Metropolis Healthcare Ltd
NSE:METROPOLIS
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 503.8
2 288
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Metropolis Healthcare Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Metropolis Healthcare Limited, hosted by Central Broking Limited. 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 future 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. Cyndrella Carvalho from Centrum Broking. Thank you, and over to you.
Thanks, Margaret. Good evening, everyone. I, Cyndrella Carvalho, welcome you all on behalf of Centrum Broking on the Q3 FY '21 earnings con call of Metropolis Healthcare Limited. At the outset, I thank the management of Metropolis for giving us this opportunity to host this earnings call. From the management team today, we have with us Ms. Ameera Shah, Promoter and Managing Director; Mr. Vijender Singh, Chief Executive Officer; Mr. Rakesh Agarwal, Chief Financial Officer. I now hand over the call to the management team for their opening remarks and further insightful discussion on the quarter. Over to you, Ms. Ameera.
Good evening, everyone, and thank you for joining us for the Q3 FY '22 earnings call. I hope you and everyone around you are safe and healthy, and I'm joined today by Vijender, Rakesh and SG, our advisers. The presentation and press release has been issued to the stock exchanges and uploaded on the company site. I hope everyone's had an opportunity to go through the same.Let me start by giving you our thoughts on the quarter that's just gone by. Point number one, we embarked FY '22 with a network expansion plan with a view to deepen our presence across geographies and increase the B2C ratio of the business. Accordingly, we have added 10 labs in about 470 centers in 9 months.Point two, we have posted strong 31% growth -- sorry, we posted strong 31% growth on Y-o-Y basis in our core business, which is non-COVID business, excluding COVID, allied and the government contract. So this is the B2C, B2B core business that we have. Our B2C revenues have also grown strongly over the last few years. In fact, our 9 months FY '22, we have crossed the B2C revenues of FY '21 and are on course to report our highest ever B2C revenue in FY '22. Even in quarter 3, we have grown by 25% on a year-on-year basis.Point number three, we have successfully acquired Hitech and expect synergies to start contributing meaningfully over the next few years as we have got from our past acquisitions. Happy to share that during 9 months of FY '22, Hitech reported INR 76 crores of non-COVID revenue higher than the full year of FY '21 and now on course to deliver its best-ever non-COVID year.Point four, we've continued to focus on improving collection efficiency in our business. And accordingly, we were able to bring down our debtors to 31 days, a measure of a higher quality of business that Metropolis has been enjoying over the past few quarters.And point number five, increasing coverage on our Home Testing business, which has now covered 103 cities and the non-COVID Home Visits revenue is now 22% of our B2C business in Q3 FY '22, which was much smaller, maybe 4 -- 8 quarters ago. All the above points are a result of the sustained focused efforts we have put in building a sustainable consumer-focused scientific fact. We continue to see a long runway of growth for us in the diagnostics industry, and therefore, it's important for us to make the investments to further strengthen our brand, scientific image, test menu, expand our leadership team and on-ground servicing to increase our consumer connect. These investments have led us to dip slightly in EBITDA margins in Q3, along with the deleveraged effects on account of loss of revenue to the large government contract as we had indicated in our previous con call. This is not unexpected and as per our guidance.Apart from lower government business in Q3, price capping on COVID test and unseasonal rains in our large markets impacted the testing volume. In spite of all these challenges faced, we have reported healthy normalized EBITDA margins of 27.5%. That is EBITDA before CSR, ESOP and a onetime acquisition cost. We expect some of the digital and marketing costs that -- to remain in Q4, but expect growth in margins in Q4 on account of higher quarter-on-quarter volume growth in the government contract and the leverage benefits there on. Hence, we expect to close FY '22 at similar levels of normalized EBITDA margin that we recorded in FY '21.Happy to share that we have onboarded a Chief Revenue Officer in the leadership team, who shall identify ways to augment revenue from existing business segments as well as identify new growth opportunities. This is in line with our focus to strengthen our leadership team and the middle management. We will continue to make investments in strengthening our team in a bid to capture market opportunity.Let me now share with you our growth strategy on Hitech. As we have completed the acquisition, our focus now will be on time bound into the integration of Hitech within Metropolis to extract synergies on revenue as well as on costs. On the cost front, we expect to see a raw material procurement on the back of increased scale of business. Rationalization and infrastructure, manpower logistics and usage of Metropolis IT will lead to optimization and operating expenses. This will eventually improve EBITDA margins of Hitech by 3 to 4 percentage points as the integration continues.On the branding front at this point, we have decided to go with a dual brand strategy in Chennai and a single brand strategy in the rest of Tamil Nadu and Karnataka on the basis of which brand can pull maximum customers. This will lead us to minimalize the cannibalization of business in Chennai and at the same time, expand the addressable market size for both Metropolis and Hitech. On the business front, we are planning to launch 100 centers in FY '23 for Hitech. Further, our efforts are to increase the wellness contribution of the business which currently improve Hitech and has room to expand to the level that Metropolis has of 8%.On the Hitech performance, we are pleased to share that the revenue is INR 95 crores in 9 months of FY '22 and surpassed non-COVID revenue of '21. This trajectory gives us the confidence that Hitech will close '22 as the best year possible.Let me quickly touch base upon our thoughts with regards to digital and marketing efforts. We are investing in a new tech stack behind the scenes to ensure that the entire ecosystem, which engages with Metropolis is automized. This should result in better control over operations, faster turnaround time, higher consumer engagement, thereby strengthening the brand profile of Metropolis. We are not only working on automation and digitization of Consumer Connect, but also our suppliers, business partners, including doctors, franchisees and the third-party patient service network. This will require us to make some upfront investments, which has happened in Q3 and partly in Q4, as we remain confident of the sustained returns over a long period of time.Look at it like this, the efforts in terms of on-ground coverage, brand-leading initiatives and technology spend on back end we engaged in FY '16 to '19 period yielded the benefits in the tough period of '20 and '21. Not only were we able to run operations, but we were able to penetrate faster in terms of home visits services [indiscernible] in a period which is extremely challenging in terms of pricing, intensity of different variants, higher-than-normal volume than availability of skilled technicians and management team. The investments of Q3 and Q4 are somewhat similar to creating that backbone for the next level of growth that we envisage in the business.To summarize, our near-term objectives will be as follows: Number one, execute a time-bound integration of Hitech into Metropolis to extract maximum revenue and cost synergies. Number two, continue the network expansion as per the plan of 90 labs in 30 months to penetrate -- and 1,800 centers to penetrate newer geographies as well as strengthen our brand in existing geographies. Invest in digital and marketing initiatives and expand the home visits coverage, which will eventually drive our B2C growth and deepen the leadership and middle management talent to focus more on prior year.Before concluding my part of the speech, I'm pleased to share that the Board of Directors have declared an interim dividend of INR 8 per share. That's all from my side. Vijender now will take you through some of the operational parameters.
Thank you, Ameera, and good evening, everyone. Let me talk about the key performance metrics which we track for our progress. The first is the revenue share of B2C business. B2C business has been one of the core focus areas of Metropolis and we have steadily build progress on that front. As also mentioned by Ameera, we posted 25% year-on-year growth in B2C non-COVID business in quarter 3 FY '22.Our revenue share of B2C business is focused still for non-COVID business stood at 59% in 9 months FY '22. Our near-term target is even 65% contribution. Our investments in digital marketing and scaling up home visit services are with a view to achieve this target. I said this is a focused B2C player, will also able to increase the B2C business, especially in the cities Chennai and Bangalore.Number two, specialty test contribution. Metropolis has always adopted the science-first approach in the business, which has led us to become -- to go to brand for doctors when it comes to recommending specialized test for the patients. Specialized test on higher realization enhances profitability and creates a differentiating sector for the company. Our specialized test volume and revenue contribution however, has fallen in quarter 3 FY '22 year-on-year due to lower volume from the government contract. This, as we indicated, is a one-off event and as volumes return, will normalize in quarter 4. Going ahead, we will continue to focus on research and development to introduce newer specialized test in order to provide value to our customers.On Home Visits testing business. Home Visit testing is 1 of the key growth verticals for Metropolis. FY '21 has been an extraordinary year for the Home Visit business as people opted for home visits considering the safety and convenience for COVID as well as non-COVID. In FY '22, the growth continued from home testing as well from the centers as lockdown restrictions were relaxed. Overall, revenue from home visit dropped in quarter 3 FY '22 due to COVID pricing capping. However, the home testing for non-COVID business remain strong in 9 months FY '22. Home Visit revenue for non-COVID stood at INR 170 crores as against INR 260 crores in the whole of FY '21. At current run rate, we will post strong growth in home visits revenue for non-COVID in FY'22. We believe the growth will come from centers as well as home visits for us and hence, our only channel strategy, we believe, is the right way to move ahead.Our home visit coverage has now been extended to 103 locations in December 2021 as compared to 89 in September '21. On digital initiatives, we have ramped up the digital initiative at Metropolis to make us future-ready and create an all around digital ecosystem for all our customers, partners as well as doctors.Let me highlight a few of the initiatives we have taken. Number one, we have launched e-commerce capabilities on a web platform that will allow Metropolis the capability to connect with other inter players. Number two, we have built a multi-channel interaction capabilities across website, applications, whatsapp and chat for our customers. Number three, for our partners, we have built a road map to scale up the home visit business. Number four, we are digitizing the operational process to improve efficiency and turnaround time. Number five, we are providing enhanced capabilities to retail customers like appointment, bookings, sample tracking, et cetera.As a result of these efforts, about INR 72 crores of revenue came through lead generated via digital medium, which is about 8% of 9 months FY '22 top line. Our target is to reach double-digit revenue contribution through digital leads by end of FY '22 and increase it significantly over the next 3 years.Let me now come to operational numbers. I'm pleased to share that we recorded strong 22% growth in patient volumes to 3.3 million for quarter 3 FY '22, while number of tests increased by 24% year-on-year to 6.3 million in quarter 3 FY '22. However, the revenue per patient for non-COVID business dropped by 5% year-on-year to INR 911 and revenue per test for non-COVID business dropped by 9% year-on-year to INR 423. This was primarily on account of consolidation with Hitech, which has lower revenue per patient and revenue per test as compared to Metropolis as they cater to the value end of the market.Lower volumes from government has also had a negative impact on this, which is expected to reverse in quarter 4. Including COVID, revenue per patient has decreased by 13% on a year-on-year basis to INR 898 and revenue per test has decreased by 14% on a year-on-year basis to INR 462. As COVID test prices were much higher last year and were capped down during this year. Our revenue profile among focused cities and other cities as follows: focused cities, 5 cities including the city and peripheral around metropolitan region contributed 64% to the total revenue in quarter 3 FY '22. Seeding cities, 8 cities, including the city and peripheral area around the region contributed 18% to the total revenue in quarter 3 FY '22. Rest of the other cities contributed 19% of the revenue in quarter 3 FY '22. With respect to geographic distribution, revenue contribution from West region was 56%. South contributed 25%. North contributed 7%. While rest was contributed from East and international locations.To conclude from my end, our focus going ahead will come on ramping up the B2C business on the back of investments in digitalization, marketing and expanding the Home Visit services locations along with the planned network expansion. On the acquisition front, our efforts will be focused towards the smooth and quick integration of Hitech operations with Metropolis to drive the synergies. That's all from my side. I will now ask Rakesh to take you through the financials. Thank you.
Thank you, good evening to everyone on the call. Let me give you a snapshot of our financial performance. As I mentioned earlier, the Hitech numbers are consolidated with Metropolis with effect from 22nd October, the day the acquisition was completed. Quarter 3 financial year '22 revenue stood at INR 293.1 crores as compared to INR 274.7 crores in quarter 3 financial year '21, up by 7% year-on-year. Hitech contribution stood at INR 19.6 crores in quarter 3 financial year '22 revenue. Non-COVID business contributed 83% of the revenue while COVID RT-PCR contributed to about 17% of the revenue during quarter 3. Non-COVID revenue stood at INR 244 crores in quarter 3 financial year '22 as compared to INR 224 crores in quarter 3 financial year '21 up by 9.9% Y-on-Y -- 9% Y-on-Y. COVID RT-PCR revenue stood at INR 49 crore in Q3 financial year '22 as compared to INR 51 crores in quarter 3 financial year '21. As COVID test prices were significantly lower this time compared to last year, same period, even though COVID volume grew significantly in the same period.EBITDA before CSR ESOP onetime accretion cost today INR 80.5 crores in quarter 3 financial year '22 as compared to INR 90.2 crores in quarter 3 financial year '21. EBITDA margin for the same stood at 27.5% in quarter 3 financial year '22 as compared to 32.8% in quarter 3 financial year '21. The EBITDA margin drop was led by investment of approximately INR 17 crore in the following: Number one, investment in digital initiative, which impacted margin by 2.9%. Investment in network expansion, which impacted margin by 0.5%. COVID test pricing drop impacted margin by 1%. And upfront investment in manpower at corporate and front-end concerning the growth aspiration of the company impacted margin by 0.9%.Accordingly, reported tax stood at INR 41.2 crores in quarter 3 financial year '22 as compared to INR 58.6 crores in quarter 3 financial year '21. The PAT was also impacted on account of higher financial costs due to Hitech acquisition, which has been reached from INR 1.7 crores in quarter 3 financial year '21 to INR 5.8 crores in quarter 3 financial year '22. Coming to our working capital ratios, our debtor days have significantly improved from 41 days in March '21 to 31 days in December '21. Our overall working capital days has increased by 4 days in March '21 to 13 days, in December '21 on early payments to creditors.OFC to EBITDA stood at 77% for 9 months financial year '22. Cash and cash equivalents stood at INR 231 crores as of December '21. This includes payment of INR 336 crores for Hitech acquisition. Total debt down for the acquisition of Hitech was INR 300 crores, of which we have already repaid INR 15 crores. Hence, current debt stood at INR 285 crores. We expect to pay the external debt for acquisition within 3 years timeline frame. That's all from my side. We now leave the floor open for Q&A.
[Operator Instructions] The first question is from the line of Pooja Bhatia from Morgan Stanley.We'll move to the next question, which is from the line of Rahul Agarwal from Incred Capital.
First question, essentially, Ameera was -- if you could help me understand the non-COVID patient volume growth. So I'm looking at a number of 2.42 million, which is basically the patient volume for 3Q FY '20. Any analysis on a 2-year CAGR basis, excluding Hitech and excluding all COVID allied, any like-to-like number could you help us understand? What are CAGR growth we're looking at on non-COVID please? That's my first question.
Rakesh, you want take that?
Yes, you can go ahead with your second question. I think we'll just quickly come back on that. Can you ask the second question?
Okay. So second essentially is on bookkeeping. Could you help us understand some balance sheet headline number for Hitech just before this consolidation happened from 23rd October -- 22nd October, like network, net block, cash and goodwill recognized in Metropolis? That's my second question.
Yes. Sorry, I was looking at the numbers. So can you just -- sorry, my bad. Can you repeat this the 2-year -- from a volume point of view, are you asking, we are growing around 11% CAGR from '20.
Okay. This is like-to-like, excluding Hitech, excluding COVID allied, right?
everything. This is absolute like-to-like.
Okay. Cool. And on the headline number for Hitech network, net block cash and goodwill recognized please?
Yes. So basically, at quarter 3, we are not publishing our balance sheet. So these numbers are been firmed up, and we are in the process of closing these numbers with our internal, external auditors. So I think this number will get firmed up somewhere in this month. And in quarter 4 results when we published, we will give you all the stake up of the cost which has been incurred and the items where it is going.
Okay. Specifically, I was looking for -- if you would help in us 1 number on depreciation and amortization, whatever goodwill has been created in Metropolis books, the number you were charged to the P&L in Q3. Is that possible to share?
So basically, there is a small amount, which will be charged to the P&L because the goodwill as per the regulatory requirement is not subject to any depreciation. So I think that is an information I will give you. But in quarter 4, you will get a further information about it, but the amount to be charged to depreciate will be very small amount.
Cool. And just one last request, not a question, but essentially, there was very little time gap to analyze the presentation when it uploaded to stock exchanges and within this call. If you could just have like an hour of gap between these 2 things, it would help us better to analyze and you must take a meaningful question. Just a request.
Valid point. Point taken.
The next question is from the line of Praveen Sahay from Edelweiss Financial.
First question is related to the revenue on the [indiscernible] there is a deep -- especially in this [ saving city ] revenue. So it is largely to do with the COVID number or non-COVID volume has also impacted their revenue?
So there's a breakup of multiple things. The most important thing is, number one, is that Q3 is always the weakest quarter in the year. So actually, if you go back and look at the history of the industry, not only Metropolis, usually, you will find Q3 as the weakest quarter, even pre-COVID. Volume dropped because as festivals are there, Diwali, Dussehra and other festivals, we always see the less number of patients. So that's number one.Number two, we had actually guided in our previous con call that we are expecting lumpiness in our government contracts in Q3 and that there will be a sharp decline in volumes in Q3 in government contracts, only because it's the quarter-to-quarter thing, nothing else. And therefore, that has obviously impacted in Q3 in terms of volume and in revenue. Otherwise, the revenues would have been significantly more. The third thing is the COVID ally test, which obviously had us COVID comes down, the COVID ally test come down. But overall, if you see on the non-COVID sheet there is still a positive movement.
So is it specific to the seeding city versus your focus and other city? Because there is a good disparity between the 3 different geographies. Sorry, I'm asking this government contract is largely in the seeding cities or...
No. The government contracts usually span the whole country, but usually tend to be in smaller markets. So actually, you'll probably find a bigger difference in the other cities. So usually, this becomes a large amount in the seeding and the other cities. And therefore, you may see some change of contribution in those 2 geographies.
Okay. Okay. And next question is the revenue per patient. As in the presentation you had mentioned for the Metropolis excluding Hitech, it's a INR 930. So in that sense, the revenue per patient for Hitech is much lesser than the Metropolis? And if it is the case then what's the plan to improve this?
Each business has its own positives and negatives. So I think, yes, number one, the Hitech revenue per patient is lower than Metropolis because Hitech is more of a lab that does more routine testing. And Metropolis have been known as a large amount of specialized testing. Now this creates the opportunity that we are able to go back to Hitech customers. And actually now be able to educate them on specialized tests and be able to increase the amount of specialized tests from those customers as well. It also gives us the ability to be able to drive wellness packages more in that market. And both these actions could result in a higher revenue per patient in time, but obviously, that will not happen within the next 1 or 2 quarters. But I think over the next few years, we will definitely see -- we believe that we should be able to see the revenue per patient moving.
Correct me, if I'm wrong, is it in the range of around INR 550 to INR 600 for Hitech?
Hitech revenue per patient is up approximately INR 900 in Q3, whereas the revenue per patient for Metropolis is around INR 932. so overall, the revenue per patient is coming to INR 911, including Hitech. So if you look at MHL, we have leading by 3% year-on-year on revenue per patient basically because of the government contract revenue [indiscernible].
And the last question is related to the employee expenses, which has increased for the quarter. Is it because of the Hitech?
Basically, the employee cost increased from a percentage point of view on contribution is because of the revenue being a little bit down this quarter. That is one reason. And obviously, as we mentioned in our presentation and also in our speech that we are investing it on the front end and the leadership team. So that I think cost is coming upfront. But obviously, we will see benefit of it coming in the next quarters and time to come.
[Operator Instructions] The next line of Shyam Srinivasan from Goldman Sachs.
Can you hear me?
Yes, we can hear you now.
Just first, I'm looking at Slide 25, Hitech strategic initiatives. So I think in opening remarks, it was mentioned we have doing the dual brand strategy, but slightly different with a single brand in Tamil Nadu and Karnataka, exception is Chennai. So what's the thought process here? How do we manage this kind of integration? And also October 22 to now, how has your experience been when you look at Hitech, how it's been performing relative to your expectations while you're doing your due diligence?
Thanks for question, Shyam. So let me start by answering the second question first. I mean, it's obviously been about 3 months now. And obviously, we've been busy in not only in closing formalities and also the basics of when you do an acquisition in terms of making sure that your compliances, your billing, all of your bank statement, all of those things are getting completely aligned. So all of that has been done.We have also initiated some of our synergy plans on the cost side in the first 3 months. And those are on tracks. We had already made a very detailed integration plan pre-acquisition of planning what we will do in the first 3 months, 6 months, 9 months, et cetera. And as of now, for the first 3 months, we are on track with our plan. There have not been any surprises. at this point of time or anything we have discovered post entry because I think our diligence and spent time on the understanding of the business is fairly good. So that's on that piece.On the second piece, which is on the question around the strategy of the brand around it. So the idea is the majority of the business of Hitech is in Chennai. And as we have already mentioned, Metropolis is the #1 player in Chennai and Hitech is the number 2 player in Chennai. And the idea is that there is a different position that both these brands have in terms of pricing, in terms of the kind of testing they do. And what are the strengths in the mind of the consumer and the doctor. And the idea is not, at this point, is just to put everything together. But the idea is to leverage the strength of each brand in the market of Chennai. So together we continue to have the leading market share in Chennai, which is close to now, we believe about 25% to 30%. So the idea is to expand both and that's what we will be doing for the next few years.On the back end, however, we are looking at opportunities to say how do we not duplicate costs and how do we non-duplicate capabilities in both brands in Chennai. So while on the back end, we are working at synergizing, on the front end are continuing to expand both as independent bastion. As far as rest of Tamil Nadu and Karnataka, in both these markets, we have found rest of Tamil Nadu, especially, we found a good overlapping of cities as well. And we felt that in middle of these markets, do we have enough of a volume in either brand to just continue to brand and it made more sense to actually bring the 2 together and have 1 brand strategy that we go ahead with. And we found that the positioning and the pricing was not very different either and therefore, it would be easier to do. On Karnataka and in ROPM, we are going with a single brand strategy. While in Chennai, for the time being, we are going with the dual brand strategy.
Got it. Very helpful. Just in the INR 95 crores 9-month Hitech, how much is coming from Chennai?
I don't have an exact number for you, but the majority would be sort of coming from Chennai. I think maybe about 70%, 75%, 80%.
Yes, absolutely. 70% to 75%, between 70% to 75%.
Got it. Got it. Last point on this particular thing. Margin is expected to grow by 3%, 4% for Hitech. So is it the combination of things that you just said -- or is there more on the cost that we can do in terms of synergies? Or can you just help us explain how we improve margins? And what is current margins for Hitech?
So traditionally, Hitech has had sort of pre-acquisitions, the margins were close to Metropolis margins around the same 28% approximately with similar margin profile. What we often find in the acquisitions of smaller players or regional players, they have obviously not invested as effectively in technology and quality of teams, in processes and systems. And therefore, usually when a acquisition is done, the buyer does need to make certain investments in making sure that not only compliances, but also processes and systems are invested in to handle scale.On the flip side, there are some cost savings efficiencies and levers which can be pulled in a short time frame that also gave some cost savings. So we have to look at the net-net of this when we are talking about sort of margin expansion. And the third part is obviously, as we continue to expand when we hire teams and we hire -- and we build centers and all of that. Initially, it would be investment rather than immediate revenue. And therefore, that will also play out. And which is why we said that we believe that there is a margin expansion. But we don't want to, at this point, push ourselves to try and achieve that margin expansion in the next quarter because the focus at this point should be more about putting the right processes, systems under revenue and growth rather than just saving costs. And so we believe that we can get to these margin numbers soon. And that's the goal.
The next question is from the line of Pooja Bhatia from Morgan Stanley.
I'm sorry, I got dropped out. I'm not sure if my questions have been asked already. So my first question is on network expansion, and there are 30 labs and 600 centers for this year. It looks like a lot of these have -- in the pipeline have been bunched up to Q4, so is it really due to COVID or are any changes in negotiations in the term?
So actually we only announced the strategy Pooja in July sometime. So really, it's been only 6 months of energy and efforts by the team. And very surprisingly, we've already managed to do about, I think, 8, 9 centers in this last 6 months. And I think there are another, if I'm not mistaken, about 10 centers planned for Q4, which are already in progress and getting launched as we speak.For this year, we should be able to grow about 20 labs and the estimation of about 500, 600 centers, collection centers. And next year, the idea would be to do about 30 labs and similarly around 600 centers and then the balance in the third year period. I think we are very much on track as far as our plan. Because obviously, we built a new team to execute these. So we never expected that we would do 30 labs in the first year. We always planned that we would do about 20 because we only had 9 months of the year to actually execute them.
Understood. And how about the terms in the agreement generally revenue share, profit share?
These are a combination of greenfields and what we call lab only. The greenfield is obviously just our own lab, so we are paying rent and starting labs in these locations, so that's giving no revenue share or profit share. In the lab and lease models, these are all long-term agreements where there is a revenue share on the existing business that they hand over plus a lesser revenue share on the new business that's generated. But all these are obviously long-term contracts.
That's helpful. On Q4, generally, seasonally, it is a better quarter. So this time -- could it be the thing being that there is the Omicron update. So how is the COVID business done so far in the first few days of this Q4, both on the acute and chronic side, routine and ...
Yes. I mean, like you rightly said, obviously, during the wave, obviously, the non-COVID business does get tentatively impacted, and that's obviously what has happened in January. But this time, Omicron being obviously a very easily transmissible but not a very severe disease, I don't think it's been as sort of deeper shock as it was in a couple of the waves before. And therefore, I think quarter 4 should still be a fair quarter. I think it's still a bit early to sort of comment on whether it will be very good or not. I think it will be too presumptuous to mention that at this point. I don't know, Rakesh, if you want to add anything to that?
So January, obviously, we have seen more or less normal and as January was also impacted by COVID, third wave, so we have some -- seen some fluctuation in the numbers. And obviously, it's again too early as rightly said by Ameera, but we need to really get more deep into February to understand the whole quarter. So that's how I will put it.
Okay. And last one from my side. On the digital front, is the cash burn 40 million to 50 million a quarter? Is this number correct? And how does this go going forward?
Rakesh, do you have a specific comment on that?
Yes. So basically, we -- this is actually not -- [indiscernible] because we are investing this money into our digital initiatives. So we have invested some INR 4.5 crores extra in quarter 3 and -- which are giving us good results as we are getting more leads. And on that basis we will see more conversion happening in future. And obviously, revenue increasing on -- not on a trade marketing but on an organized marketing. So I think that, that is how we are looking for future that we are investing this now to bring people on board and then maybe these people will then hook to us and then keep coming to us So that is how we are looking at it. So from an investment point of view, we have done this INR 4.5 crores extra investment in marketing. And this will continue to some extent as also guided by in the earning call that we will keep investing in some amount every quarter so that we can get more and more leads and more and more customers into our digital platform.
And I think some of this is, while, of course, a lot of it is marketing, but some of it is also building the platforms, the cost associated with doing digital in general. So whether some of it goes into the cost of technology, some of it is the cost of the people, cost of setting up new processes, et cetera. And of course, a lot of it is digital marketing.
Operationally, how we see our website used in the last quarter. Any update on that? Is it growing on?
We put a slide actually in the presentation on the traffic, et cetera. We are seeing definitely a growth quarter-to-quarter as far as the website traffic as well as the increase in the digital itself.
I think you can just see this 9-month update we have already given, so it is good 76%increase in digital users. So we'll increase our digital users coming to our website as it's increased with 76% and there is a 297% increase in website views in 9 months. So this is the kind of increase we have seeing in the numbers of visitors in the website.
And does this imply double-digit contribution on the revenue front by Q4?
Yes. So we are looking -- seeing 8% -- 8.5% of contribution to the top line from digital, which is increasing every quarter. So we are expecting that this should go to the double digit by end of this year, and maybe we step up the number again much higher in the next year.
[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Financial Services.
Just again on the margins side, like considering the initiatives on the digital front, plus considering the aggressive addition of labs as well as addition of the manpower, how do you see the margin profile and plus at the same time, you have the Hitech synergy as well parallelly going on? So how do you see the margin profile over, let's say, next couple of years?
If you look at pre-COVID, our margin was approximately 27-odd percent, and it was during COVID of the year of FY '21 and '22 where the cost increased more significantly, largely because of the additional volumes that were coming in through COVID into the existing infrastructure. There was also the other reason was that we worked on a lot of cost efficiency on the back end, and we also managed to save a lot of costs, which were -- are very sustainable in nature. So overall, I think the actions that we took in '21 and '22 have been very helpful to expand the margin. And we are now using those same savings to actually really reinvest in the business to expand for the next growth because at the end of the day, in business, there's always going to be a choice to say that look, should I focused on revenue at the point of time, should I focus on margins at this point of time. And while we focused on margins in the last couple of years, we think it's time now to refocus on revenue without really compromising margins significantly.So like what are the things? There is obviously also a lot of competition in the sector. And therefore, it's important that we build out the digital space, it's important that we continuously keep advancing our services towards excellence, makes much easier for the consumer and at the same time, expand our footprint all across. So I think -- generally, I think that's the direction we are going in. And I think the profit margin of '21 and '22, as we had always said, was an elevated profit margin that we see going forward, it will be at a more normalized level as we have seen on a more consistent basis.
And secondly, on the e-commerce side, while we have our own digital platform, but -- are we also thinking of providing -- I mean, as a portfolio or as a package of service on the other website in terms of the -- as a marketplace per se?
Absolutely, we are already tied up or tying up with players in the health ecosystem and participating in the digital growth on a phone. So that is a part of the journey as well on the digital side. It's not only about what consumers come to us, but it's about how we can partner with others in the health ecosystem. And if they are generating consumers, how we can support them from a pathology and diagnostics aspect.
The next question is from the line of Madanagopal Ramu from Sundaram Alternate.
If I look at the non-COVID business for the current quarter and if you remove -- you mentioned that digital contributed 10%. So probably it would have come year-on-year basis. The base business seems to have been flat almost. Is there any loss of market share due to the new age companies coming in and competing with us, because at any point, we would have expected at least a mid-teens or low teens sort of growth in the business to continue, right?
So I think there are few things happening in the industry, right? Firstly, I think digital and offline are all obviously going to feed off each other. Because finally, easily anytime you see the industry has come together, it's never going to be completely additional. I mean it's the same patient who's now also exploring digital as a means to -- when we say we are acquiring a consumer to digital, all -- it doesn't mean that it has degraded our offline base because it's all the same. I mean today, if somebody wants to do anything go into a store or go to a lab, the first thing they do is google it. And so okay, what's the closest location to me and I go and click there and book an appointment online and I'll walk in. Now we would count that as a digital acquisition because it comes from our website. But it could have been already a patient which has already been coming to us offline, right? So we don't see these worlds are so separate. These are worlds that are all going to get completely infiltrated.So I think we are not internally separating them and saying that this is -- the offline business is flat and online business is good. So we would as you to also look at them as a more integrated model because that's how it's going to be in the future. And that's how our lives are today actually. So I think overall, therefore, we don't track them really separately. The only reason that we are even talking about the KPI of acquisitions to digital channels is just for our own decision to say that we are investing into digital to make life easier for the consumer. And are we getting increased traffic volume through the digital channel as well.And of course, as we understand that the more we are able to move through the digital channel, actually, in many ways, it reduces the administrative cost that -- it goes into catering to a patient on certain things, right? You can reduce your call center, you can reduce your other health and administrative cost if people are digitally engaging with you. So I think the tracking is more for that reason rather than separating them from a revenue perspective.
No. Actually, that's -- the question was that, like with these digital initiatives and investments into them, and we are seeing also traffic coming through. But that is not leading to any superior growth than what we would have probably seen in the business, that's what is worrying. That's what I wanted to ask.
Look, I think the question is what is the benchmark in the mind, right? And I think that the benchmark clearly cannot be the digital sourced company because they follow a very different form of acquisition of customer. So if tomorrow, for example, we had unlimited funding and no worries about losses, it will be very easy to scale up the business because you can go and buy revenue. But if you want to do it in a manner where you are still making profit and you still are getting a customer who's sticky then obviously, the growth is never going to be at sort of 50%, 70% number.So I think really the question is about choosing strategically the choice saying that even though we are on a digital platform, we want to acquire customers that are sticky, that are willing to pay. And there are not just coming to you because you're showing [indiscernible]. And so that's not the strategy that we are following. And therefore, we don't expect to see crazy growth just because it's the digital channel. Because your way of attracting the customer is still disciplined and good quality, right?
Sure. The second question is on the Hitech. I don't know whether you mentioned this with -- what is the current utilization level for their existing labs?
I don't think we have that number today. But if the question is more around, does it need a lot of CapEx, so does it need a lot of expansion and capacity, the answer is no.
My question is more about -- is there a larger scope for utilization? You have mentioned it better lab utilization. So just want to judge like how much of capacity is available.
So we don't have the test wise capacity utilization. I think that comment comes more from the fact that the variety of tests we've done in Hitech is quite good. But the volume of test is not proportionate across the different tests. So there are certain types in which the volumes are very high and there are many tests in which the volumes are very low. And so therefore, there will be different levels of capacity utilization for each test, but we don't have a test by test today.
Okay. In the same slide, we have mentioned the margins are expected to grow 3% to 4%. This is for Hitech is what the target is, right?
That's right. That's right.
Okay. So the benefits of adding new centers and the labs that we are doing probably as the another caller also asked you, probably it happened more towards the second half of the calendar year. We will see those benefits coming through over the next, say, 1 year because I understand these labs are not immediately going to throw big volumes. It takes time, right? So...
So the labs we have set up this year, we'll give obviously some benefit next year. But like you rightly said, I mean this is more about setting -- you're feeding a market and that will help you over the next sort of 3 to 5 years to 10 years, right? And because we are entering these new markets completely so there will be obviously some revenue pickup, but considering the volume will be small even after 20 new labs, it may not impact your overall numbers in a drastic way. So I think as we do 90 labs over this next -- in 3-year period in 1,800 centers, together with that infrastructure is completely built, it will obviously add a good revenue pickup for the next few years. But obviously, just the 20 labs and 600 centers may not give you that overall big kicker because the volumes will not be significant.
I know we should start picking any benefit of those from FY '24 probably, which is to have a meaningful number at all, if it does?
Yes. I mean the benefits will obviously come from year 1. But the question is on what are the assumptions in each year. So I think maybe we can come back to you guys with what are sort of the broad historic trends that we are seeing. One thing which we are clearly seeing is that we're doing this in a very focused manner. We are able to see a faster breakeven than we used to see in the past. So in the past, when you to start the greenfield lab, one we had maximum done only 5, 6 labs ever in the history of Metropolis in a year. And we've already done, obviously, like we said in the last 6 months, we've already done 8, 9 and there is another 10 coming. So that would be the fastest escalation in opening of labs. But more importantly, the way they are being done, the compliance, quality, standardization and the breakeven, we'd expect to be achieved much, much.
[Operator Instructions] The next question is from the line of Rahul Jeewani from IIFL Securities.
Can you please quantify the impact which the lower government business had on our overall volumes during the quarter. So we indicated that our non-COVID volumes on a like-to-like basis have grown 11% on a 2-year CAGR basis. So what this number could have been if the government business was not impacted?
We are not giving the breakup of all the segments at this point of time for competitive and confidentiality reason. So as we mentioned, the core business, if you keep aside all the other pieces, is still doing well and it grew at a 25% CAGR.
Sure, ma'am. And with respect to the government business, do you expect this business to normalize fully in fourth quarter? Or would it takes us a few quarters before the business stabilizing that we ....
Yes, it has normalized, I think, the end of January.
Okay. Okay. And with respect to some of these initiatives or investments on the digital and the leadership team. Do you think -- or what quantum of these investments could sustain going into next year FY '23? And you have guided that the company at this point in time is prioritizing revenue growth over profitability. So going forward, can we see because of these initiatives as well as the organic network expansion plans which we have, our revenue growth going forward could be higher than the mid-teens, which we have delivered in the past?
I don't think we are at a point to be able to give guidance at this point of time on revenue and profit. What I can tell you is 2, 3 things. One thing is, as we said that the market in general is obviously getting more competitive. It has been for the last couple of years. I think with COVID, a lot of new entrants, a lot of new players on the tech side as well as on the offline side. And therefore, it's very important that as leaders in incumbents, they continue to up the game, not only from a talent perspective or service perspective, you have to make sure that the moat around the business is very strong. So we are doing that because that's what's needed to go from the business perspective in the short term and in the medium and long term.Second of all, the point I made about margins was only about saying that FY '21 and '22 were anomaly -- the very high margin because of all the things we had mentioned before. And these margins are obviously not going to be sustainable going forward, but our attempt is going to be to make sure that our pre-COVID margins which were also extremely healthy is what we try to sort of sustain and continue to maintain. So I think it's -- the idea is not to really compromise margins in any very significant way. But the focus is to say how do we continue to make customers delighted, happy, excited in the short and medium term? And how do we put the ingredients in place to drive the revenue? Difficult to comment at this point of time as to what the revenue will come out to be because there are a lot of moving parts also in the industry.
Okay. But on the margin side, you are saying that despite these incremental investments, we should sustain our pre-COVID margins?
Yes, that's what we are attempting to do.
And do you think that this 300 to 400 basis points of margin improvement, which we are targeting from Hitech, that can help us to improve our overall margin profile despite these incremental investments?
Well, 300 and 400 basis points on Hitech will obviously mark a huge increment on MHL overall because Hitech itself is not a very large percentage of Metropolis, right? So overall, net-net, we have taken the benefits expected from certain areas and the certain costs and investments. And therefore, we've said that keeping in mind the balance of certain things and where we have to invest, the benefits and the costs, we think that we will -- the goal will be to try and sustain pre-COVID margins.
The next question is from the line of Sayantan Maji for Credit Suisse.
I have one question. So when we say that we plan to launch 100 centers in FY '23 for Hitech so this is quite a cost expansion. So where are the center coming up? So will it be in Chennai? Or will it be in the other markets? And secondly, will it help in increasing the growth trajectory of Hitech, which has been at a high single digit, if you look at on a 3- or 4-year basis?
Vijender, you want to take that?
First of all, these 100 centers could be across Tamil Nadu and this includes Chennai peripheral markets and rest of Tamil Nadu.
The next question is from the line of Anubhav Agarwal from Credit Suisse.
Sorry for two of us asking questions. Just the clarity I joined call a little late, but that clarity, employee costs which increased by INR 10 crores per quarter. Is it -- how much of it would have come from Hitech integration? Can you talk about that?
Rakesh?
So yes. So we will give you a bit verification right now. We are -- so the -- out of INR 10 crores, I think, almost 40% increase is because of the Hitech piece, I think around INR 4 crores. And rest of the [indiscernible].
Okay. And this INR 4 crores to INR 4.5 crores that you're spending on digital, first of all, a very basic questions. So far as a CapEx, how much you invested for this digital initiatives so far? And so how much is your CapEx so far? And how much is the impact in the P&L from the digital initiative? Can you talk about both the numbers?
So CapEx number, I think we are still work in progress for sort of things happening. So we will form up our number in quarter 4, we will give you the exact number of CapEx that we invested in IT, digital infrastructure and all. So just wait for a quarter to come up -- let us firm up the whole number and then we will give you the perspective. From an OpEx point of view, as you rightly said, we have spent some INR 4 crores and INR 4.5 crores in the quarter that includes basically the cost on some consultancy which we have taken for the digital part that also involves the digital marketing cost, which we are incurring and that also involve manpower cost, which we incurred in digital piece.
Can you just talk about the digital marketing that you guys have seen? Honestly, as a customer, when I go for a test, I haven't seen too many ads from Metropolis on a digital platform side is it?
So we are basically more investing into the website where we are getting share of the Google and other sites, which probably we search in them, then we get to know about Metropolis coming in the first place or [indiscernible] coming in the first place, we are getting into that space of searching.
Okay. And when you talk about addition of content staff I think -- sorry, I joined call a little bit. You mentioned our Chief Revenue Officer, et cetera. So what kind of have additions have you talked about -- have you done in the other than Chief Revenue Officer, any more important positions that you want to elaborate over then?
Yes. So apart from Chief Revenue Officer, we have added some more people into our digital space. 2 or 3 people have joined in digital space in this quarter. Obviously, we have guided that we have added a lot of people in the front end because we want to strengthen our sales force in the front-end team. So mainly the investments are going into digital space and obviously, the leadership team we have added CRO and the lab, obviously, we are also strengthening our lab operations. So these are the 3 areas we are building about.
And what's the time line you will be rolling out your app, the new app?
The new app is already ready actually. We're just waiting for approval of the App Store to put it on. They have come up with some new regulations in the past 2 months. Otherwise, everything is ready. So hopefully, matter of weeks.
Matter of a weeks.
The next question is from the line of Akshay Jain from Jain Capital.
I just had one question. How do you look at FY '23 in terms of growth?
How do we look at it in terms of growth? While we will continue to expand the geographical expansion as we discussed, we'll continue to do all the engagement with consumers, continue to build the product line, all the activities that we mentioned we are going to do. And the growth -- revenue growth will always be an outcome, obviously, of that.
Any number that you would like to put to that?
No. I think we're giving a guidance on revenue at this point or ever, I mean it doesn't make sense, frankly. So I think we should go more by sort of looking at what are the inputs and how historically Metropolis has performed. And I think we'll sit with that.
Just another question. What is the estimated CapEx for the next 2 years, a ballpark number you can provide?
Yes. So we -- yes, sorry, do you want go?
No, go ahead. Go ahead, Rakesh.
So in last few years, if you look at your spend from around INR 25 crores to INR 30 crores of CapEx. And you said that this year, we have intensified a bit of our network expansion, we have also invested some in digital. We have also invested some money in the infrastructure upgradation. So overall, we are looking at around 30%, 40% increase in our CapEx, which was earlier in last 2 years. and that is how the run rates would continue in the next 1 or 2 years.
The next question is from the line of Prashant Nair from AMBIT Capital.
Just one question on the digital expenses that you mentioned. So is this kind of a new normal in terms of expenses or do you think some of these will go away after the initial spending?
Yes. So basically, as I said that we are just trying to invest into digital space to have more and more clicks into our websites and get more consumers into our fold. So we will continue investing in it. Maybe whatever we have invested in Q3, maybe Q4, we'll see a bit of a lesser investment overall. But this investment, I think, is something which will go on for some quarters before we get into a situation where we feel that organically, we are now growing really well because of this investment. So I think matter of 2, 3, 4 quarters where we keep investing into digital space and then need to benefit in the coming future.
The next question is from the line of Rahul Agarwal from Incred Capital.
Ameera, just one question on Hitech. So on average basis, I assume that Hitech was a very well run and a mature lab and network utilization at pretty fair levels. The expansion, the growth we're talking about -- so as analysts, we should look at growth purely from a top line angle for Hitech going forward purely because you guys are putting a new center? And that I think is more Metropolis-driven rather than Hitech driven? Or should I look at margin improvements more coming because of cost synergies because you don't need to replicate a lot of stuff which they were doing because they are 2 separate entities. So could you help me understand this thing, please?
See, when you say it was already a mature entity, it was mature from the perspective that the centers that they had started many, many years ago, will obviously now not give superior growth in terms of same-store growth, right? So those would have matured from a aging perspective and therefore, building new infrastructure, new centers is necessary to give sort of the additional growth. And that's what the goal is, is that, okay, while you may have certain level of basic stable growth coming from the existing centers, how do you amp it up and you build new infrastructure to do that. And still that's obviously build new collection centers to do that and still continue to feed it with our existing lab infrastructure, which still have capacity to sustain it.In terms of the margin expansion, it will come from the areas that we will make investment. We make investment in technology. We make investment in manpower because usually these regional labs do not operate at a mature management level. They operate as single operator as the pathologist who earlier on them. So they have no management teams, et cetera. So you have to build the talent to now stable. So there will be investment in management, there'll be investment in technology, there will be investment in upping services and in quality of infrastructure, the front-end services, for example, for patients and obviously, to make sure that everything is compliant and as per system and process of Metropolis and government.On the positive side in terms of the cost savings, the cost savings, a large amount will come from material cost because obviously, we get economies of scale in terms of purchasing and negotiation cost of Metropolis, which can be also applied there. And some benefits which will come by integrating the back-end facility. So that's what we are saying that the margin expansion will come through a combination of these factors.
Right. So essentially, that means that the current infrastructure and the patient network essentially was organically also underutilized, right? Apart from the old age lab or collection centers, maybe even the which they would have opened over last 3, 4 years, it's still not up to the mark. And hence, that is where we can actually come in and get it to par. Is that understanding correct?
When you say not up to the mark, you mean revenue-wise or you mean infrastructure?
Infrastructure-wise, so in terms of you said tech investment, manpower, upping quality of infra, more compliance and hence, you get more scale from the same lab. So basically trying to ramp up the SSSG for stuff which will open like last 3, 4 years, that's what I mean.
No. So the last 3, 4 years, for example, Hitech has not open much anything, right? I mean the total number of centers they have is that approximately 40 centers, of which majority of them would be much earlier. So it's not like there was a big network built in the last 3, 4 years. Every year they were opening maybe 2 centers or 3 centers, right? So therefore, it's not that there is a very young network, which can be now leveraged by amping up the front end, we have to build network. So that's what we are saying is that we'll build the network and then amp up the sales compared to what they were able to do on their own before by one, building the network and hopefully improving the way the sales were attempt, right, in terms of sales excellence. So the revenue benefits will definitely accrue to us but obviously, there is a gestation period in building the network and accelerating the sales excellence to be able to get it.
[Operator Instructions] Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Ms. Cyndrella Carvalho for closing comments. Over to you, ma'am.
Thank you, everybody for joining us today. As we talked about, I think there are a lot of exciting things happening in the company, not only with us transforming ourselves with new technology, new ways of operating through new channels and also our expansion network. Overall, we feel as an organization that's going through a big transformation. And obviously, as we go through a big transformation, there will be a huge number of opportunities and investments that we will have to make sure -- to do to make sure that we are able to really transform ourselves to become the organization of the future. So at this point of time, as we said, while we continue to be very hopeful and work very hard on making sure that we maintain margins at pre-COVID.The goal will be to try and see how do we really compete not only from a short term or long term, how do we continue to focus on revenue and how do we continue to build a good quality business, which is sticky and which really stays with Metropolis in worthy of the brand that we are building over the times to come. It's very easy sometimes to go into markets and throw money at consumers and customers and get quick business. But we believe that's not really the right strategy to grow and the right strategy to grow is to do it in a disciplined, sustainable manner that truly gives us long-term value and make sure that we get the customer who values the brand and, therefore, is willing to pay the price for getting the best quality of report available in the country.I'll leave you with that, and thank you all of you for attending today.
Thank you, members of the management. On behalf of Central Broking Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.