premises.
Okay. So there is not -- the lease premises is just not for the B2C, but could be the government projects also?
Actually, these are -- what was decided as a strategy is this lab that earlier we were setting up in government premises, we've decided to set them in private lease premises, so we can augment both business from government as well as business from B2C and B2B initiatives.
Understood. Understood. And just another clarification. Assam is fully operational? That's -- because in the presentation, it is mentioned that 7 labs have been operational, whether it is fully operational that's what I want to...
I think there are about 3 labs, which are under implementation, which is expected to get completed by end of this quarter.
Okay. So we have sites and everything is in place, just it will be operational.
Yes, yes, yes.
The next question is from the line of Amol Rao from Kitara Capital.
Just a couple of questions, one clarification. So Assam, Odisha and Maharashtra, these are the three major orders that basically will show heightened state of operationalization in the next quarter onwards, right? Or Maharashtra is in quarter 1 of next year, but Assam and Odisha are next quarter? Am I correct in understanding that?
Yes. So Assam and Odisha have been operationalized. Like as I said -- mentioned earlier -- Assam, 3 labs will be completed in this quarter, quarter 4. So basically, all the labs will be operationalized. And from next financial year, the revenues will start -- you see more contribution from revenues coming from Assam and Odisha. Maharashtra [Indiscernible] 9 out of 30, and the balance will be happening over the next couple of quarters, hoping by H1 of next financial year, we complete the entire 39 installations.
Perfect. Perfect. And second, a clarification on the operational -- operations is that the BMC contract, we got a widened scope to include home collections. Am I correct? So that's working in our favor right now, correct? Am I right?
Yes, yes, yes. So we've been asked to do home collection services as well. And also, there is a certain convenience fee that we can charge. So that process has been started.
And what's the response there, Yash? If I may ask? How is that experience been? It's been a smooth operation so far?
So of course, there were operational hiccups with a project like this where the ramp-up was high, but now it has smoothened out.
All right. All right. And congratulations on the elevation to GMV and wish you all the best.
The next question is from the line of Deepak Poddar from Sapphire Capital. .
Am I audible?
Yes.
Sir, first off, I just wanted to understand, in terms of CapEx, the planning that we have, how are we going to fund it?
So we have a combination of our internal accruals as well as certain vendor credit that we've been discussing where vendors are now willing to provide us financing. This is the primary source that we're looking for. We might also evaluate debt if that becomes a more efficient way of capital.
But like also mentioned to the previous question, we are exploring where we can get these equipment on a pay-per-scan or a pay-per-use model. And with the discussions are at an advanced stage, so a combination of all of these will help us to invest in these new infrastructure and new equipment.
Okay. So when we say this INR 150 crores, INR 200 crores, it doesn't take into impact the benefit that you can get it from vendor credits and all? This is on the gross basis, right?
This is on gross basis. So if I have to invest about INR 200 crores, all these various initiatives that I spoke about will be utilized to fund this CapEx.
Okay. Okay. Understood. And then the Rajasthan would be additional, right? INR 200 crores, INR 250 crores. So I mean, to me, this CapEx number looks very high. So just trying to understand to meet that, are we going to over leverage our balance sheet or -- because you did mention that we focus on to be on the asset-light model, right? So what...
So we continue to do so with all these -- even if -- as I said, even if Rajasthan has to be implemented, again, there are discussions going on. We'll try to keep away from debt as much as possible. However, given that today, there are certain debt structures, which makes it more efficient to go for a debt, we might think about it. But our efforts and [Indiscernible] are to ensure that we remain debt free in spite of all these CapEx projects.
Okay. Understood. Fair enough. And in terms of Rajasthan, I mean, currently, you are awaiting some response, right? From the court or something like that. So by when do you expect a meaningful or revenue can start? So what would be the thought process there? I mean earlier, I think we were targeting by FY '24 end or by first quarter revenue to start, right? So where are we now as we speak?
From our team's perspective, we are all already. We are just waiting for the High Court to give a judgment and we are all keeping our finger crossed and optimistic that the decision will come in our favor. But as I said, since it is a matter which is subjudice, as of now, we just have to wait until the High Court makes a decision and accordingly then the next steps begin.
Okay. And when is it expected?
It is expected by end of this month.
Okay, by Feb end. And assuming that the decision comes in our favor, then from Feb end how much time will it take for you to actually start the revenue there?
So after we get the order, then the process of getting the agreements executed and then the installation of labs will have to be done because there are multiple labs, almost 100 plus labs to be established across the state of Rajasthan. So Rajasthan revenues, I believe will meaningfully come only in the second half of the year or towards Q4 of FY '24, '25.
Understood. So that gives a fair understanding. And in terms of, I mean, growth outlook and margin outlook for next year, anything, I mean 30% CAGR is what we are looking at for FY '25 as well, right? In terms of revenue growth?
Correct.
And what sort of margins we might be...
So as I said, margin profile-wise, given that there are pathology projects, which will have a major revenue contribution in the next fiscal year, the EBITDA margins we are looking at, it should be stable at 25%. Of course, our efforts are to see how we can improve them. But we believe considering these Pathology projects, it will be stable at around 25%.
25%, because earlier we were targeting 26% to 28% kind of a margin range, right? So anything else changed that there is a slight change in our view?
Yes. The change is largely because the -- as we've seen the projects ramping up, especially Assam, Odisha, with the test menu and given the way these contracts are ramping up and shaping up, certain of these tests, there are -- the consumption cost is a bit higher side. So that is how we are -- we see that it has stabilized .
Of course, with some of the other projects coming through, there might an improvement, but I would want to be with the -- especially on the numbers, be a bit conservative and believe that 25% is a stable EBITDA margins for us.
And that excludes other income, right? I mean you're saying operational basis, you're targeting that 25%...
Yes, of course. Yes, yes.
Okay. And just one last small thing. In terms of lease rental, in last couple of quarters, so is that something which will continue in coming quarters as well?
This amount will not go significantly increasing from year onwards. It will be stable at this level or maybe minimize in over a period of time.
I mean stable at INR 3 crores per quarter?
No, no. So this an impact of lease equipment and the rental. But over a period, this will be reduced over a period of time. This is a onetime which we see in this quarter and the last quarter.
So this is one time. I mean, the reason I was trying to -- because you will always have new equipment and new premises, right? So ideally, your lease rental will keep on building up. So is that understanding wrong basically?
No, no. So currently, for the projects that we have already implemented, the impact has already been accounted for and the lag on lease has already been done. So we don't expect newer lease, except for wherever the [Indiscernible] financial arrangements that we are exploring.
But for the charge that you see in the financial statement, the INR 3 crores, this amount will start reducing from the quarter -- subsequent quarters. This is what Pawan was alluding to.
Okay. So charge to this project will reduce, but a new charge may come because of other projects, right?
Yes. So that depending on how we structure the lease and how the accounting standards adopted, the charge will come accordingly.
The next question is from the line of Mayur Parkeria from Wealth Managers India Private Limited.
Am I audible?
Yes.
Yes. Yes. Is it okay now?
Yes, it's fine. .
Yes. So actually, it's just a couple of questions from my side. Currently, on 9 months basis our adjusted EBITDA margins are in the region of 25% itself. You said that if pathology centers, as expected in the next year is going to increase, and the margin should come down, right? And you are mentioning that our aspiration is to maintain the 25% margin. So I just didn't understand which of the sides...
The margins are not expected to come down. What I'm saying is, currently, we are operating at about 25%. We will continue that trend of maintaining 25%. Earlier we were targeting to have about 27% to 28% in that kind of range, but given that the pathology mix is increasing in the business with higher consumption cost that is the reason why we believe 25% will be stable EBITDA level for the next financial year.
Okay. So despite pathology increasing in the next year, you don't see margins getting diluted from here on? That is right?
Yes. We don't see margins getting diluted. It will remain stable at these levels.
Okay. And one more little high-level question in the sense of now we are present almost in 16 states in some way or the other, right? Broadly if we look at our presence. Barring states -- so barring some large states like Gujarat or here on the eastern side, we are present more or less across many large states now. And we are already in a very hyper growth stage where revenues are rising at 30%, and we are maintaining 30% CAGR.
How will you ensure or at what is the time when we will say that it is time for us to start looking at bringing the growth not only running after growth, but ensuring that our financial metrics is in terms of return on capital employed and margins, actually the reported basis, not all adjusted basis. But on a reported basis, they start depicting the true picture of the business, which is underlying the centers and the business which is there. At which stage do we think -- is it 1 year? Is it 2 years down the line? Or you believe we are already at that one stage and now -- because the opportunity maybe continue to be very large, but at the same time, we need to size it up based on our size and what risk -- financial risk and operational risk, which comes along. So at which stage do you think we will start looking at that phase. Is it 2 years down the line? Or is it a little more longer.
So if you see -- first of all, just to give you a bit of background. Krsnaa is a young company with just about 10 years, and our growth has been largely in the last 5 years. And with this -- within that, we've been achieving this kind of numbers or milestones.
Now along with this, there have been opportunities of large states, whether it's Assam, Odisha, Rajasthan or even Maharashtra, for example. So from a company's growth and long-term perspective, of course, these contracts or these tenders are important for the company, and we would want to grow.
Having said that, like we maintained and in the previous quarter we said, now that we -- most of the centers are getting stabilized, the operations are getting stabilized, we expect the business to also stabilize and equally we started focusing on the B2C verticals as well.
So directionally, if you ask me, yes, the company has reached a certain critical mass where things have now started stabilizing and you could also see it from the quarterly margins perspective, where they have shown an improvement.
If you ask me from a growth potential perspective, of course, there are many large projects, but we are also now becoming very selective in which tender to participate provided they are aligned to our financial metrics only in those tenders we would continue to participate and see if they add to the overall value that we are creating for the stakeholders.
So in my opinion, it will be a combination of -- if there are some good opportunities, of course, you'd want to pursue -- any company would want to pursue such good opportunities. But I think the opportunity is large, and we'll be more selective going forward is how I want to answer that question.
So you already have started becoming a little more selective than what -- given the scale at which we are doing and already reaching that size. Great. That was great to hear. Just one last question. What would be our proportion, proportion of revenues, which will be mapped to matured centers, semi-matured and new ones? You have given the ROCE differences, which are there, but what would be the proportion currently, let's say, in the 9 months, which would be mapped on that side?
So if you can see, we calculate this on an annual basis, but still, I can give you the background on that percent. The semi-mature -- out of the semi-matured, annualized number was 14% of gross block. Out of that, we can see 5% will move to the mature side. And from the newly launched centers, we can see a 12% to 15% of the gross block shift to semi-mature block.
I understand. The reason I asked on the revenue side because the centers and different scale would also have different capital turnover ratios at each stage. So I just was trying to understand that how much of revenue is mapped on each of that stage, if possible.
So it is not readily available as of now. We can -- you can reach out to our investor relationship, Vivek, so we can provide you that information.
The next question is from the line of Aditya Khemka from InCred BMS.
Yash, just a question on Rajasthan tender again because of the CapEx number that you said. So if I remember correctly, our expected peak potential revenue from Rajasthan is INR 250 crores to INR 300 crores. And the CapEx number you alluded to was in the range of INR 200 crores to INR 250 crores. So despite the pathology driven tender, the CapEx asset on that I can see you're talking about in this businesses between 1.1 to 1.2x, it seems. So is there -- am I missing something? Or are these the numbers that you wanted to discuss?
So basically, the requirement for the tender is to set up certain equipment which are large equipment or CapEx heavy equipment or the cost is higher. And that is the reason why if you see the investment is larger. But from a turnover perspective or from an asset turn perspective, what we are expecting is, [Indiscernible] a conservative number. Of course, as the business ramps up, this number should -- I mean in our opinion [Indiscernible] best to increase the number, but on baseline is what I'm stating the number of the top line. But the investment is required as per the tender norms.
Right. And because it is pathology, these new equipment you're talking about, this would be analyzers [Indiscernible], right?
Yes, analyzers, Immunoassay all these equipment.
Understood. And what kind of margins do you foresee if Rajasthan tender were to materialize? What sort of EBITDA margins would we have there? 25% or more or less?
I think it will be too early. As and when these projects get operationalized, we can be able to give a much better picture.
Yes. I'll tell you why I'm asking about the margins, even if I assume that margins and let's say you do INR 300 crores of top line at peak in Rajasthan, INR [Indiscernible] crores of EBITDA. And then post depreciation and tax you'll probably be left with something like INR 50 crores of PAT and INR 50 crores of gross block, which you deploy of anywhere between INR 200 crores to INR 250 crores, that's like a 20% pretax ROC. So 20% pretax ROC, I mean, is that something you guys are comfortable is what I wanted to check?
If you remember earlier also we had quoted Rajasthan is a very distinct and unique project, both from an expectation of top line and the margins. However, as I said, it's a bit too early for us to comment on. Of course, when we bid for the project, we had certain projections in mind, which is making this a favorable project like others. However, I think as of now, I want to revert back only when we have some more credible information given that it's currently in the courts.
I understand. And one last question on Rajasthan because I just bother about that. So it's a cash project or it's a credit project?
It's a credit project. Aditya, like I've been maintaining, and Mr. Mutha also mentioned, what we expect is the 30% growth is without Rajasthan.
Yes, that is well understood.
The next question is from the line of Rajesh [Indiscernible] an individual investor.
I have two questions. One is asked by the participant. Like you told that you mobilize to the site when it is provided by the government. In case is there any delay from the government side, do you get any compensation from the government?
There is no compensation. Typically, work says when we start in PPP installation, we approach to the government asking them to hand over the site. As and when the site is handed over then only the equipment procurement and installation begins, but there's no any kind of compensation given by the government.
Okay. And second question now. Now you're evaluating pay-per-use model versus your own hired model. So what will be the margins between two models? It will come down or it will go up?
So there might be an impact on the EBITDA margin, but definitely, the PAT margins will be much better because it's an asset-light model.
Okay, asset-light model, so margins -- and this Rajasthan tender is like 50-50 JV, no? You have INR 250 crores revenue, which you're talking about is in the JV model? Or this you're own INR 250 crores?
No. So here, we have a PSU as a partner, but they have a very nominal share of revenue. The rest of the entire revenue comes to Krsnaa.
And what is the arrangement with them? Will they investing in the CapEx? Or you'll be doing the whole CapEx?
No, the entire CapEx will be done by Krsnaa.
Okay. And last question is regarding when you do the B2G projects, so is there any like minimum guaranteed number of tests will be given to you? Is there something like what the arrangement there?
No, no. PPP that we've seen where government assures us with any numbers, it is based on our own survey and estimation that we do.
And is there any cap on the number, if the number goes above that number, there is further discount on your rates?
No, there is no cap as such. So these are initiatives taken by the government to provide access to quality diagnostics or health care to the people of that state. So there is no cap or -- there cannot be such cap. You can't restrict people from availing healthcare services.
No, no. I'm not asking that the cap. Is there like, for example, you establish a center, government -- you have done your survey, and the number goes beyond that number, is there any further discounts on the rates?
No nothing like that.
And you are setting -- you're trying to enter into B2C business, like you have set up a [central lab] in Maharashtra. Are you planning set any central labs?
So we have set up labs in Maharashtra as well as Odisha and Assam, then you have labs in Himachal Pradesh and Punjab as well. So we'll be leveraging all the infrastructure for the B2C initiatives.
The next question is from the line of Omkar Kamtekar from Bonanza Portfolio Limited.
Firstly, just a clarification. The radiology and pathology mixed split what was given was 65%, 35%. Was that correct?
Yes.
And just to understand, so on a calculated basis, the average revenue per patient from the 1.1 -- 11.1 million patients that we have served in the 9 months, like equates to INR 408 odd. So let's take it as INR 400. How do you take -- what are the measures that we will be taking to improve this revenue per patient, a? And with respect to the margin as we have stated that it is going to be steady state at 25% for the few quarters and year against growth, what are the measures that you're seeing or what are the activities that you are going to undertake to improve this margin with respect to being -- because compared to other peers, our margins are almost similar, but our revenue per patient is lower. So how does that work? If we can improve the margins as well? What are the initiatives that we are taking to do that?
Could you just give you a bit of perspective here. First of all, you need to understand that Krsnaa offers the test at prices which are almost 50% to 60% lower than the market rates. And that is how we operate in the PPP setup.
Now from improving the pricing, most of our prices are linked to the tender rates that we have contractually signed with these various authorities. There are initiatives that we have done, for example, offering a mix of various tests or it could be cross-selling, certain of our services or introducing packages, which could be at higher price points. So these all initiatives are undertaken. And as I said earlier as well, we have seen a great success in selling packages even in the kind of PPP model.
So with this combination, our efforts are there to increase the price, the revenue per patient. But just to make it clear, our business is linked to rates, which are hard coded or embedded in the contract. So we do not have a great flexibility. But of course, there's a huge potential of increasing the regulator volume. And this is a unique feature of PPP where you have significant volumes, which you'll probably not see even in other players in these kind of volumes.
Understood. So my second question was coming on that only. Because we have this captive audience via our nature of the business being through these tenders. So the question that I was wanting to come to, how much time will it take for -- say for example if you take a new project and it gets allocated to you, what is the time for it to mature? Because as you have said in your PPT, it takes about -- returns up to 30% of ROCE once the asset gets matured. So the maturity time for us would be much lower than the peers. So what is that maturity time for the asset to become mature over the period?
Again, it differs from project to project and between radiology and pathology, but typically, our centers mature within 1 to 1.5 years of time if it's a radiology. Pathology, again, depending on the test menu side, it can even be 9 months to 1 year.
9 months to 1 year, okay. And a small clarification. Generally, the margins would be higher on the radiology side, just to understand it?
Correct. Correct. Absolutely.
The next question is from the line of Nitin Agarwal from DAM Capital.
Yash, only one question. So there is this talk of a national essential diagnostic list which the government is probably looking to implement; I mean, a, have you heard anything about it? You had been party to discussions around this? And what does it really mean assuming discussion implemented for us, from a business perspective?
Yes. So the conversations are going on by the government authorities, and this has been going on. We had been asked for certain inputs. What I believe is, this will be a list that they are trying to look at. And whilst too early to tell, but this might have what we believe is a good impact for Krsnaa given that it will create more opportunities with more test. Earlier, there were basic tests. Now there are certain special tests, so they are looking at all of these. So in my opinion, this certainly will be welcome for Krsnaa as and when it gets implemented.
And this is what's going to be a model, that the states will have to follow up, which is prescribed by central government?
Yes. So typically, whenever they come up with such list, they create this list or test menu, which other states have to follow or implement as part of the PPP initiatives.
Got it. And what's your sense about what timeline do we see this thing getting rolled out?
It will be too difficult for me to answer that question for now.
Fair enough. And lastly, you talked about the tender that you won in recent times. I mean versus, say, a couple of years back and versus the pipeline and the kind of conversations you're having now, I mean qualitatively, can you just tell us what is the difference in the kind of in the scale of conversation having now versus what you're having maybe a year, 2 years back?
Sorry, if you could just repeat the question? I couldn't get the last part.
I'm saying the kind of conversations you have in various states now who are looking to probably roll out tenders, PPP models of their own, I mean what is the difference in the scale and the quality of discussions you are having now versus what you were having maybe a couple of years back? I mean, are there larger in scale tenders? Are there more states looking for these things?
Yes. So frankly, first of all, we don't have conversations with any governments. It's basically, as and when these governments decide or authorities decide to publish a tender. Having said that, after the successful installation -- or implementation of various PPP projects, of course, there have been discussions where now many states are exploring avenues to come up with more PPP tenders and which I believe is creating more opportunities for us in the near future.
So these conversations are going on more and more with states and especially with the emphasis from the various governments, whether it is the center or the state to increase access to health care for the citizens of the country. I think these conversations initially will materialize into more opportunities for us.
Thank you. Due to time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Yash for closing comments. Thank you, and over to you, sir.
Thank you. Thank you, everyone, for joining our Q3 FY '24 earnings call. Hopefully, we were able to address to all the queries. If any questions remain unanswered, please feel free to connect with our Investor Relationship team head, Mr. Vivek Jain. Look forward to interacting with you in the future quarters. Thank you, and have a good day, everyone.
On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.