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Metropolis Healthcare Ltd
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Ladies and gentlemen, good day, and welcome to the 4Q FY '22 Earnings Conference Call of Metropolis Healthcare Limited, hosted by an InCred Equities. 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. The statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]
I now hand the conference over to Mr. Rahul Agarwal from InCred Equities. Thank you, and over to you, sir.
Yes. Hi. Good morning, and InCred Equities welcomes, everybody to this call today to discuss the fourth quarter and full year fiscal '22 results of Metropolis Healthcare Limited. We thank the company and the Investor Relations team for this opportunity to InCred to host the call. We have the senior management team of Metropolis with for this discussion represented by Ms. Ameera Shah, the Managing Director; Mr. Vijender Singh, the CEO; and Mr. Rakesh Agarwal, the CFO of the company along with the SGA Investor Relations.
I hand over the call to Ameera now for initial performance highlights, and then we'll get into the Q&A session. Over to you, Ameera.
Good morning, everyone, and thank you for joining us for the Q4 and FY '22 earnings call. I hope you and everyone around you is safe and healthy. I'm joined today by Vijender, our CEO; Rakesh, CFO; and SGA, IR Advisors.
The presentation and press release has been issued to the exchanges and uploaded on our site. I hope everyone has had the opportunity to go through the same.
I'm very pleased to share that our company recorded its highest ever revenue, EBITDA and PAT during FY '22. Revenue increased by 23% year-on-year to INR 1,228 crores. EBITDA, before CSR and ESOP, increased by 20% year-on-year to INR 362 crores, and PAT increased by 17% year-on-year to INR 215 crores.
FY '22 was truly been a transformational year for the industry. While there has been a lot of action and consolidation, we have witnessed landmark M&A deals that clearly indicate the leaders' confidence in the long-term prospects. This is further strongly evidenced by the fact that new players have emerged in this space, whether it is hospital players, large conglomerates, e-pharmacy players, [ PE ] players, et cetera. This is very similar to the phase we witnessed between 2012 to 2016, where a whole lot of new players enter the market, but very few could survive the marathon.
We believe the increased online competition will expand the wellness market by educating customers and good quality customers who value service and quality will naturally seek best-in-class brands like ourselves.
New brick and mortar competition may create competitive pressure for price-sensitive B2B business for the top 100 tests. And our strategy of focusing on specialized tests above these 100, which most existing and new players do not do, will help us. These factors will lead to a faster shift from unorganized to organized whose share today is a near of 15% of the market in our estimate.
In the middle of [indiscernible], we have continued to work on our expansion strategy, which we strongly believe will continue to give us well-rounded growth. Vijender will speak a little bit more around this in his remarks later. In the past few months, with the entry of new players, there's been a lot of discussion around disruption, test prices, its impact on test volumes and revenue growth. The question in everybody's mind has been what therefore happened to incumbents and those businesses all the way it happened in some other industries temporarily. And as we are flooded with these questions and more, I would like to take this platform to explain the industry situation and our strategy [indiscernible].
Let's step back and understand why the health care industry is not like any other industry. In health care, it is important to understand the trust, science and consistency of reports and test play a very critical role. In diagnostics, the doctor's medication to a patient is based on the basis of a scientific correct lab report. Also, we have to remember that in the illness space, tests are not commoditized. A liver function profile at1 lab is not the same as another. So a simple price comparison difficult on the ingredients are not the same.
Doctors understand these nuances, although patients don't. And this is where we believe pricing disruption will be lower in the illness space because doctors who are the biggest influencers in diagnostics value chain are more concerned about the quality of the lab and the consistency of the report rather than only pricing, especially in situations of moderate-to-critical illness.
And therefore, it is an important for me to discuss the evolution of Metropolis in the last 40 years to help you understand actual value proposition.
Metropolis is a science-based diagnostic lab chain in the illness space and a pioneer of specialized test. We started as a specialized test lab and are slowly and steadily earn the trust of doctors over the last 40 years. We are the largest pathology lab chain in the country today with regards to our test menu. And that is a big differentiator in the minds of the doctor and the patient. So that when they get pricked by a needle, they're able to get all the tests that they need at 1 shot. This, in our opinion, is challenging to replicate and any other player who wishes to scale up will have to go through the same process as ours.
Discounts can give you a bump in revenue on the short-term basis, but the real question is, are you really creating a consistent, quality focused scientific approach to diagnostics for the doctors to recommend your brand to patients.
Having said this, we also believe that there is a segment of business that will be influenced by low prices. And this is the segment which has a low influence by doctors, which is not illness but wellness based. The competitive intensity in the budget wellness space, which is the low price, low revenue per patient wellness space will increase and create margin pressure for people who are in that space. And therefore, we, at Metropolis, have stayed away from the budget wellness segment of the industry and have rather focused on the premium wellness segment, which where scientific education and the right education to the customer on matter.
Our wellness revenue per patient is 3x the budget wellness space and continue to grow at 50% in FY '21, '22 despite of competitive intensity.
Let me now talk about how we have insulated ourselves from disruption. There are 3 types of customers who opt for a test: acute, chronic and preventive. Acute patients are the ones who are suffering from a disease and require immediate treatment. Chronic patients are the ones who will require testing at regular intervals to monitor their conditions. While preventive customers are the ones who opt for wellness tests when they are well, and this is clearly not illness space.
As per the report by Bain & Company, acute patients like one suffering from heart, lung, kidney disease or cancer or something critical are the most influenced by doctors and less concerned about prices as improvement in their health is their immediate priority. In fact, it is impossible for patients who are nonmedical to understand the differences in tests, lab quality, raw material ingredients and, therefore, the decision maker and chief influencer is the doctor and not the patient.
Chronic patients who suffer from diabetes or blood sugar or thyroid disorders or the like are moderately influenced by doctors and slightly influenced by prices. They need consistent reporting from 1 lab as they need to monitor levels of test results through the last result for them to know if they are okay. Changing labs just for prices and discounts that the harmful to the health as labs give different results and different normal ranges based on different equipment.
While wellness consumers are least influenced by doctors, less aware consumers are highly influenced by prices, and the more aware consumers care for quality and service. Hence, as the new players in the industry do not have doctor's trust, they can impact the preventive segment followed by the chronic segment to some extent but extremely challenging in the acute segment.
We at Metropolis are a specialized acute-focused lab with majority of our volumes, coming from acute patients. Our main customers is a specialty doctor who trusts us and refers their patients to us. We have a smaller segment of chronic patients and as chronic patients are moderately influenced by` doctors and prices, we plan to mitigate this impact by loyalty, that is a program for the chronic patients. Loyalty benefits will help us to make our chronic patients business sticky in nature, and they will find no value in switching to another player.
In a nutshell, while it may look for the whole diagnostics is getting disrupted like telecom, retail, FMCG, e-commerce industry did, if you dig deeper, you will find that, in fact, only a small part of the business is actually getting impacted, and we are generally well placed to compete.
Apart from these initiatives during '22, we have stepped up a digital play with full stack investments across the digital field to make Metropolis technology ready. We are investing in tech to ensure the entire ecosystem which engages with Metropolis is optimized. Let me highlight a few of these initiatives.
During Q4 FY '22, we have been able to roll out our new app with a revamp user-friendly UI. This app is being constantly monitored for reviews and feedback, and actions will be taken on priority.
Customers can view his or her lifetime report, smart reports, easy bookings, can track sample location and track through the new app. We have planned targeted marketing activities, especially in the focus on seeding cities through Google search, SEO optimization and content marketing.
Customer life cycle management, where we engage our customer database through updated test offerings and offers as per customer profile. And we have completely digitized our system for our partners and doctors enabling what WhatsApp connect as well as complete automation from end-to-end process. This is leading to customer self-serving and helping us to save employee bandwidth.
We have spent close to INR 18 crores for technology initiatives to drive digital transformation. We expect this to partly continue in FY '23 as well.
All these investments on digital marketing and expansion of service network will have some minor impact on the margins. But once the systems are set, these investments we make now we create a backbone for the next level of growth that we envisage in the business, which will help us to safeguard our margins, keeping in view of the increased intensity of competition going ahead.
FY '22 has been an exceptional year with COVID income, contributing 16% of the top line. The non-COVID business grew at a robust 35% year-on-year for FY '22. It grew 7% Y-o-Y in Q4 FY '22 in spite of a COVID wave in Jan and February. While on a Q-on-Q basis, quarter-on-quarter basis, it grew by 10% in Q4 FY '22.
In spite of multiple disruptions, we were able to upsell and cross-sell, maintaining a high level of superior product mix and growing our revenue per patient and test in Q4 FY '22 and the whole year as well, a strong testimony of the strength of the Metropolis brand.
In Q4 FY '22, we have also started work on ESG as per our commitment. We will get more disclosures -- as we will give more disclosures as we complete certain milestones.
In FY '23, we believe growth may optically look subdued in the Q1 of FY '23 on account of a very high base in Q1 FY '22 on the back of COVID wave.
Business will normalize from Q2 FY '23 onwards, unless not new waves of COVID hiccup. We also expect the specialized test staff in our premium wellness to grow in the normal environment, which will benefit us in the continuous improvement in product mix, leading to an increase in revenue per patient.
Having said this, we believe an aggressive network expansion, employee cost pressures and digital investment will also have a little bit of impact. And therefore for '23, we believe we would target pre-COVID margin.
That's all from my side, Vijender will now take you through some of the operational parameters.
Thank you, Ameera and good morning, everyone. Let me talk about the key performance highlights for FY '22. On COVID and non-COVID business first I'll talk, FY '22 started with deadly second wave of COVID-19 with India, recording its highest ever case of COVID-19 during the month of April and May '22. The case is reduced as we have progressed before spurting back in January '22 with the third wave of Omicron.
Accordingly, the COVID RT-PCR revenue contributed 19% of the revenue in Q1 FY '22 and dropped gradually to 12% of revenue in Q4 FY '22. Along with the drop in test volume, continuous pricing capping of COVID test downwards also led to lower revenue contribution for full year, COVID revenue dropped by 17% in FY '22.
FY '22 was a year of ups and downs in the sense that COVID continue to be present at some or the other parts of the country throughout the year. And when COVID tends to persist, it takes a bit of call on non-COVID business. This is because in general, people tend to postpone the test which they can afford to when it's not safe to move out. However, in spite of all these challenges, our non-COVID business grew by 7% year-on-year, contributing 80% to total revenue in FY '22 as compared to 77% in FY '21.
On acquisition of Hitech Diagnostics, we successfully acquired Hitech Diagnostics during FY '22 for an all-cash deal of INR 636 crores. Happy to share that the non-COVID business for Hitech grew by 35% in FY '22 to INR 100 crores. That is 81% of the total revenue in FY '22 as compared to 60% of the revenue in FY '21.
COVID revenue dropped by 56% in FY '22 to INR 23 crores in FY '22. That is 19% of the revenue in FY '22 as compared to 40% of the revenue in FY '21. Such higher revenue contribution of growth from the non-COVID business is signed that business has been scaled up on strong fundamentals and is not a onetime beneficial of the COVID wave. With strong B2C Connect has also led to this strong growth.
Our focus now has been on time-bound integration of Hitech with Metropolis to extract the maximum possible synergies from the deal.
Going forward, we plan to launch 100 new centers in FY '23. Our work on integration has commenced fully, and we are confident to see an uptick in the margins of Hitech business, led by better raw material purchases, IT process integration, increasing contribution of various business and using Metropolis sales and marketing infrastructure along with increasing B2C contribution of overall business.
Now on expansion of 11 service network. 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. We had planned to add 90 labs and 1,800 service centers between FY '22 to FY '24.
During FY '22, we have added 16 labs and 509 service centers despite unexpected COVID waves. We are confident we will reach out desired goal of 90 labs and 1,800 centers as we have built a strong pipeline of new products.
Now I'll talk about on home visit coverage. During FY '22, we widened our home testing service to 100-plus locations from 60 locations in FY '21. This has resulted into 23% revenue growth from home testing for non-COVID business. Overall home testing business, including COVID has remained at similar levels at INR 135 crores. This is due to share drop in home testing from COVID test, which is on expected lines. The economics from a home testing keeps on improving as a centers matures and volume throughput from our home testing increases.
Let me now come to key performance metrics and operational numbers. Revenue share of B2C focused business in focus cities for non-COVID stood at 60% in FY '22 versus 58% in FY '21. Our near-term target is to be 65% contribution.
Revenue contribution from specialized tests for noncore stood at 40% in FY '22 versus 42% in FY '21.
Revenue contribution from wellness test increased to 9% in FY '22 from 7% in FY '21. We recorded strong 37% growth in number of patients with 13.4 million in FY '22 while number of tests increased by 35% year-on-year to 25.7 million in FY '22. The revenue per patient for non-COVID business increased by 2% year-on-year to INR 947, and revenue per test for the non-COVID business increased by 7% year-on-year to INR 447.
Our revenue profile among focused cities and other cities to as follows. Focus cities, 5 cities, including this city and peripheral area around metropolitan regions contributed 60% to the total revenue in FY '22. 7 cities, 8 cities, including the city and peripheral area around metropolitan regions contributed 20% to the total revenue in FY '22. Rest of the other cities contributed 20% of the revenue in FY '22.
With respect to geographic distribution, revenue contribution from west region was 56%. South contributed 25%, north contributed 8%, while the rest was contributed from east and international locations.
I will not talk the Metropolis trend at the ground level. Our analysis has shown that the productivity per center in our business has continued to move up higher. That this is the revenue dropped by new center in its first 12 months is increasing in each passing year.
We have witnessed this in most of our focus and seeding cities, which gives us confidence to keep expanding our network. In fact, the productivity of the centers opened in 2017 versus 2021 has also seen a marked increase, signifying better screening and selection of franchise, better acceptance of the brand Metropolis, moving up the value chain in terms of product mix and channel mix.
This will also mean that we will achieve faster breakeven levels in our newly expanded network than in the earlier periods.
Take in case, Mumbai City. The most significant focus city for us which contributes highest revenue, the productivity of new center has increased even the both [indiscernible] period in spite of increasing competitive intensity in the city. We believe there is still a significant headroom for us to grow and hence, we have decided to add 150 centers in FY '23 to take the walk-in center network in Mumbai from 341 in FY '22 to 491 centers.
We intend to expand similarly across all our focus and seeding cities to capture growth opportunities. Our focus will be to continue growing revenue from existing centers while new centers will become our growth engine. While revenue growth will continue through increasing volumes, we also keep on putting efforts to increase the revenue per patient. This is done through upselling and added value to the customers via tests that can be offered exclusively by Metropolis.
To conclude from my end, our focus going ahead will continue on ranking of the B2C business on the back of investments in digitalization, marketing and expanding the home visit service locations along with the planned network expansion.
On the acquisition front, our efforts will be focused towards the smooth and quick integration of Hitech's operations with Metropolis to drive these synergies.
That's all from my side. I'll now ask Rakesh to take you through financials. Thank you.
Thanks, Vijender. Good morning to all on the call. Let me give you a snapshot of our financial performance. The Hitech numbers are consolidated with Metropolis which effect from 22nd of October 2022 -- '21, sorry, the data accretion was completed.
Revenue for Q4 financial year '22 was up by 5% Y-on-Y to INR 305.9 crores. Revenue for financial year '22 was up by 23% Y-o-Y to INR 1,228.3 crores.
EBITDA before CSR and ESOP for quarter 4 financial year continued to drop by 20% Y-on-Y to INR 82.6 crores due to high revenue base, including COVID testing in Q4 last year.
EBITDA before CSR ESOP and onetime acquisition cost for financial year '22 increase by 20% Y-on-Y to INR 361.6 crores. EBITDA margin for the same period stood at 27% in Q4 financial year '22 as compared to 35.5% in Q4 financial year '21. EBITDA was impacted mainly on account of significantly lower COVID revenue and price capping by government that makes COVID testing margin significantly lower than non-COVID.
Investment in digitization and marketing and [indiscernible] improve customer experience and faster growth, increase in employee costs on account of strengthening our leadership team and front-end staff, investment in lab expansion, which means carrying month of fit cost before lab launches.
EBITDA margin for financial year '22 stood at 29.4% in financial year '22 as compared to 30.2% in financial '21.
Reported PAT for Q4 financial year '22 stood at INR 40.1 crores. Reported PAT for financial year '22 stood at INR 214.7 crores.
Coming to our working capital ratios, our debtor days has significantly improved from 41 days in March '21 to 31 days in March '22. Overall, working capital days increased from 4 days in March '21 to 14 days in March '22 on account of early payment to creditors.
OCF to EBITDA is stood at healthy 98% in financial year '22. Cash and cash equivalents stood at INR 181 crores as on March '22.
Total debt drawn from the -- for the acquisition of Hitech was INR 300 crores, of which we have already repaid around INR 42 crores. We plan to repay the external debt to acquisition by financial year '24.
For financial year '22, we paid a dividend of approximately INR 40 crores, translating to a payout of 20% of PAT.
In financial year '23, we expect margin to reach pre-COVID levels. We are deploying all efficiency levers like automation and digital enhancements, zero-based costing process reengineering and improvement and better breakeven of newly expanded network to maximize margin enhancement.
That is all from our side. We now leave the floor open for Q&A. We request participants to refrain from discussing around recent news item. We'll not be able to provide any comment on this call. Thank you.
[Operator Instructions] The first question is from the line of Praveen Sahay from Edelweiss Financial.
So the first question is related to the non-COVID revenue, excluding Hitech Which seems on the down on a Y-on-Y side around 3%. So can you give some more color on the volume or realization related to the non-COVID excluding Hitech?
So I think, as you know, the non-COVID is made up of the normal trade business. It's also made up of some government contracts and like. As we had mentioned in Q3, the volumes of the government contracts were a little bit lumpy quarter-to-quarter. That is the only reason why you're seeing a sort of a negative trend on a Y-o-Y basis. But if you look at the COVID business, it is not a negative growth at all. In fact, from Q4 -- sorry from Q3 to Q4, we've actually seen a significant growth on a quarter-to-quarter basis on non-COVID.
Second question is related to the western geography, there also a significant dip on the quarter 4 is seen. Is it only because of a COVID or there is -- because of the competition realization is down, can you give some detail on that?
The geographical distribution has obviously changed with the acquisition of Hitech because, obviously, south has become now a slightly higher contribution to overall revenue. But except for that, we are not seeing any negative growth on the west side. It is continuing to grow. And in fact, we have started a lot of centers as well, which are all growing well and breaking even faster than we originally had experienced.
So at this point of time, test continues to grow. It's only the COVID revenues and the COVID ruboff revenue, which, obviously, the highest invest which probably will have some impact. But on the non-COVID side, things are going as planned.
Okay. And last question I'll take and then come to in queue. So on the expansion plan, as you had mentioned about the 90 labs. Out of which, 16 already been commissioned, 74 are still in the next 2 years. So can you give us some -- or even in the network, like around 1,219 networks are also going to be add in this 2 years. So can you give a light on the geographical mix. As already you had said that's 150 around is in the Bombay, but more color on that, like how the south or the west and the north you are planning for the geographical expansion in these lab and network expansion?
Vijender, do you want to take that?
Yes. So basically, what we have done is we've divided the whole network expansion plan based on core markets and noncore markets. And as you know, that core markets are our major profit-making markets. So we've decided to put in more infrastructure in these markets.
And there are a couple of other markets like North India, East India and South India where we are also trying to kind of expand into newer cities while setting up franchisee network. So it's going to be a mix of network across the geography. However, majority of the expansion would be from core market because there, we have seen the returns are faster and breaking is much faster than the previous data.
So the major expansion would be on the core market and on the asset-light model.
Yes.
The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.
Ameera, you did mention about your competitive intensity being on the rise. So if you could give us some sense, is it just local players coming back due to COVID where new funding by private equity players?
And in this context, is specialized as the only way to beat competition at our end? And if you could give some sense of what is the contribution of specialized tests for us on an annual basis in terms of percentage of revenues?
So in our presentation, the specialized test is about 40% this quarter. I think overall for the year, if I'm not mistaken, is above 42% of our revenue. And just in terms of talking about competition and who's entering, you're seeing a variety of people entering and let's understand the logic why.
So what's happened with certain amount of digital health movement trend happening, where we saw in the last 2 years that a certain segment of society is now trying to get telehealth or teleconsultations or certain societies getting e-pharmacy. So there are some pharma companies who are saying that they are worried about being disintermediated.
So they are saying can we build a B2C platform, where we can combine our pharmacy, we can combine teleconsultation and we can combine diagnostics, and offer it as a combination platform to consumer. So that's one kind of an existing pharma company who sees that they have some relationships with either patients or doctors is trying to get in. So that's one.
The second, you are seeing hospital, who are saying that, look, I'm doing pathology in my hospital, so why don't I extend it and do it outside the hospital. Now the dynamics, obviously, for doing pathology inside and it's captive, doing it outside when you have to go and earn the revenue only on the back of pathology are 2 very different dynamics, right, but that's the second kind of competitor that we've seen come in.
The third is the health tech players, the new digital health tech players who are coming and are trying to basically offer a variety of services, which include the e-pharmacy, telehealth, diagnostics, other things, are all as a part of an aggregation to the consumer.
So we are seeing viz-a-viz 3, 4, I would say, are the main varieties. We've actually not seen that much amount of private equity funding at this point of time. In fact, there are a lot of diagnostics firms, which are actually available for acquisition at this point of time. So that's the nature of the competition.
Okay, okay. And in this longer-term approach to grow the business faster and gain market share, so where are these smaller local players because some of them had very good revenues due to COVID. So how does that shift in the medium term happen where larger players can grow faster and some of the smaller players get disrupted because they also seem to have done well due to COVID?
So I'll just give you a quick understanding of the industry and the different layers. So you have often said this to look at the industry as impediment. So at the top, you've got sort of the 4 national players, which are operating and which are pan-India and which 3 of the 4 do sort of a good amount of specialized tests in a sort of a larger testing.
At the middle round, you have about 30, 40 regional chain, right, all across the country, which are focused in 1 [indiscernible] they are in 1 state or maximum in 2 states and in sort of in a local constitute. The people who have done well during COVID are the national players as well as the regional players because they had the capability to do COVID testing and molecular biology testing in their local places.
And consequently, most of the ones which are on [ sale ] are also the regional players because they have benefited so much to our imported that kind of growth, they probably are not going to see for the next 2 years, right?
The small players, which are the unorganized players on the bottom of the pyramid are almost 160,000 such small, small labs.
Give you color, I mean, of these labs, most of them have revenue from sort of INR 2 lakh a month to maybe INR 5 lakh, INR 7 lakh, INR 8 lakh a month. So you -- these are not very large labs, these are very small labs which actually have a captive patient or captive doctor base in about 0.5 kilometer around their location. So it's a very hyper local business, and they basically are tied up with, let's say, 10 or 15 doctors in that region, who sort of send a patient walking into that center.
Now with the trends that are happening in the industry where you're seeing digital health come in, you're seeing large distributions come in, this entire industry is going to get a restructure.
So often, investors have asked us what will be the catalyst to move more unorganized to organized. And I would say this is the catalyst. The market is changing. Consumer behavior is changing. And I would expect the consolidation from unorganized and organized will be much faster at this point of time going forward than it has been in the last 10 to 15 years.
I think the top players sort of the national players if they do the right strategy, will continue to grow and get stronger in the time to come. And I think it's the smallest players who are going to have a hard time struggling because neither are they able to give consumers the kind of technology-enabled engagement and services their customers want, neither do we have the distribution, neither do they have the specialized test menu that keeps them all away or they don't have the brand. So I think this the solid players that are going to get this is intermediated in this part.
Understood. Understood. That's very helpful. And lastly from my side, are we seeing any inflationary pressure because most of the businesses seem to be witnessing a lot of inflationary pressure, any input cost, any collection cost, anything which you think is inflationary in this current time? And will price hike beyond and will the same pricing continue for us and the industry, if you could share some thoughts?
Sure. So we did a marginal price hike at the beginning of this quarter just for example, from an inflationary perspective. And it was, again, very, very marginal, overly impacting a very small number of geographies on the B2C side. So very incremental. But this was not really because of inflationary pressures. We are seeing, obviously, the imports that the industry uses for testing, the chemicals and the kits are mostly imported. And therefore, they are dollar usually dollar and euro denominated. So there is obviously some pressure from vendors on prices because of the dollar-rupee currency exchange, but we are sort of balancing that with our own efficiency initiatives to say how do we be more operationally efficient in the way that we manage our chemical.
And this is across West India or specific geographies where we've taken some price increase on the B2C side?
It's been specific geographies, all across the country. But like I said, very marginal, very incremental at this point in time.
[Operator Instructions] The next question is from the line of Pooja Bhatia from Morgan Stanley.
So in the core business comparing to pre-COVID levels, patient volumes are up 16%, but realization is up only 3%. How do you see the growth in realization? I understand that the test kits will change with more of semi-specialized, specialized increasing more wellness growing, I think more of home test, but that's not going to happen overnight, it could take a few quarters or maybe a few years. So is it the right understanding that realization growth could be, say, in low single digits?
Yes. I think the numbers I think you're quoting are overall, if I'm not mistaken, and that includes COVID. So COVID, as you know, the pricing which started off at INR 4,500 came down finally to INR 300, INR 400 per test across most geographies. And therefore, the revenue per patient from COVID tends to be much lower than our non-COVID revenue per patient.
So in quarter 4, for example, where you have waves and COVID volumes will surge, that's very at to happen that your test, your test realization will not so accordingly because it is dilutive to the revenue per patient of non-COVID.
Otherwise, if you keep aside any COVID, we've actually only seen an increment on revenue per test and revenue per patient year-on-year.
I think it will be premature to give any sort of guidance on this because the market is changing, and we would like to wait and watch to see how things move. But we continue to obviously put our best efforts on improve, keeping on improving the product mix, moving people up the value chain. And that's something that we've been successful at for the last many years, and we would continue to try to do.
Just to add to that, in case as we are expecting a low teen to mid-teen growth, most would be coming from volumes and realization would still be a little subdued. It wouldn't be contributing much, is it the right understanding?
I think that would be assumption at this point. I think if you look at our past history, we have seen a very fair contribution from revenue per patient and a fair contribution from volume. And I don't see any reason why we would see a faster change in that.
Understood. On the doctors, the doctor recommendation part, it's not -- which is the major determinant of acute uptake, how do we manage this? What level of marketing promotion activities are all expecting? And how do we add more doctors to our network?
So our energy is about increasing the coverage from our sales team and scientific team to meeting doctors. So we have about 400-odd scientific-medical representatives. We also have a number of sort of pathologists and doctors.
And all of these are sort of our brand ambassadors who engage with doctors on an ongoing basis. The key way of engagement that will be scientific-medical symposium, continuing medical education programs, our teams visiting doctors. So the key drivers are, one, about making sure that the number of calls made by the teams are adequate in terms of visits to doctors. Number two is the constant training to make sure they impact the right education and awareness to doctors and the right positioning of Metropolis. And third is obviously going to say how do we convert a doctor to prescribe test that Metropolis offers which are necessary for the patient.
So these are all the drivers. It's not really about a push marketing because we have seen a push marketing is not the way to build a quality business. It will give you short-term growth with large amount of discounts, and that may not necessarily be sustainable. So ours is a very scientific driven, sales excellence focused model.
Understood. On the network expansion, you mentioned in the opening remarks that you expect faster breakeven in the new centers, which are being added. So what will be the time frame for it? Would it be 12 months, 24 months?
You're talking about the collection centers?
Yes.
So we are seeing in strong geographies in focus cities. Earlier, we were looking at sort of centers, breaking even within sort of 9 to 12 months. And we're now seeing that time line actually shorten to close to 6 months to 9 months. And the reason for this, I think, is a better selection of partner, a stronger brand, more -- where consumers want to come to our brand, better engagement, a bunch of reasons.
The next question is from the line of Anubhav Agarwal from Credit Suisse.
Ameera, you mentioned that quarter 1 revenue will be down year-on-year because of the high base. Just the clarity over there. What is your expectation about the non-COVID business? Do you expect that to grow year-on-year basis?
I don't have an answer right away, but I would say, yes, overall, I think it's the COVID base that would cause a concern, not so much the non-COVID.
Because the reason I asked this in quarter 4 itself, the non-COVID revenues are still higher than quarter 1 non-COVID. So sequentially, do you do expect June quarter non-COVID business to be higher than the March quarter, non-COVID?
It's a little difficult to look at our business sequentially, which is why we always provide information year-on-year and quarter-on-quarter because there is a seasonal impact that comes in health, which is not a consistent subject. It depends on the infections and the diseases that happen in that seasonality.
Usually, we have seen, if you look at the past few data that is available. If you look at the past 3, 4 years, even pre-COVID. Q4 is usually a good quarter. Of course, in this quarter there was COVID to there was non-COVID was more subdued. Usually, Q2 is another quarter which is considered one of the highest the inflections are at the most during monsoon period all across the country, and therefore, gives rise to fevers and other infections.
Usually, Q1 is a decent quarter, and Q3 is usually the weakest quarter because of festival. That's usually the pattern of how we've seen things play out in history.
Okay. So just to correct, you're saying that non-COVID business should grow, whether it's a mid-single-digit growth or high single digit or double-digit growth, that's what you're not sure about.
I'm saying year-on-year non-COVID will grow. Yes.
Okay. And secondly, on the margin guidance, when you talk about pre-COVID, can you help us understand that pre-COVID numbers in the sense right now? If you look at the margin the company has done in the last 2 quarters, 3Q and 4Q. Are you talking about that fiscal '23 EBITDA margin can be 200 to 300 basis points higher than that? Because pre-COVID you have done very different kind of margins. Can you help us quantify what range are you talking about on the margin side?
Yes.
Yes. Go ahead, Rakesh.
Yes, I will take this. So if you look at the pre-COVID level, we have done even between 27% to 28% consistently for 2, 3 years before the COVID fear came. So we expect that, that is how we are guiding the market that we expect that we will go to that level where we were in pre-COVID level. And obviously, there, we can look at increasing things as we go along. So that's how it looks like. It's not, should not take a very long horizon to pre-COVID, but I think 2 years before the COVID period can be the numbers to look at.
But as this quarter also, you have done 27% margin, right? So then you're not talking about the expansion of margins from this level?
So basically, 27% is the margin, which is obviously looking at before CSR and ESOP and all. So there is a 1% there also. So if you look, otherwise look at it's 26 -- around 26.2%. So we are looking at signals 26% 26.2% can walk forward to 27.5% to 28%. That's how we are looking at from an expense and a margin point of view. But obviously, is just holding it back so that let's see how things goes in next 2, 3 quarters, and then we will be more firm on these things. But at least we expect that the numbers will be more or less in line with what we are doing at the pre-COVID level.
Okay. That's helpful. And last question is on this investment. And I'm talking about OpEx here, not the CapEx, OpEx on digital, more advertisement spend as well as spend, incremental spend on this network expansion. Can you just roughly talk about what kind of -- how many growth kind of expense you're talking about incremental fund very rough number range we had.
We have already given a guidance that for a network expansion, we look at 0.6%. 0.7% of margin dilution, which will happen because one is that when we open a lab to lab takes its own time to open up, and we have a cost which comes before that. So that's one. And obviously, when lab opens up, it takes its own time to reach to a level where we want to. So 0.6% 0.7% of valuation coming from there. And obviously, some 0.5%, 0.6% of valuation coming from the digital network marketing and other fees.
So if you look at both of this, we will look at 1, 1.25. But obviously, this number will keep changing as we move ahead because some of the centers will become more mature as we move around and that will start contributing to it. So I think it will be more in that line, but obviously, maybe the changing here and there.
Okay. So 1% is more like INR 12 crores to INR 13 crores, the number we're talking about. So part of it we would have already spent in third and fourth quarter. That's why I was looking for more incremental kind of guidance from your side?
So I think the guidance is, again, very simple that we will see, we want to maintain at the-pre COVID level, which we've spoken about. And that is where we are. And obviously, there are dilution happening because of a lot of things happening, and there are a lot of efficiency projects and cost efficiency things going on in between automation projects are going on. So hopefully, we will modify this, both the sites and see we can maintain the pre-COVID level. That's how it is.
[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment Advisors.
Ameera, congratulation on a challenging time, I mean, reporting good number. When we are talking about the growth in different geographies, so how do we really would like to play in those geography vis-a-vis margin where the breakeven takes a little more time?
And second, in those geographies where our brand name is not that really, I mean, visible to the medical fraternity, so how do we really plan to build that business?
So good question. I think, see, in markets where you have to remember 2 things that, for example, markets where the consumer brand may not be very strong of Metropolis. But the fraternity, the health care industry and the fraternity in all Metropolis, so the issue is not about doctors not knowing Metropolis. It's not about consumers not knowing it strongly as a strong consumer planning. So really the differentiation is there.
So even today, whether you take a Delhi or a Calcutta or Punjab or any of these markets, where we are not in the top 2 or top 3 in the market be more sort of number 3, 4, 5 . If you look at it sort of the fraternity hospital labs doctors recognize Metropolis and the quality of it. Of course, this will never be 100%, but it will be a large number of doctors.
What we mostly do when we go into a new market like this is we start with the B2B business, where we actually go and educate doctors, labs and hospitals about our brands. So in a market like Delhi, we've been doing that now for many, many years, and we start our reports circulating in that market through B2B channel. As the brand starts circulating more and more, the brand becomes more familiar. And at the right time, when you feel like you're ready to make a large B2C investment, it then makes sense to start the B2C.
Having said that, we all know building a consumer brand takes a long time, especially in health care because it's not something you can do simply through advertisements and other ways like FMCG because it's not a business which is built on the back of advertising and marketing. It's a business that's definitely not for illness. It's a business which is built to engagement and trust and experience. So therefore, we would start B2B, B2C, like we have in many of the cities, but probably not in a huge way overnight, but more in a creeping style where you keep expanding your centers and keep trying to work in that hyper local market to get B2C patients.
And second question on when we are talking about specialty. So have we really added any more capability on the specialty side in last 2 years? And/or how do we really plan to that portfolio, expand that portfolio?
We have absolutely added a lot of capability. So we have now got all kinds of -- we obviously already did genetics. We have all kinds of genomics. So we had added a lot of capability on multiple areas and constantly to make sure that we are pioneering in the test menu.
And we also do R&D in-house to sort of see how we can make more tests more affordable. Certain tests, which may be quite expensive, are there new technologies or techniques we can use to make this more affordable or more relevant to the Indian population.
For example, when we get most of these technologies, they come with western changes, which are actually relevant for an American or European population because the R&D is done there. How may this be relevant for Indian population which fits our genetic parameters? This is the kind of work we do behind this means that helps us actually go to doctors and say, look, we use our test because we are the only one who have an Indian reference range, for example. So there are many such things that have happened. But absolutely, we keep expanding the menu.
And last question from my side. I mean, when we are talking of this disruption. So all these like several aggregator, which has recently seeing a good run like in Zomato and small restaurant. And so we are also seeing in this medical diagnostic industry some of the aggregator is appearing. And so how do we really plan to work, I mean, whether compete with them or complementary to them or -- and vis-a-vis this one in [indiscernible] small lab which are already present. So how do you really plan to grow with this kind of a scenario?
See we don't have to -- we have to be very clear about who we are and what -- where are the areas we want to compete. So we are very clear that we are not interested in competing with the aggregators on the low-priced wellness business because we feel this is a just a quest for acquiring consumers and in a very nonprofitable and nonsustainable way on the wellness side. And that is a business that we feel does not make sense for us at this point of time to compete with them to acquire consumers in that way. So we are, therefore, not competing with them on the low price in wellness.
What we are doing is we are saying that how do we continue to participate in the wellness [indiscernible] but using our brand, our technology, our quality, our services and therefore, continue to compete more on the premium wellness segment, which is what we are doing.
As far as the aggregators, we are very open to partnerships. We are open to working with all the aggregators in the industry. In fact, we already are. But I think what you will see in the next few months is many of the aggregators, which have been doing a lot of very high-profile marketing and spending a lot of money, we have to recognize that the change of the economic environment.
Many of them are also having a very hard time in securing funding. And I think you will see some sort of a consolidation in the aggregator space in the coming 6 to 9 months as well. So I think we have to stay to our journey that's good for us. And if there are opportunities to work with the aggregators, we are absolutely open to in a way that is economically makes sense.
Okay. So how much is our wellness portfolio, size of the wellness portfolio that contributed to overall top line?
This quarter, it's 10%.
And annualized, if...
I think it 8% but not using target, 8%?
Yes. So we were pre-COVID level, we were at 6%, 7%, COVID time, it has come down. And now it is increasing gradually. So we have seen that this contribution going to 7% in quarter 1 to 10% in quarter 4.
Ameera, I want to add one more point to this question on aggregator.
I'll appreciate that.
See, what, we believe that with the aggregators, I think the overall consumption in diagnostics will go up. And within this wellness, we will, we hope that 20% would be less also. And this illness will become TG for a company like Metropolis because our focus is going to be also on doctor connect. And for years, largely the patients, they would go to doctors for their treatment and hence, this becomes our TG. So overall, this will help us in creating more business opportunities.
[Operator Instructions] The next question is from the line of Rahul Agarwal from InCred Equities.
Just two questions from my side. So firstly, on non-COVID, I mean there a lot of discussion happening around the growth part. Obviously, despite of COVID in Jan '22, we've grown both Y-o-Y and Q-o-Q. But a simple question, when do we see non-COVID revenue, excluding COVID [indiscernible] obviously, growing at 15%. We are all used to looking at that number in this industry growing at that number and large organized players getting a lot of market share. The entire concern around this competition, I think, is because that number is not growing. They're still hovering around 5% to 10% in terms of growth.
Could you give us some sense as in -- from where you see and obviously, there is an assumption here that COVID [indiscernible], that when do you see this 15% non-COVID revenue straight B2C revenue growing for Metropolis.
So Rahul, I'm not -- I don't have a crystal ball, so it's very difficult to give an exact time line. But what I can tell you is that we have to understand that when COVID happens, the reason non-COVID comes down is because there is -- people are sick with COVID and therefore, that's the disease that takes priority. And therefore, other things are ignored or they don't happen because you're at home recovering from COVID.
In every quarter, even if you look at Jan March, you see Jan had the lowest sort of non-COVID, Feb also had the lowest non-COVID, and then March sort of picked up in a much better way and have a much better growth. But these things tend to be very seasonal based on the kind of infections that you're seeing.
This is not something that can be likely sort of push marketing. If somebody is sick that they need to come. And generally, what we are seeing is that as COVID has taken over sort of all health issues for the past few -- and past couple of years. Other things have a little bit more on the side.
My -- I don't -- I don't have an estimate at a place, but I can say that my mind tells me that COVID, we don't see another wave. My sense is that by Q2, we should see more of a normalcy in terms of a positive growth, number going forward. And I'm fully hoping that we don't see any more disruptions or any other severe infections or severe COVID variants that come along the way.
Right. So in normal circumstances, removing COVID out, we should get back to that number. I mean that's the entire effort is focused on that, is that correct?
Well, I mean, of course, the effort is completely focused on non-COVID as if there's any effort going to at this point on COVID, of course, as people fall sick, we have to take care of them. But the entire effort will go into non-COVID building geographical expansion, building business going to doctors, doing better coverage and that all the efforts are going in that direction.
Got it. And other smaller question was on routine testing. So my sense is generally routine tests have higher gross margin versus specialized and on EBITDA levels that are pretty much similar.
For a typical test like lipid profile of thyroid, what would be a reagent cost for Metropolis, at volumes you do? Because that's the number I'm looking at on an absolute basis, which is a minimum breakeven at gross level, right? I mean, could you help me with just 1 number here?
I mean in the gross margin percentage is what you mean?
Yes. I mean the reagent cost for a lipid profile or thyroid test at current volumes for Metropolis per test, how much will it be? Will it be like INR 80, INR 100, INR 60?
Difficult to give that number because I mean, the [ contact ] information costing information is obviously confidential to the organization. But what I can share with you is that there is the gross margin on routine case, it's first thing to remember about testing pathology is that the material cost is not the biggest cost on the P&L. The biggest cost on the P&L is the servicing cost.
So while somebody may say, okay, if the MRP is INR 100, and if your cost of a test is INR 20, then why can't you sell it at INR 30 because out of that INR 20 to INR 80, almost INR 50 is the servicing cost. You have cost of a [indiscernible] level, you have a cost of property, you have cost of consumables to do the collections, except the cost of testing people, et cetera, et cetera. So the material cost is something which is important, but it is not the only important factor in the entire costing.
Traditionally, we see that routine testing has the highest gross margin, but routine testing can again come in multiple ways. Routine testing can come either through a strong brand that we have of B2C, where you are able to get a fair market price.
But if routine testing is coming through this kind of discounted aggregation that people are doing, then the servicing cost will actually completely destroy any profitability on that test, and there would have to be losses incurred for them to be able to make sense of that. But I think what we are continuing to see in some of the aggregators is like I said, the consumer acquisition spree at any cost.
And the thought is to say that okay, we'll funded still it makes sense. But the real question in health care is whether consumers are going to react to that, looking at only price. And like we already discussed that may happen on wellness and chronic, but not so much.
Perfect, Ameera, that's the point I was trying to drive to that we're saying that INR 100 a test is profitable on TV, it basically, meaning that maybe a profitable gross margin, but is it possible after you account for servicing costs? But anyway, we'll take that just looking forward.
The next question is from the line of Tarang Agarwal, Old Bridge Capital.
A couple of questions. One is a lack of a cross-selling platform and impediment for you, for instance, you have a hospital, pharmacy, diagnostics or now with the newer players, you have a host of other things on their platform where they're trying to cross-sell which gives them some sort of economy and a good customer stickiness. So is that you feel an impediment insofar as your business is concerned and would you be sort of open to some sort of a partnership to -- you don't have that in place. That's one.
Second, pardon my ignorance, but if you could just give me some sense on how you define your specialized and wellness and other category of tests and some quantitative sense in terms of the breadth and depth of your portfolio there versus incumbents in the market.
I'll start with the second. So we do -- we have a large test menu of about 4,000 varieties of tests. If I compared it to a couple of the other national players, which also do a larger [ tests ], there would be a difference will be higher than 80% over some of the others. Obviously, the fourth player, which does mostly wellness and B2B, we'll do a very limited number of sales, about 200 varieties. So that's really not a comparison point in terms of the business model.
The 150,000 labs, which are on the street, which are doing that INR 2 lakhs to INR 5 lakhs, INR 7 lakh business per month will only do 50 varieties of tests. The slightly larger lab, which to maybe INR 10 lakhs INR, 20 lakhs a month. we'll do maybe 100, 150 varieties of test.
Even top hospitals, you guys go tertiary care would do 400 -- 300 to 400 varieties of test. A regional chain would do maybe 500 varieties of test. So I hope that gives you a sense on the level of complicated and very comprehensive test that we do when we have a cash menu to offer a [ 4,000 ] which is equivalent to the best global players of offering everything under a platform.
The reason I had in the speech was that this is difficult to replicate is because these volumes are these sort of sale and test after what you call as the bottom 3,000, 3,500 tests tend to be very, very small in number, and you need to accumulate the volume through a national distribution from all across the country to bring them to one place and commercially make it viable to get economies of scale to actually run those tests.
Otherwise, for any player who doesn't have a national distribution and normally national distribution, but the ability to generate those tests because these are very specialized medical staffs and you have to be able to go to doctor and convince them on your expertise on each one of those test. So for example, if you are showing a urological test, the question is do you have a pathologist who very, very high knowledge on urology. Do you have your interpretations which are high for our knowledge on urology. So there are a lot of things that go behind the scene. It's not just going and picking up a test. So that, I hope that answers your question on the test menu and the scope of it.
Yes just -- I'm sorry to interrupt, just a follow-up on that. So out of your 141-odd labs, my sense is only a specific set of labs would be capable of administering these 35 -- 3,500 tests and then servicing them over a couple of days or so on and so forth? Would that be the right way to look at it?
The stride works in a hub and spoke model. What's unique about Metropolis is that we have almost 10 regional reference labs in India, which means that while we have 170-odd staff labs, which do about 150 varieties of test, we have 10 regional reference labs, which do about 400 to 500 varieties of test, which is the highest amongst all our peers. This gives us an ability to do more tests locally, which is very valuable in the quality of the business that you pick up because you're able to give a faster turnaround time.
And then we have the global reference lab, which is based on a Bombay which does all the 4,000 varieties of test. This is a very normal structure and practice globally that you consolidate the volume of specialized tests because otherwise, it economically doesn't make sense to do that.
Coming to your first question on the platform play. I want to reverse the question, asked the question, why do people even think a platform plays the way to go?
I think this idea has come from China, where we have seen platform plays do well. But if you look at the ecosystem of the Chinese market before consumer health care came in, everything was state run, everything was done by the government or in very large hospitals. And therefore, a consumer play where you could book everything together on 1 platform became a very attractive thing for consumers. That is not the problem in India.
In India, today, consumers already have access to a completely retail health care ecosystem. They are not forced to go to the government or go to any institution for anything. They already have all options at their table.
So the reason why your e-commerce platforms do well is because you end up ordering something from this e-commerce platform every day. Sometimes you'll order something small the next day, something small and it makes it very convenient. But if you think about your long live, how often do you engage with health care systems, you may own the drug once a month, you may go for the test once a year. You may need to see a doctor once or twice or 3 times a year. This app is not going to be something that you want to get on to every day where you're ordering something and therefore, the habit, and the use of the app and the platform is far less frequent than what you would compare to an e-commerce player. So I think the debate and the discussion whether a platform play is truly going to succeed. It's a big question mark at this point of time for the Indian health care ecosystem.
Then it comes to a question of or do we think we are missing now because of an upsell or cross-sell, but is anybody able to do upsell or cross-sell. Is it proven? It's not. At this point of time, there are a lot of theories around or we will cross-sell from e-pharmacy to diagnostics or we will upsell from here to there. But is it happening? I think you should check. I don't think so.
The next question is from the line of Shanti Patel from Shanti Investments Advisors.
[indiscernible] increasing. The latest entrant an is coming and data on data [indiscernible] also is starting. So looking to all these things, will you think that the market share will go down as far as Metropolis is concerned?
I mean I don't know how to answer this question because we believe that there are only 5 groups that can succeed in every business in every industry in India. Then that will basically, we will say that entrepreneurship is dead in our country, and consumers will only go to the 5 group for everything. We have to remember that, that is not the case today. There are many groups flourishing and many people in even a particular segment of society, there are many businesses flourishing.
I think it would be fear of the unknown to say that, oh, now if this group or that group comes in, everybody else is going to have a hard time [ in growth ]. I think that would be a stretch in my opinion. I think we have succeeded for our own part, we can speak. We have succeeded very well in diagnostics and become a leader in the space. based on the DNA, the hard work, the distribution, the specialized tests and more importantly, the expertise that we have built up in health care.
This is not so easy to replicate. I wanted to just think through your own examples, and say that tomorrow if any one of these groups just came in and said, "Oh, now we are offering all services. Are you stop going to stop going to the doctors that you trust because somebody else is offering it. I don't think it works like that we're not picking out sick, you want to go to people who trust, you want to go to where you feel you've got reassurance that you're going to get better, that you can get the right test.
When you have cancer, you're worried about treating the cancer, you're not worried about whether you go to group A or group B. You want to go to the doctor, the lab, the treatment where you're going to get the best treatment possible and get well soon. That is our belief in the way we've built the business and what we see of the market that we understand.
I entirely agree, there are very intelligent [indiscernible] take very firm on your belief, et cetera. But in our area only, let me tell you, only 2 or 3 diagnostics centers were there. Now you have seen as grown [indiscernible] RG I forgot the name. So 3, 4 new entrant come, and they're very strong. So I think we can tell what I feel that the market, I mean, which has to go down the way we don't have any business from [indiscernible] I was asking. I don't have a [indiscernible] intelligence...
The market is only 15% organized segment and 85% unorganized. Why is there the assumption that any new entrant is going to come and eat up the market share of the 15% players? Maybe it is possible that the new entrants will come and take some of the market share of the unorganized.
I agree and unorganized and it will be organized also because I mean I don't know. You are in the field. So you've got even better position to [indiscernible] opinion. And in stock market, you also see the momentum of it's what you [indiscernible] announced the market price of trade went down. It may be a psychological. I don't say it is in reality we have had. But that is a psychology that with people change their [ tiers market share ] may go down, may not necessarily, but probability.
Well, sir, I can only talk about our industry, and I'm sure in the stock market, if everybody started following the psychology of anybody who advertises, top price everybody else will go down, then normally in the market will make money. So all of you are obviously very, very intelligent investors, and I think you can probably see beyond the basics of the market.
In your case, you see it like depending on the experience, depending upon the intelligence, depending on the what you got past experience just to rely on you. I don't deny that. But I'm thinking, let me have an explanation, I will accept your explanation and let us see next year what it does [indiscernible].
Sure, thank you.
The next question is from the line of Namit Mehta from KC Capital.
Just a couple from my side. One, I just wanted to understand whether competitive entry changes the dynamics in terms of franchisees, whether in terms of acquisition or management or churn, are we seeing some of these franchisees going to the more aggressive peers, maybe offering higher margins and so on, and do we need to match those? How do those dynamics play out?
So franchisees are unlikely to go to new entrants because franchisees only survive based on the business that we generate for them. And therefore, the brand is very important because you have to remember that the sales generation is done by the organization and only the service fulfillment is done by the franchise.
Therefore, the franchise is quite dependent on the brand to generate. So if they go to a new brand, it offers them higher commissions but doesn't give them even half the business, then it's the loss-making proposition for that franchise.
So I think if there is any poaching that happens or any thing on franchisees, it tends to happen, and that's also very, very marginal. We don't see this as a big trend between the incumbent who already have strong brands and not really with new players.
As far as acquisitions, like I mentioned, there are many deals available on the table. So far, at least, there are few competitors that have come in are hoping to build organic business by building distribution. I'm not seeing them in the market at this time, for acquisition.
Understood. And I count what you said on the specialized test business in terms of economies of scale and volume are testing. Just wanted to probe a little further and understand how competitive the specialized test businesses. So in a Mumbai or Chennai, what kind of market share would you have in this particular segment?
And will some of the new entrants even try to compete in those segments given they don't have the volumes? Do you see people just sort of loaning money to be able to offer those tests? Or is it more that people like you focused on quality and with the experience and with the volumes are the ones dominating those markets?
Market has a -- so first a question to answer, yes, the larger players do dominate this market. It's very difficult to give you a share of market because that data is not available in the public domain in terms of any third-party data. But considering 40%, 42% of our revenue comes from specialized test, we definitely have the highest share of specialized test in the industry. And of course, that would be fairly proportionate to the stronger market that we are in.
On your question about new players being specialized I mean the market has all kind players, right? We have seen in the past, not even in this round of competition, but in the earlier round of competition between 2012 and '16, we saw 1 player come in and on a very specialized technology decide to try and just build large volumes by discounting the price more than 60% to 70% on a very, very specialized genetic test. And said that, look, I'll offer this at a very, very low price at newbuild volume.
And what ended up happening in the now in the 7, 8 years that they've been -- 10 years they have been doing it, we did manage to build some volumes initially, but it has always been a loss-making business for them, and it has not really ever become profitable or contributed to their success.
So we're not able to diversify from that genetic test to other tests to compete with us on a pan-India basis. They were not able to get the doctors' trust and credibility even for that genetic test because in health care, there is a mindset that the more you discounts, the question comes up, look, are we even doing the test? Are they doing a good job? Do I want to go to some place, which is just discounting? How are they holding it, and am I getting a poor quality report, because it's so heavily discounted.
So actually, the lower pricing and the discounting causes a concern amongst patients in illness and doctors around the credibility of the test report. So we have not seen it actually the strategy of price disruption. We have not seen be successful for the many, many new players, which are coming to the industry and tried this.
And we have to remember that the 150,000 labs that exist are anywhere at a significant discount to all the national and the regional players. So if pricing was the main thing, then actually the unorganized market will flourish far more than the organized market.
So I think, there will be players who will try, I would say, on the specialized side. Not all 4,000, but they'll try it 200, 300, 400 test to try and make a mark. And if they try to do it in a rush with discounting, I think they will struggle. If they try to do it in the way that we did it scientifically with expertise, they may have a chance of success, but then that will take time.
Understood. And last question from my side. So do you think broad-based brands which generally mean trust for the Indian consumer translate well in the health care industry. So for example, for you or Dr. Lal, you had to build up your brand for scratch and develop that over a long period of time to the state where you are today?
But somebody like a Tata coming in today with that sort of day 1 reputation and trust, which is broad based across sectors, does that translate well in the synergy? Or does that still require a very specialized brand focused on medical fraternity to succeed in this business?
Well, I don't want to comment on any specific player, but I want to give you an example. Even the top 2 hospital chains of the country, they try to take their brand and set up diagnostics on their brand. And we have far more trust in health care than any of the groups that you're mentioning.
We're not able to be successful in diagnostics because they had just from doctors on treatment. But having trust on treatment for heart or gastro or neuro is not the same as having the doctors trust on diagnostics.
Health care is an area of sub-specialty. To give you an example, if somebody in the family, no family has got cancer and they have somebody is respective of having lung cancer, let me tell you, he will not even go to a general histopathologists. Your doctor will say, go to this specific histopathologist, who have got the maximum expertise in lung cancer. That is how some specialty health care is and especially is. The expertise and the knowledge is what counts the most. And therefore, the translation of trust, general trust from FMCG brands to specific acute illness diagnostics is not so easy.
Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you for you guys to organize the call and thank you to all for attending and patiently hearing us for the last hour and 23 minutes. We hope we've been able to address a lot of the questions.
I just want to leave you with 3 messages that we have worked very, very hard over the last 40 years to build trust, credibility, experience and knowledge and expertise in this industry. And there is a reason why we are leaders in the industry today. This has not happened by chance or by fluke.
There have been many competitors that have come in, try to do price disruption and other ways. And we have to just recognize that there will be some parts of the industry, which will like the wellness segment, which may be more prone for disruption, but the parts of the business which are built on strong fundamentals are in the illness space which is where we operate.
We would like to continue our journey of building out our expansion, geographical expansion, product expansioning, technology changes and really move towards a company that's not only strong in science, expertise and knowledge, but also provides all the conveniences from a technology and a digital perspective to our consumers and makes working with Metropolis and engaging with Metropolis a completely seamless experiment.
This is the journey that we are on, and we believe that we are very well placed to continue to compete and to do well for us and our shareholders. Thank you, everyone.
Thank you. On behalf of InCred Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.