Metropolis Healthcare Ltd
NSE:METROPOLIS

Watchlist Manager
Metropolis Healthcare Ltd Logo
Metropolis Healthcare Ltd
NSE:METROPOLIS
Watchlist
Price: 2 061.85 INR 2.32% Market Closed
Market Cap: 105.7B INR
Have any thoughts about
Metropolis Healthcare Ltd?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2024-Q1

from 0
Operator

Ladies and gentlemen, good day, and welcome to Metropolis Healthcare Q1 FY '24 Earnings Conference Call hosted by Nuwama Wealth Management.

This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of your performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Aashita Jain from Nuvama Wealth Management. Thank you, and over to you, Ms. Jain.

U
Unknown Analyst

Thank you, Ned, and good morning, everyone. On behalf of Nuvama Group, I'm Aashita Jain for Metropolis Q1 FY '24 Earnings Call. With us, we have Metropolis senior management team represented by Ms. Ameera Shah, Managing Director; Mr. Surendran Chemmenkotil, CEO; and Mr. Rakesh Agarwal, Chief Financial Officer.

With this, I hand over the call to Ms. Ameera for opening remarks. Thank you.

A
Ameera Shah
executive

Good morning, everyone, and thank you for joining us on the Q1 FY '24 earnings call. Today, I'm joined, as mentioned by Surendran and Rakesh and our advisers. We've uploaded our updated results documents on the exchanges and the company's website, and I hope everyone had a chance to go through the same.

In the last few interactions, we have guided our near-term objectives. Q1 FY '24 has largely played on these objectives. Let me give you a bit of an overview.

We achieved a 12% Y-o-Y increase in core business revenue through a combination of increased test volumes, revenue per test and better product mix. Over the past 5 quarters, our core business revenues have consistently experienced double-digit growth, and we're optimistic of improving the same.

Our overall revenue decreased by 1%, primarily on account of a large B2C contract imposed by the government impacting the total revenue. Excluding this, our revenue for the core business, B2C, B2B grew by 12% as I mentioned earlier. Going forward, we are confident of scaling up revenue for the coming quarter, which will have a positive impact on margins with high operating leverage play in our business.

Looking at the details before the B2C revenue had a 13% year-on-year increase, where even mature markets like Bombay witnessed a higher growth of over 15% with volume growth of 10% and RPP growth, which is revenue per patient growth, of 5%. I would also like to add that we continue to see a competitive environment in the B2B segment although the intensity has reduced. In spite of the challenging environment, our revenue for B2B grew by 9% with much faster growth rate coming from the specialized segment which tends to be stickier as the need for quality reports is high. It's important to note that the growth we have seen is for the quarter which is historically the slowest quarter in the financial year for Metropolis as seasonality is different in every region of India. Every year, Q1 is the lowest quarter for us.

Therefore, embracing a positive outlook for FY '24, we remain confident of revenue buildup through the year with the second quarter and the fourth quarter expected to scale even higher, leading to an expansion in market.

Over the last few quarters, we have received many queries about industry opportunity and the addressable market for Metropolis. Let me take this opportunity to provide some insight and hope that this helps you appreciate our long-term strategy interaction. In the fiscal year '23, the diagnostic industry estimated size was 1 lakh crore. Within this, the pathology sector is approximately 58,000 crores.

This figure can be further broken down into 3 segments. The OPD, which is the outpatient department market, where it is outside the hospital has a share of INR 33,000 crores; the inside hospital industry is INR 20,000 crores; and the B2G, the business, the government business is about INR 5,000 crores. Out of this, we have identified specific areas which we believe have substantial room oor growth but also require expertise in testing and are therefore characterized by a sticky and loyal customer base.

Accordingly, the 2 segments that we are targeting are 1 that is an organized market between the OPD services, which is the out of hospital services that is already an organized market, which is estimated to be about INR 11,000 crores. We are seeing this category increasing faster after COVID as doctors and consumers are moving from unorganized labs to organized labs. So while the organized sector of 11,000 today, it is not capped at this because there is a constant movement from unorganized to organized increasing this category.

Within this market, we are specifically focused on prescriptions coming from specialist doctors as they are the ones who care more about the quality of results and therefore, are willing to pay a premium for the services. The outsourced market from IPD, which is the hospitals which are doing testing inside the hospital but still need to outsource specialized lab players like us is approximately valued at INR 4,000 crores. Increasing growth in this category depends on taking our brands in more hospitals and delivering on our commitment of accurate reports, wider test menu, doctor recommendation and reports delivered on time.

Combining these 2 segments, the current addressable market is at about INR 15,000 crores. And in the next 2 to 3 years, by'26, this is expected to be growing at about 2% CAGR to reach INR 21,000 crores. What sets this addressable market different from the rest of diagnostics is that this is what we consider as stickier business characterized by sustained volumes, loyal customers with a preference for quality services, a better margin profile, low churn rates and therefore, offering a long runway of growth, both from a revenue and a profitability perspective.

Within this addressable market, our focus lies on catering to the total [indiscernible] customers that prioritize quality and reliability above O&M. This is the organic opportunity of the addressable market in addition to the growth that can be taken on account of a leadership position in innovation, test menu network and science-based benefit.

The Metropolis brand has owned the reputation for being highly reliable and trusted, both amongst consumers and medical practitioners. This drug factor plays a crucial role in fostering long-term relationships with recurring doctors ultimately contributing to our continued success. With these advantages firmly in place, we are optimistic about our ability to outpace industry growth in the years to come.

Let me now take you through Metropolis 3.0, our 3-year strategic plan based on this addressable market. Our focus revolves around 3 pillars. The first 1 is to strengthen our core business, and the goal here is to grow faster than the industry by focusing on quality and sticky business that sustains long term to become an efficient testing pathology player driven by automation and medical expertise to stay [indiscernible] introducing new tests and innovation and testing and to provide access to patients across the country up to all Tier 3 and Tier 4 towns. In the next 3 years, we will be in more than 700 cities compared to the 370 cities that we are in today. With 270 labs and 6,000-plus collection centers, our goal will be to increase our network across the country with increasing productivity per center. Our target will be to have 20% to 25% revenue coming from wellness testing and 40% to 45% coming from specialty testing. Simutaneously, we would be focusing on margin expansion with margins stabilizing at 3 corporate levels and ROCE to increase proportionately. While we maintain our leadership position in West and South, we are also aiming to be in the top 3 players in North and East.

The second part of our strategy on the Metropolis 3.0 strategy relates to expanding adjacency. As part of our strategic plan, we are embarking on a journey of exploring adjacencies in health services closely linked to our core business such as basic radiology, like ECG EXPERIENCE as 1 of those possible services. By doing so, we aim to unlock new avenues for growth and diversification.

Through this expansion into complementary segments and services we aim at leveraging our existing expertise to cater to a broader spectrum of health care need. This approach allows us to not only deepen our relationship with current customers and doctor [indiscernible] but also attract new stakeholders into our ecosystem. These adjacencies will aid our position of being a reliable partner in the industry, a health care partner in the industry.

If we have adjacencies we pick up, there will be CapEx light and will help us grow our organic business of pathology. At this point of time, we won't have any details to share, but we believe in the coming quarters, we'll come back with a far more detailed plan and action.

The third part of the strategy as part of Metropolis 3.0 relates to the bolt-on acquisition. We recognize the potential of inorganic growth as a means to strengthen and complement our existing capabilities. As part of our strategic plan, we will consider smaller bolt-on acquisitions that align with our value position. These acquisitions will serve as strategic entry points into new geographies, enabling us to expand our reach, enhance our service offering and leverage the local brand expertise that you get through acquisition and consolidate our position as a leader in the health care industry. We plan to do about 5 to 6 bolt-on acquisitions in the next 3 weeks.

Given the ample opportunities for growth in the diagnostics industry coupled with the robust brand strength of the taxes were poised through a very exciting journey ahead. Additionally, with the [indiscernible] incoming on board, bringing fresh perspective and leadership infused with a wealth of experience and strong execution rigor to drive efficiency, posture innovation and optimize our operational abilities. All of this will lead us to greater high.

Suren, if you could come in and talk more about the operational priorities, please.

S
Surendran Chemmenkotil
executive

All right. Thank you, Ameera. Let me speak about our strategic priorities and avenues of growth for the year. From an operations point of view, 3 big priorities guide the organization forward. That's network expansion, focus on specialty and strengthen our wellness portfolio. Our journey of network expansion is well underway with a focus on establishing new laboratories and asset-light collection centers. During quarter 1, we successfully added 6 new labs in about 120 centers. Most of the new lab additions scale from North and East and the collection centers across geographies.

Our target is to open an additional 25 labs and around 700 centers within the remaining 9 months of the fiscal year. We have started 70 new towns in the last quarter. And now we are present in almost 370 towns across the country. Our target will be to expand this and take it to 500 towns by the end of this year. This expansion is supported by a robust data science approach, like I mentioned in our last call. I must mention here that not only we are focusing on opening new network, but we are also making a concerted effort to enhance the productivity of all our existing centers across markets.

Over the next couple of quarters, we are actively considering the reclassification and structuring of our focus, seeding and other cities categories. And I feel that after 7 years, this requires a review now. We are considering inclusion of 4 to 5 additional cities into our focus cities portfolio. And these cities will see higher investment outlay and better infrastructure support that is required to build the true potential of these locations. And some of the other cities will remain will similarly move into seeding category as we continue to expand the other cities category. These potential additions are based on crucial factors such as current revenue performance, market share in those markets future growth prospects, B2C focus and the feasibility of scaling operation through our existing network as well as planned expansions.

Now to further strengthen our specialty business, we have built a strong and dedicated team of sales force who will single-mindedly focus on key specialty portfolios across the country. We have trained them well and equip with all necessary work tools. We're actually working on expanding our presence and collaboration with specialized doctors across the country. By engaging with the Binod Medical Professionals, we have been able to offer them tailor scientific propositions and foster a collaborative approach. For the most suitable diagnostic parameters for their patients, which strengthen the doctor's preference for the metropolis brand and enriches our value proposition in the long term. We continue to believe that specialized business of metropolis is very quality focused business and with high degree of stickiness. This is further aided by an enhanced test media and the introduction of new tests.

Now allow me to provide an update on our revenue, volume and RPT growth. At a group level, our revenues were at minus 1 percentage year-on-year in quarter 1 basis, all inclusive, as Ameera mentioned. It is important for me to mention here that in the last quarter, the same number was at minus 8%. And we see this getting better as we go forward from here.

Just to recap, we did not have the volumes of COVID and entire RPP in this quarter. We have achieved a 12% year-on-year growth in our core business revenue, excluding these 2 -- this growth has been driven by a combination of 9 percentage increase in volume and 3% growth in RPP and change in product mix.

While we did a marginal price increase in specialized test in end of April, adding about 1% benefit. We also made certain price corrections in about 25 routine tests in Delhi NCR, geography to align with our strategy there. In every local market in India, we adopt different strategies based on our market share and the level of competition in specific regions. In certain micro markets, we may implement volume-driven strategies to gain market share. This balanced approach incorporating more volume-driven and RPT focused strategies has contributed to our growth and market leadership.

As we move forward, we remain committed to delivering growth with volumes being the primary driving force.

Our pricing decisions are driven by careful analysis and aim to align with competition intensity from both organized and unorganized markets.

Let me also provide an update on Hitech business. Hitech has been successfully integrated, and we have identified multiple synergies and cost efficiencies across the system. We also have been able to cross-sell, upsell and merge the lab operation, which will further enhance revenue growth and profitability going forward. Our revenue growth from Hitech stood at a double digit in the last quarter, with margins slightly higher than company level EBITDA. Our strategy for Hitech business this year will be to add another 50 touch points across Chennai and rest of Tamil Nadu, targeted campaigns were increasing wellness segment revenues, and step up cross-selling radiology to the existing and new customers, focus on B2C campaigns and digital marketing to increase the brand strength and talent acquisition to increase consumer connect with expanding doctor network.

I also want to take this opportunity to give a brief overview of our international business. Currently, our international business revenue accounts to about 7% of the group revenue. Our strategy for international expansions are based on the promise of that the markets we are present are relatively untapped, presenting us with opportunity to establish a strong presence. In these virgin markets, we have noticed lack of organized players, creating a favorable environment for our growth. Our approach to international expansion is focused on organic growth, complemented by a mix of B2B and B2C strategies.

We are strategically utilizing specialized testing capabilities to maximize the realization of our assets in India, ensuring a higher return ratio with minimal investments. International business is driven by a dedicated team reporting directly to me. Going forward, we remain committed to nurturing our international business in an organic way, generating higher growth and attractive returns in the future without any major capital commitment.

With that, I hand over to Rakesh.

R
Rakesh Agarwal
executive

Thank you, Suren. Most of our financial and operational highlights have been shared in the presentation uploaded. We hope everybody has an opportunity to go through the same.

Let me provide specific insight into the production, to our productivity and scaling metrics for the labs opened in the last 15 months. For lab opening financial year '23, revenue stood at INR 20 crores. During Q1 FY '24, the revenue for these labs amounted to INR 7.38 crores. Lab established in quarter 1 2023 with less growth of 270% in quarter 1 financial year '24 compared to the previous year. Our strong execution [indiscernible] operational efficiencies and focused marketing and brand building efforts have significantly contributed to sales of revenue from these new labs. We are optimistic about the potential of these necessary plans to mature over time and generate even higher revenues in the future. We believe this launch will continue to achieve significant growth and contribute significantly to our overall revenue going forward.

Speaking of the productivity of these labs, we have been able to achieve 5% EBITDA margin for this lab from negative 5% in year 1. By scaling up the revenue we will have high operating relate, which should deliver higher margin going forward. We believe that in 24 to 36 months of maturity of this lab, we will be able to [indiscernible] EBITDA margin for all these newly opened labs.

Now I'd like to give an update on the financial and operational KPIs. Our revenue for quarter 1 financial year '24 was down by 1% account of insourcing of large B2C contract and high base of over revenue in quarter 1 2023. We are optimistic of high revenue growth for quarter 2 and onward backed by high utilization and productivity of new network.

Our EBITDA margin before CFR [indiscernible] stood at 24.2%, dilution of 1.1% on account of network expansion for Q1 financial '24. EBITDA before network expenditure stood at 25.3% for Q1 financial year '24. Our ADA has been impacted largely on account of net expenses [indiscernible] 1.1% and 0.7% due to loss of revenue on account of insourcing of B2C contract, which is a negative operating [indiscernible].

We'd like to highlight that we have taken stringent cost control measures to keep the cost structure under check, despite higher cost of people, aggressive lab and network expansion, increasing marketing initiatives and implementation of digital initiatives in our system. Our cost just grew by only 1% Y-o-Y for quarter 1 financial '24. We are optimistic of volume and revenue bouncing back in quarter 2, and should have a positive operating release with uptick margin.

Our premium wellness business grew by 27% Y-o-Y for Q1 financial year '24 with average realization in the range of approximately INR 2,200. Overall contribution of wellness stood at 15% for Q1 financial year '24 as compared to 13% for Q1 financial year '23.

Moving to the balance sheet, our gross debt as on 30 June stood at 63 crores. We plan to be [indiscernible] by the end of this year.

That's all from my side. With this, I open the floor for Q&A. Thank you.

Operator

[Operator Instructions] The first question is from the line of Rahul Agarwal from Infant Capital.

R
Rahul Agarwal
analyst

First question essentially was Mumbai growing faster within the overall B2C. Question on that essentially, as we hear from your peers about Hitech platforms cutting discounts, was Mumbai a function of that, the growth? And your thoughts on business competition, is this sustainable going forward as well? That's the first question.

A
Ameera Shah
executive

Thanks, Rahul. Look, I think if you see for the last 4 to 5 quarters, Bombay has been actually growing at a similar pace. So what we always maintained was that if you have built a good quality business in pathology like Metropolis had, the digital competition would not have impacted too much because the customers who value their brand did not really value price and we're not the ones who are going to move to competitors for price benefit. And I think we have seen that play out very clearly in Metropolis where we have not seen an impact from a B2C perspective. In fact, we've only been growing even in mature markets like Bombay.

So we see this trend to continue. And as digital guys have cut back on their discounting, it only means that the noise in the industry will start settling. I don't think those discounts have aided them in building very large businesses from the numbers that we know, and I think there is a recognition coming in that price is not going to be the driver in pathology.

R
Rahul Agarwal
analyst

So you think going forward, even this should continue, right? It's good news, right? I mean I understand Metropolis has not lost much of the business, but going forward, if this happens. I think whatever we have lost, maybe it's like not very material to the company. It still gets back to us, right, at least from an industry standpoint, that's positive, right?

A
Ameera Shah
executive

I think whether people choose to discount nor frankly it's not in anyone's control, right? So of course, until the time that they don't -- they choose not to discount, I think it's healthy for everybody including the industry. My only point is that I think IR growth continue to lead the way.

R
Rahul Agarwal
analyst

Got it. Secondly on international, 2 questions there. Firstly, is it similar to Indian profitability, 24%, 25%? And second is any plans here to grow faster? Because I think Surendran also has been on our experience in some of the markets. We also hear some Indian diagnostic player trying to enter Africa sometime this year. Your thoughts, please.

A
Ameera Shah
executive

So I think we have been doing well on the international side. The business model is actually very similar to what it is in India. And the reason why we are in these markets is because we actually sweat our assets from India. For example, in these locations, we do about 60%, 70% of the testing required locally, and almost 30% to 40% of the samples come back to our global reference lab in Bombay for specialized testing. So we believe it is very strategically connected to the Indian business. And the biggest challenge in some of these markets is lack of talent and scientific expertise, and we are able to bring it from our core DNA into these markets. So I think we'll keep seeing international do well for Metropolis. The margin profile, as mentioned in the piece as well is actually for this quarter is slightly around a similar profile as the group profile. So the international business is on a good track as well.

At this point, the only concern, obviously, with the international business is the currency devaluation from some countries. And that's the only reason why we are not pushing much, much harder. And the opportunity is there, and I think we'll continue to invest small amounts of capital from the profits that are being generated in these markets and keep driving organic growth.

R
Rahul Agarwal
analyst

It should reflect like 10%, 12% of similar growth what you do in India, right?

A
Ameera Shah
executive

Growth is actually a little bit higher in the international market because the base of some of the labs is also smaller.

R
Rahul Agarwal
analyst

Okay. Got it. And lastly, just your outlook for the full year. Like for like sales grew 12% for the first quarter I understand reported basis, top line will be lower, but just your thoughts on full year outlook, please.

A
Ameera Shah
executive

So as we mentioned, I think we feel quite confident about the core business growth for the full year. Quarter 1 is usually our first quarter. We certainly expect Q2 and Q2 to be better quarters for us. And as we know, as volumes increase, it certainly impacts our profit margins as well.

R
Rahul Agarwal
analyst

Any number you want to put?

A
Ameera Shah
executive

Can't talk at this time.

Operator

Next question is from the line of Shyam Srinivasan from Goldman Sachs.

S
Shyam Srinivasan
analyst

Just the core revenues of 13%. I think you've given volume growth of 9 and RPT of 4. I want to just deconstruct the volume a little bit further down, like SSG plus you've been expanding as well. So I just want to understand how are your mature stores, what's the kind of volume growth? Maybe as a corollary, you can also tell us how Mumbai, the 15% that we have grown, how is that deconstructed please.

R
Rakesh Agarwal
executive

Yes. So basically, if you look at the construct 2% in the overall growth products, and as I said in my speech also that in quarter 1, whatever levels started in the last 15 months, for those last year got around INR 9 crores of revenue in this quarter. [indiscernible] INR 7.38 crores of revenue this quarter, which is 3% of the overall revenue. So overall, if you look at 9% is coming from our old base and 3% is coming from the newly open labs.

S
Shyam Srinivasan
analyst

Got it. So think can we do it like the SSG way? We in the volume growth is where I'm more trying to get a sense of how much of the incremental volume, is it similar like 75% coming from old stores, volume and 35 -- sorry, 25% coming from new stores? If that is 1 way to deconstruct.

R
Rakesh Agarwal
executive

No, volume, I don't think 25% will continue to [indiscernible] store. We will just second come back to you on that. So overall, [indiscernible] 9% coming from the volume and 3% coming from the pricing.

Let us come back specifically on what is the volume growth coming out of the 9% from the new labs.

S
Shyam Srinivasan
analyst

That's helpful. Just second question, again, just on the network expansion, we had about 120 basis points per recollect rate of dilution on the margins in fiscal '23 because of the network expansion. We've seen it slightly moderate. 110, I think is what the presentation calls out. So any sense on where we would likely see this number starting to even get lower? And then is there a corresponding uplift that the overall corporate margins will see, or will this -- will we use this to do our continuing investments? So that's my second question.

S
Surendran Chemmenkotil
executive

Yes. So basically, what we intend is that we intend to open a [indiscernible] can open around 25 labs this year. And obviously, that will have a dilution of it, but there will be a moderation of the lab opened already in the last 2 years. So what we feel is that this number will remain in the range of 1.1% to 1.3%.

R
Rakesh Agarwal
executive

It will keep on moving 0.1% here and there as we go along. But the next 2 years, as we have expansion plans, we see this percentage dilution coming in the EBITDA margin question.

S
Shyam Srinivasan
analyst

And the last question, Ameera, I think you called out the INR 15,000 crores as the kind of addressable time for us. A little surprised. If I add all the listed players, fiscal '23 revenue, just the pathology bit, it's INR 6,000 crores ballpark. So have you had this player already achieved 40% of that share? Do you think -- I just thought the number was higher. So that's where my confusion.

A
Ameera Shah
executive

It's a fair question. So firstly, not all the listed players and unlisted players are targeting the same segment. So we have to remember that it's not like listed players are all following 1 strategy and [indiscernible] following another strategy. So each company is choosing to target different segments of the diagnostics industry. And what we are attempting to do in this speech is actually being more clear about the segment that Metropolis is going after. As we have always mentioned, our goal has been to go to specialists and get them to recommend patients to come because the patients who go to specialists tend to have more critical investors. And the people who are more critical investors for the doctor and for the patient, the quality of the report matters now.

So therefore, the segment we are going after is about 15,000 stores. And our goal will be to keep measuring what percentage of market share we have in that segment. Other players are choosing other segments. So some people are focusing on B2G, which is the INR 5,000 crore segment. There are -- some listed players may choose to go there. Some listed players are focusing, not focusing on specialist-driven pathology. They are focusing on GP-led pathology, or they're focusing on B2B, which is a different part of the segment. So I think just the clarity important is that not all listed players have the same strategies and goals, and therefore, it's important to see each each in its own strategy.

S
Shyam Srinivasan
analyst

And last question, again, Rakesh, just data point, high-tech, what is the revenue and maybe volume there?

R
Rakesh Agarwal
executive

Yes. So Hitech as mentioned, Hitech is growing a bit higher than the -- our core revenue for the group. So that is 1 data point. And from a volume and RPP point of view, this is more or less similar to us, 8% is the volume growth and 4% is at the growth side.

Operator

Next question is from the line of Rishi Modi from Marcos Investments.

U
Unknown Analyst

Yes. So my first question is on Hitech, right? So we have seen map and center closures out there in the last 1 year or so. So on Hitech, right, you've seen lab closures and center closures. So just wanted to understand why for these centers [indiscernible] what was [indiscernible] with them, what efforts were taken to term the ones they were not profitable? And secondly, is this expedition now complete? And the third question on Hitech was the 50 center expansion that has been announced, that you are targeting in what form is it is it going to come in the [indiscernible] or the form?

A
Ameera Shah
executive

Sure. So just 1 clarification first. We have not closed centers for Hitech, either collection center or labs. What we have done is merge them with Metropolis labs in certain markets. So the Hitech that we acquired had 3 parts. One is the Chennai business, one is the rest of Tamil Nadu business and 1 is the Bangalore business. The Bangalore business and the rest of Tamil Nadu business, we have merged the brands. And therefore, wherever there were synergy opportunities, we have merged lab operations and more some collection centers. In Chennai, as we know, we have continued to maintain both the brands separately. And therefore, we have not yet merged operations or merged collection centers or labs. So I hope that this is clarity, we have not shut any lab for Hitech without a synergy reason.

The second question about adding approximately 50 -- 45 to 50 centers for Hitech, the idea is basically this will be in Chennai and Tamil Nadu. These will be a combination of CoCo and CoFo. So there'll be some franchise centers and some company-owned company-operated centers across these markets. And those centers that we've already opened last year, I think we opened 11 last year, if I'm not mistaken -- 12 last year. I think most of them are doing well. There are maybe a few 2 or 3 from what I know that have not performed as well as we had hoped for, but the rest have done very well.

U
Unknown Analyst

Okay. And like -- sorry, did you mention the mix of how much of that 45 50 will be [indiscernible] like is there any plan proportion? Or is just how the opportunity presents itself?

R
Rakesh Agarwal
executive

See, you does not prepared any specific mix begin CoCo and the ones under the franchisees, it depends upon the respective markets. So it's largely today out of 50. I mean wherever we get an opportunity to do our own, we'll do that. It's bigger markets, et cetera. And in the rest of Tamil Nadu, we may go through the ATSC route. So we'll take a combination of both without having a fix in our mind about how much should be the PSC and how much the franchise is PSC.

U
Unknown Analyst

Second, Ameera, you mentioned that you are planning to do some 5 to 6 bolt-on acquisitions in the next 3 years. Firstly, are there good quality assets available in the market at reasonable valuations, which you can acquire in the next 3 years? Secondly, how big will these businesses be in terms of top line? And thirdly, what is the budget that we have planned for these acquisitions? And finally, have we -- are we investing in a team which will continuously acquire such bolt-on acquisitions year-on-year? Or is it always -- is it going to be a more opportunistic way of doing M&A?

A
Ameera Shah
executive

So firstly, in terms of the assets that are available, it is difficult to find, not easy, which is why the numbers we have quoted are 5 to 6 and not large numbers. It's very important to us that we buy assets that we believe are run clean and can be scaled up versus where you actually have to clean up huge number of skeletons in the closet and lose revenue and profit as a part of it. So I think we'll continue to be selective and careful, but -- at this point, we do believe that, that is possible. Of course, if anything changes, we'll come back and update you.

We don't have a number at this point of time on valuation. But obviously, our goal will be to try to do acquisitions that is fair and reasonable valuations are possible, which are not at very high numbers. What I've often seen in our market, it is only the large clean acquisitions, which tend to be very premiumly priced because there are such few of them in India. At the smaller level, it will be a little bit -- we believe it will be a little bit more fair in terms of valuation and not as distorted. And we should be able to get this done. We don't have any budget in mind at this point that we can sort of code because it will depend on each opportunity that comes forward.

U
Unknown Analyst

And what size are we targeting these bolt-on acquisitions in terms of the revenue side?

A
Ameera Shah
executive

Look, I mean, they can be anything from INR 5 crores a year to 20, 30 crores a year, right? So difficult to tell at this point. but these will be all sort of usually individual pathologists run labs which have done well for themselves from a brand equity perspective in the city. And I'm not really sure either of their succession plan or their scaling and therefore, are looking for a partner like us that we can work together.

You will be -- because Metropolis has already done about 23, 24 bolt-on acquisitions in the past many years. We have the internal DNA knowing on how to integrate them and how to get value and scale them. So I'm not too concerned around building the expertise for integration.

U
Unknown Analyst

Third question, like my next questions are more -- okay. Just on the strategy front, right. So the commentary that you've given on the call seems that you are not touting the specialized and the wellness mix. So I remember a few quarters back when you had first announced the Metropolis 3.0 plan. You've said that we're going to build a B2C consumer led and have organic footfall and reduce doctor dependency. Now is the plan still the same? Because if it's going to be footfall-led there will be a good chunk of routine mix that will also come through? So are we not targeting that segment now, or are we -- like if you could just give some clarity on that aspect.

A
Ameera Shah
executive

No, thanks for the question. I'm happy to provide clarity. See, Metropolis 3.0 is a combination of multiple strategies. It is not a single strategy. Metropolis has always been a company which has gone to specialist doctors as well as top quality and gotten recommendations for patients to walk into our centers from them. And that will continue. That is not going to change. But the second thing that we have added in Metropolis 3.0, which we top do not do earlier, which is to try to go directly to the consumer and to acquire the consumer for chronic and for wellness testing directly.

See, for chronic testing, if you're a diabetic, you're a heart patient or a vitamin B deficient, you're anemic, et cetera, these are decisions you as the patient can make independently and for values you can make independently. So we go to the consumer directly to acquire these consumers for chronic and wellness.

But for anything more complicated than that in your life and you have an illness, you will depend on your doctor to make decisions for you. And therefore, we have to go to the doctor for getting more complicated illnesses and consumers to come to us. So the strategy is twofold, to go to the consumer for routine and chronic and to go to the doctor for more critical cases of patients. I hope that clarifies things.

U
Unknown Analyst

Just 2 bookkeeping questions. So I see your core business mix has grown by 11% while your focus areas have grown by 11%, while your [indiscernible] has grown by 5%, but the chart on the left, on Slide 17, Slide 17, we see that the proportion of seeding has increased compared to focus. I just wonder is there a piping at around 10%? Or is there some methodology change in cancellation?

S
Surendran Chemmenkotil
executive

Seeding has been growing lesser for us, for sure. As you can see that the 11% growth is coming in the core market, 5% in seeding and other markets because we are opening up new labs, so that is seeing a 22% growth.

U
Unknown Analyst

So -- but your mix has gone from 21% to 23%. Just trying to understand whether there's some methodology change or it's just a timing?

S
Surendran Chemmenkotil
executive

So that is basically to do with the [indiscernible] macro was coming in the other space, and that basically was 1 so we, again, take back on this because your point is well at 21% is now moving to 23%. So let me just check back on this and come back to you, but it may have an impact. But the point well taken and let us clarify to that.

U
Unknown Analyst

And secondly, Ameera, for the feeding studies, right, you've seen that focus has been growing ahead of seeding for the last few years. So just trying to understand like what efforts are we taking to build up the seeding to grow faster than focus [indiscernible] ideally, if you're in your mature markets versus upcoming markets, the upcoming markets growth should ideally be higher. I'm just trying to understand what investments are we doing on the people and the [indiscernible] side in the seeding cities to build that growth faster than the focus areas.

A
Ameera Shah
executive

I think first, you've got to understand what we are building in each, right? So if you see the focus markets are our B2C markets, primarily B2C markets, right, where we where we have continued to focus on B2C and we've been able to, through the [indiscernible] and the B2C route we've been able to generate a fair B2C percentage growth [indiscernible]. The seeding cities are usually ones where we have had more B2B primarily B2B. Now those markets, as we know, in the last many years have faced a fair amount of competition on the B2B side. And while the competition did not impact our customers directly too much on the head or tail customers, which were the smaller customers, which were not as quality conscious. And we have some amount of those in detail, but not a large amount. Those started to churn a little bit. So as competition intensity came in and as we started to see price and discounting sort of increasing, we saw the tail end of our customers starting to have a return, which has brought down the overall growth of B2B specifically in the semi specialized segment, which happens to be in the [indiscernible]. So what are -- we've actually created a new plan for B2B in the seeding cities, which is now in execution, and which has already shown us, as Suren mentioned in his speech, we have seen a 9% increase in B2B in the quarter 1 of this year, which means that the plan seems to be working and is on better. My estimate is that this should look better for the rest of the year renal. Suren, you want to add anything on that?

S
Surendran Chemmenkotil
executive

No, I just wanted to reiterate that this recognition of focus feelings on other cities have been slightly older version now. That's why I mentioned that we are reviewing the cities, maybe next time when we talk about it, we'll have additional kind of cities in the focus teaware we're going to put more emphasis on the and some trust investments in terms of stores, et cetera. And also the seeding cities and not a lot of [indiscernible]. So we are just working on these categories to further strengthen it, right?

U
Unknown Analyst

Sorry, I just clarify that at IPO actually 23 and 18 will be interest change, -- so there is a contribution of 18% from seeding and 23% orders. Just to get right.

Operator

Requeue again for your follow-up question. Next question is from then Anish Tara from Nomura.

U
Unknown Analyst

Firstly, I just wanted to understand whether there is an increasing trend of insourcing happening on the government side? Like do you see that the government is a tendency to rather than outsourcing to itself, and whether the profitability of the government business is higher or lower than the normal core business. Just wanted color here.

A
Ameera Shah
executive

See, B2G is an area as you know that we don't focus on much, and we have been very, very selective about what we pick up. Generally, we are not huge fans of the B2B business because we find it's not in line with our sort of way of doing business in terms of the the quality parameters and all the compliances in terms of all of that. So I think this is an area that we don't expect to focus on, frankly. And we find that the profitability of any business, whether B2C, B2B, B2G all depends on your own underlying governance value quality that you apply to it. And frankly, in an industry like India where there is no minimum standard or regulatory context, it is up to each player to decide what kind of level of quality they apply to their own business. So frankly, there are no [indiscernible] you can find, unfortunately, which are comparable from an apple-to-apple basis and quality data. So each company will have their own practices. And really the reputation built on the back of a doctor either recommending your brand or not? And that's how you know that the company has got good quality business.

U
Unknown Analyst

And secondly, ma'am, on the seasonal weakness that the West region experiences in the first quarter of the fiscal, and the fact that it differs across regions in India, so can you just give some broad high-level reasons as to why there is this difference in the seasonality across the[indiscernible] , -- like I think the Northern region does not tend to be easily weaker in 1Q as compared to the rest...

A
Ameera Shah
executive

There are 3 reasons that we are aware of in others, but 1 thing which we certainly knows impact seasons is set and festivals as we know in India are celebrated at different times in different states. So festivals play a hugely important role. And each festival has elevated a certain amount. For example, you will see Diwali is very large in North India as well as in Gujarat. And what you'll see, for example, something like a estate is very large in West, right, and 1 and Kerala, et cetera, et cetera. So depending on festivals, you find a big impact. And the reason around that is because people's mindset is not so concerned around health care, people and to travel a lot is any time with family. The second thing that impacts is holidays. So depending on where school holidays and children holidays are people are planning their travel. And doctors also are hinting at the end of the day, we like to travel and take holidays. So usually, we find that when doctors are traveling. That's when we find that the business comes down. And invest in the school holidays are usually in the first quarter. which is then doctor end up traveling and that changes things.

Third, obviously, thing that impacts this is ad, whether it's different in different parts of the country. The kind of rains in Bombay, for example, may in some years, create [indiscernible] in some years it may not, depending on the kind of rain. In winter the pollution in some markets will caused more mics in both quarters. So these are the 3 broadly, I would say, that impact the seasonality across the country.

Operator

[Operator Instructions] Next question is from Nano Bino from Elara Capital.

U
Unknown Analyst

Just a question on the lab addition. So you had this target adding 90 labs and 1,800 pick up points. So if I do the math from the time of original target setting, it adds up to around 215 labs by the end of FY '25 and maybe around 4,400 PUPs. Is that math right? And does it change with your new strategy of expanding your geographic persons, et cetera, et cetera?

R
Rakesh Agarwal
executive

Yes, I think we have not changed those numbers, right? In the 90/30 project that we started, we talked about adding 90 labs in 30 months, right? So that remains same and year on course. And same as the the service centers we talked about it, right? So by 2025, right, we will get 1,800 more service centers as we started off with. And we are on course to deliver that.

Yes. So the INR 6,000 centers, if that's what the question indeed mentioned by Ira, I think that goes beyond the 2025 time period we've talked about it

Operator

Next question is from the line of Kapil Agarwal from Tara Capital.

U
Unknown Analyst

I just see in your notes that there is an income tax notice under Section 147, 148 , which I believe is an income escaping assessment. So can you please elaborate a bit on this part?

R
Rakesh Agarwal
executive

Yes. So basically, you understand the whole and the process [indiscernible]. This is a very normal procedure that after the income tax authorities sens,48toneopen the assessment on previously. We can open up to 10 years that the limit -- and this is just a procedural thing which has happened with us without doing anything specific. They have opened the cases, and we'll comply with what is required and will provide all the details. So this is just a procedural thing which will happen. And whatever development will happen in this, we will keep coming back and sharing that case.

U
Unknown Analyst

Any amount that is being mentioned in the notice, or we have we need to carry a provision maybe in the current quarter?

R
Rakesh Agarwal
executive

No, no, there is nothing. It is -- again, I'm retrieving that this is a procedural thing where we opened the previous assessment any such happens, it happens in 100 cases. So there is nothing specific, and this is a processing thing that they're opening the assessment of the previous years.

U
Unknown Analyst

Okay. And lastly, what is the time limit for replying to the notice? Time limit for replying to the notice?

S
Surendran Chemmenkotil
executive

No. So basically, when they open, then we just -- there is nothing we have to do about it. So we said, okay, -- and now they will have on the assessment and they will have some specific queries and questions on those assessments, and then we will go and reply to them. So this is just a notice that they are opening our cases -- and they will scrutinize the earlier assessment done with all numbers. And if there is anything which they feel they want to get information on and they will come back to us. So this is not nothing to do with us. We are this in point that reopening the assessment, and we will come back on any query question regarding any for reassessment.

Operator

Next question is from Aniket Kulkarni from BMS PL Capital.

U
Unknown Analyst

I had a question regarding to the overall industry perspective. So I just wanted to get a sense on how is the diagnostic industry currently covered in insurance schemes. And if and how will the insurance coverage and future excalation evolve in this industry as in if it can help us to solve the issue of underpenetration and take market share from the inorganic sector? So if you can give some color on this.

A
Ameera Shah
executive

So currently, if you see the connection between insurance and diagnostics happens mostly when people are buying insurance at a pre policy level, or in some cases, at a post policy level. At this point, diagnostics is only covered by insurance when you are hospitalized, not when you are outside hospitalization. There are some insurance policies, which are covering OPD care, but it is a very small, small number and not have taken any significance of scale.

The direction we do believe the industry will move in, in years to come will be where insurance policies do cover out of hospital, what is called as OPD care. And this will land up increasing the volume of testing quite significantly. And like you rightly said, will move more unorganized to organized.

Having said that, we do not have a time line on when this is expected to happen. But if we look at other countries and the direction they've gone, this is a no-brainer. And this will not only increase the volume of patients, but will also increase the volume of tests per sample because that's what we've seen happening in most of the countries.

Operator

Next question is from [indiscernible].

U
Unknown Analyst

So in the introduction, you said you -- our target is to be 25% of the revenues on the wellness segment. So don't you think the wellness segment is an expensive test. And do you see [indiscernible] India are able to afford that test? So what are the views on that?

R
Rakesh Agarwal
executive

Sorry, I didn't get that clear.

U
Unknown Analyst

I was asking. You said in the introduction of 25% of the revenues will come from the wellness test going forward. Wanting to less kind of an expensive test fee part people are able to sort India. So what are your views on that? Do you think that an estimation of cash if you want to do.

R
Rahul Jeewani
analyst

This is a plan for the next -- so if you look at it on a year-on-year basis, we have enhanced our wellness portfolio where it was last year versus now at this point of time. What you're able to see is that once we're able to get a customer doing their full health check, then we're able to follow up with a periodic level and get them back doing the tax rises again. And also some of the customers walking up to our centers for the normal wellness related test, we're able to upsell them with entire wellness package. So I mean, it's basically a combination of both where we are able to move up the revenue from wellness. So I mean, earlier this is to happen in the key cities. Now we're happy to see that even the Tier 2, Tier 3 cities. We're also able to do some of these movement through the even the B2B partners as well. So overall, the portfolio is growing and the customer also getting increasingly aware about getting the regular health check done. So that's the reason we have believing that this portfolio will go up to 35 percentage. And with more and more centers getting opened, you get an opportunity for the consumers to come walk in and we get an opportunity in track with them. and we'll be able to grow this particular portfolio. So that's where the confidence is coming down.

U
Unknown Analyst

Okay. Next question is what steps are you taking [indiscernible] Metropolis [indiscernible] all steps are you taking to expand metro in the north side is very strong, how only penetrated at India.

S
Surendran Chemmenkotil
executive

So I think in my earlier Charles also mentioned, and if you look at it, the new lab, the large portion of the new labs that we have opened, and we're opening up is in the North and East where we wanted to further expand our footprint. And of course, that doesn't mean that in the South and West, we really don't add -- will increase the debt in South and West and where we will increase the bid as well as North and East is concerned. So we are picking up to start with strategic markets and then we are going and opening up the lab and then supplemented by adding more collection tenders and B2B clients, et cetera. So we have not definitely is an opportunity market for us, and we have our plans ready for north in the coming quarters.

Operator

[Operator Instructions] Due to time constraints, we'll take the last question from the line of Sara Kapadia from Sundram Mutual Fund.

U
Unknown Analyst

Sir, if you can talk about what is the percentage of revenue coming in wellness from the focus cities? And how has the growth been in this is in a wellness segment?

A
Ameera Shah
executive

Majority of the revenue may remember when we are calling it wellness. Actually, the product is -- could be wellness or it could be bundling. So this could be a patient walking in for 3, 4 tests for illness, and have been saying that, look, I would prefer a larger variety of tests because I'm giving my blood. So it could be a bundle package or it could be wellness in particular. So it could be either of them. So this mostly we are finding is coming from the focus cities. But also we are now beginning to see an increase from wellness coming from smaller markets.

U
Unknown Analyst

Okay. And has the discount gone up in the wellness segment for you?

A
Ameera Shah
executive

Not really. I think it's about the same. I think depending on CI, we are focused if we are in the core for focus cities, the price for package is the same. But as we are entering into small markets, smaller markets, the prices are obviously lower. Now it doesn't mean that the discount have increased, but the product itself is different. The product is less. It's a test and therefore enterprise because we point for maybe a little bit different than they would be for metro market. So that's why overall, we may find that the RPP for wellness is marginally gone down, but it's not because of increased discounting, it's more because of product mix.

Operator

Thank you very much. I now hand the conference over to the management for closing comments.

A
Ameera Shah
executive

Thank you, everybody, for joining us and discussing with us today.

As we mentioned, we feel very positive about this year. As we have shown that we have had a volume-based growth and we've been a firm to be able to generate those kind of volumes even in the lowest quarter of the year -- we firmly believe that quarter 2 and quarter 4 will continue to be the strongest quarter for the year from the revenue and the profitability perspective. And we sort of stand by our comments and our commitment to get to sort of a similar margin profile as we were at last year. Over the course of the year. Having said that, there will be seasonality, and therefore, every quarter will not be exactly the same.

We believe that overall, the next 3-year journey at Metropolis is going to be a really exciting 1 with not only our core strengthening. We are very focused and clear on where we need to go in terms of the current business. And with the opportunity we really see for metropolis is expanding to a large number of boutiques or distribution all across the country. I'm continuing to build, as we said, strong B2C led growth. But we also see opportunity in the adjacencies in health services and like we said in the bolt-on acquisitions.

So I think as a management team, we are very focused and clear on where we need to go. And we are just at this point, just maintaining the execution to go to achieve operational excellence as well as the numbers that we have committed to ourselves as well as to our shareholders.

So I look forward to engaging with all of you on this journey in the next quarter. And of course, in the [indiscernible] with those of you who we'll end up chatting with. Thanks so much.

Operator

Thank you very much. On behalf of Nuvama Wealth Management, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.