Thyrocare Technologies Ltd
NSE:THYROCARE
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Thyrocare Technologies Ltd
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A very good morning to all of you, and thank you for joining us today for Thyrocare's earnings conference call for the first quarter ended financial year 2023. Today, we have with us Mr. Rahul Guha, MD and CEO; and Mr. Sachin Salvi, CFO, to share the highlights of the business and financials for the quarter.
I hope you've gone through our results release and quarterly investor presentation, which have been uploaded on the stock exchange website. The transcript for this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team.
I now hand over the call to Rahul to make the opening remarks.
Good morning, and thank you, everyone, for taking the time to join us on this conference call. I hope everyone is safe and healthy. I wanted to take the time to just walk you through what we are doing. I'm joined by my colleague, Sachin Salvi, our CFO, who's known to most of you.
Before we begin, as with my last call, I will always start with the quote from the Mahatma that I hold very dear to my heart. The future depends on what you do today. So with that backdrop, I will just give you a sense of what we've been up to in the last few months. First, we took upon a rebranding effort. While the brand Thyrocare resonates with many people, we felt it was time to give a fresh and modern perspective to the brand. The brand identity, we felt was very anchored in the thyroid space, which was correct for the time it was created, but now with a test menu of 700-plus tests, we wanted to move away from the old imagery of the thyroid gland. Additionally, we felt a new identity which embodies the bold agenda as a B2B player needed to come out. We are very happy with the way the logo has come out. I hope you had a chance to see it in our presentation.
As I shared in the investor presentation, the logo anchors on 2 tenets. The first is the drop of blood, signifying of course, our heritage in pathology testing, conveys the imagery of life while squarely reinforcing our image that we are one of the leading players in the pathology testing space. The second element is a microscope, which we wanted to use to bring out our anchoring in science and technology at all our labs when it comes to diagnostic testing. The new brand identity is already live in all our online and digital formats. And we are in process of replacing the brand identity across our 8,000 direct and indirect channel partners, 900 lobotomists and our 800-plus runner fleet. So that's the update on the brand. That was the first thing that kept us busy.
The second is we continue to execute against our strategy, which we highlighted in the last quarterly results and is also captured in the presentation. Just to give you a brief update on all the elements that we are -- that embodies our strategy. We are first, I'm very happy to say that we have been able to expand our presence in 1,000 new pin codes since the last time we spoke. We have also opened 2 new labs in Visakhapatnam and Jaipur. On building deeper customer connect, we have now expanded our field team, who goes out meets franchisees and doctors.
We also have a dedicated franchisee support call center. And for the first time in -- since I think COVID was upon us, we have launched a new set of packages. This has been designed in collaboration with doctors, the most notable has been our monsoon fever package, which in one test tests for dengue, malaria, typhoid as well as all other essential monsoon-related parameters. This was designed in consultation with the Doctor of fraternity. We continue to expand on that effort to design packages in skin care, hair fall, smoking, alcohol, cancer and genomic testing to really expand our menu towards capturing the higher-value lifestyle diseases with the consumer.
On quality, we continue to work on our quality journey. We renewed our College of American Pathologists accreditation and 4 labs, I'm happy to say have completed the NABL audit. The target is to have 15 of our labs NABL accredited by the end of the year, which will mean that 90% of our samples will be processed in an NABL lab. On that a turnaround time, we continue to optimize our turnaround time across the country. Today, 90% of our samples reach a lab within 18 hours, In cities where our labs are present, we are already at 6 hours. At our labs, we turn around samples on average in 4 hours and 97% of the samples are processed in 6 hours. With this initiative, effectively in cities where we have a lab, we are able to deliver reports consistently on the same day. And across the country, we are now able to deliver reports within 24 hours.
We continue to engage doctors on diagnostic testing. We believe it's our responsibility to educate and engage doctors on the difference the diagnostic testing can make to the treatment paradigm. So in partnership with key opinion leaders, we have developed education videos, we have also started participating in conferences to share and debate our perspectives on diagnostic testing.
Finally, when it comes to leveraging the API Group, API Group today accounts for 13% of our pathology revenue. As I had mentioned, we have 3 major initiatives. Our cross-sell initiative continues to progress well. We serve 5,000 patients a day from PharmEasy. Additionally, from Retailio, the B2B retailer app and Marg, the retailer ERP, we have been able to onboard 900-plus pharmacy counters who are now booking diagnostic tests for their customers. Additionally, through focused efforts, we have now onboarded 50 hospitals across the country. This is a mix of small and big hospitals, and we will monitor how this initiative scales up over the next few quarters.
With that, I wanted to hand over -- actually, before I hand over to Sachin, I wanted to share a few highlights and main pointers on the results, and then I will ask Sachin to deep dive a little bit there. Overall, I wanted to share our focus has been in driving sustainable revenue growth. Over the last 2 quarters, we have seen a healthy recovery in our volumes. This has been driven by basically ensuring that we have the right price value proposition to our partners and focused efforts in expansion and retention of our old customers.
I'm very happy to say that we have driven this growth while keeping margins steady, both at a gross margin and EBITDA level in our non-COVID business. We have been able to do this by judiciously driving mix towards higher value and higher GM tests and our investments in manpower to drive growth, we have compensated those investments by sharply looking at our overheads and optimizing costs as much as we can. As a result, as you would see in the presentation, this quarter we've been able to deliver 12% quarter-on-quarter growth in our non-COVID business, while at the same time improving gross margins and EBITDA levels in the business. This is a year-on-year growth performance in our non-COVID business of 33%, with a 57% growth in volume.
With regards to COVID, as with most participants in the industry, the business is down 96% year-on-year and 83% quarter-on-quarter. With this, the EBITDA levels of our COVID business even after optimizing the fixed costs that we have been doing over the last quarter, as -- the EBITDA has come down substantially. As a result, we have powered down the labs and are now repurposing the same for other PCR use cases.
With those highlights, I'll hand over to my colleague, Sachin, to cover the results.
Thank you, Rahul. So good morning, everyone, and thanks for attending this call. I'll briefly update you about the key highlights of financial year '22 quarter 1 financial performance. First, I will start with revenue from operations. Our revenue from non-COVID operations for the current quarter on a stand-alone basis has increased by about 33% Y-o-Y to INR 112.2 crores. However, our COVID revenue has declined by 96% Y-o-Y to INR 2.7 crores for this quarter, resulting in a 25% decline in our pathology revenue. However, on a sequential basis, our pathology non-COVID revenue has grown by 12%, which is on the back of an already stronger quarter in the last quarter where we grew almost 10%. Sequentially, in last 6 months, we have grown our non-COVID revenue from INR 91.2 crores to the current quarter of about INR 112.2 crores.
Additionally, we have seen a strong recovery in our Radiology business, that is [indiscernible]. We have grown revenue on Y-o-Y basis by 59% on a sequential basis and on a sequential basis by almost 18%. Our non-COVID consolidated revenue as a result for the current quarter on a Y-o-Y basis has grown by 30% and sequentially on a Q-o-Q basis by 10%. However, the 96% Y-o-Y decline in the COVID revenue has led to an overall decline of 22% Y-o-Y.
As far as EBITDA margin is concerned, our stand-alone EBITDA margin stands at 29% versus 30% last quarter. This margin impact can be explained by the decline in margin in COVID business because of the fixed cost associated therewith. If you look at our non-COVID profit and loss, our margins have improved versus last quarter by 100 bps and remains more or less in the rate that we saw last quarter for our non-COVID business. We have done this while investing substantially in our teams to drive growth, but in parallel, took a hard look at our overheads to ensure that we remain in line at an EBITDA level. The decline in the overall EBITDA margin on a Y-o-Y basis can be entirely attributed to the COVID business decline in volumes.
To give some financial highlights, gross margin continues to improve versus the previous quarter in the non-COVID business primarily as we shift mix towards more high-value tests. Employee benefit expenses has increased INR 41 crores, which is primarily due to 4 reasons. Reason number one, annual increments; 2, introduction of variable pay for the company; 3, expansion of field staff and franchise support team to improve service levels; 4, increase in senior management compensation as we built the senior leadership team. We have completed most of our investments in manpower and do not anticipate for this to increase further accessing this year.
Other expenses consist of service charges, which we pay to our wholesales incentive, power NPL, repairs and maintenance cost and other such expenses. We have been able to optimize this to keep the EBITDA impact of manpower neutral to the profit and loss down. In terms of volumes, we have processed in the current quarter about 5.5 million samples.
With these deep highlights, I'll again pass it on to our MD and CEO, Rahul Guha for the strategic updates to the investors. Thank you very much.
Thank you, Sachin. Before we get into Q&A, just briefly take a few minutes to recap our strategy and our priorities, just to give you a sense of what to expect over the next few quarters. First, as always, I will cover our value proposition to the customer. We continue to remain an affordable option to all patients with good quality and on-time reports. All our efforts on our value proposition is towards ensuring low cost to the patient, assurance on quality of testing through our certification and engagement with doctors. We have made substantial progress on this which I updated in my initial comments and is also reflected in the presentation. This will remain at our core and will guide all that we will do.
Second, our strategy. As I mentioned earlier, and it remains true, we hope to become the B2B partner of choice to all front-end diagnostic services companies in India, whether it is a small diagnostic center in a semi-urban area, a pharmacy in the metro, a small nursing home, an individual doctor or a leading online diagnostic platform, a health tech player. We are happy to provide low-cost robust testing solutions to ensure that they can serve their patients in the most effective manner. If they require phlebotomy, we are happy to mobilize our phlebotomy network of almost 900 and 400 network phlebotomists to serve them better. This strategy has been working well for us, quite frankly. As I mentioned, we have delivered 10% and 14% sequential growth in our B2B business. In addition, we have added substantial volumes, which helps us leverage our scale economics to drive value to the customer.
Third, when we think about the execution platforms on our strategy, what I shared last quarter continues to hold true. And if you recall and you would have seen in the presentation, we had laid out an 8-point agenda. We continue to focus very sharply on that 8-point agenda to drive value. To give you an idea of where we are against that 8-point agenda, I will split the discussion into 2 parts. Part A is related to leveraging the power of API platform, which has 4 focus areas. We continue to serve the PharmEasy customer base of 2.1 million quarterly transacting users. As I mentioned today, we are at 4%. The target is to get to 5% to 6% by the end of the year. We continue to partner with Retailio and Marg and their retailer networks of 2.8 lakh counters to expand order points. We have now begun to scale up from the pilot. We already have a pipeline of 11,000 retailers who have expressed interest in selling diagnostics at their counters. We have been able to onboard 900 of them who have been active and have placed a fulfilled order.
The third was leveraging Aknamed and API Group -- API Holdings relationships to build a diagnostic presence in the hospital space. We have built our own field team, and we are exploring all partnerships to scale our hospital presence. Today, versus where we were last time, we are now present in 50 hospitals, where we handle their outsourced business, and we will continue to focus on this and expand this network.
Finally, we are supporting PharmEasy and Docon and their offline collection points. To date, Thyrocare services demand a 356 PharmEasy diagnostic franchisees and 1,500 Docon doctors. So that's on the API Group side. As I mentioned, API Group now, today accounts for 13% of our overall revenue.
The second part is the focus areas in Thyrocare. The first, as I mentioned, we will continue to improve our value proposition to our franchisee network, and we will expand that aggressively. We have continued to scale our sales footprint. And as I mentioned, this quarter, we have added 1,000 pin codes where we have got our first order. We continue to focus -- the second element is our focus on health packages. Aarogyam has been our core brand, and we continue to promote that to corporates online and offline. However, Aarogyam was very focused on the annual health checkup, which is a once-a-year frequency item. We have now worked very closely with doctors to develop packages for all lifestyle diseases. If you see in our menu, we launched, as I mentioned, a monsoon fever package. But since then, we have also launched an alcohol impact package, a smokers package, a hair fall package, a skin care package and multiple, multiple packages targeted at lifestyle diseases and to help increase the frequency of purchase of our package profile.
We continue -- on the third point, we continue to expand our lab network to address the TAT or turnaround time challenges. We continue to invest in accreditation. As I mentioned, we are already at 8 hours logistics turnaround time across the country and 6 hours in cities where our labs are present. Our processing times in labs are down to less than 6 hours for 97% of the samples. And on average, we are processing samples within 4 hours. The combination of this means, as I mentioned, that wherever we have cities where our labs, our 22 labs are present, we are able to provide same-day reports and for across the country, we are able to provide reliably reports within 24 hours.
The last point, we continue to invest in technology. Much of the investments that we have been able to do in technology actually are the backbone of why we have been able to improve our turnaround time, improve our quality processes and improve our slot adherence at the customer end. So with that, this is my update on the 8-point agenda. We continue to stay true to the strategy and execute against that.
Thank you so much for giving us a patient hearing. I will always start and end with the quote from the Mahatma, find purpose, the means will follow. Our purpose at Thyrocare remains to provide high-quality, affordable testing to the masses, and we will continue to execute against this purpose and agenda. Thank you so much. With this, we'll open up for Q&A.
[Operator Instructions] The first question is from the line of Rahul Agarwal from Incred Capital.
Three questions. Firstly, to start with our non-COVID volume growth. Now obviously, adjusted for COVID, I'm looking at 1Q FY '20, and I'm comparing that with 1Q FY '23, which you just reported. The numbers look like $5.5 million to $5.6 million this quarter versus $5 million in 1Q FY '20. Firstly, are these numbers correct? And then secondly, the question was, if yes, then it looks like a 4% CAGR on a 3-year basis. I would imagine we are still tracking much lower than what we showed on non-COVID. If you could help give some insights on this? And how do you look at growth going forward? That's the first question.
Sure. Do you want to keep all 3 of your questions, Rahul or should I take them as we go.
Yes. So I'll give you 2 more questions. So secondly, on the geographic expansion was on the lab and Pin code expansion. You said what you did in the quarter. I just wanted to know where we are cumulatively today? And what is the goal like both in terms of number of labs and pin code expansion? And the third was essentially on doctor engagement. If you could elaborate certain reasons how you're going about it. But my sense is it's a pan-India issue. So my sense is there could be a lot more efforts to improve the brand perception in the medical facilities. If you could help us understand how would you go about this a bit more will really help. That's all from my side.
Thanks, Rahul. Thanks for all 3 questions. The first one, you're right. The 3-year CAGR on our non-COVID business is, I think, around 5% if I look at the overall correction. We've had a strong recovery this quarter. That being said, there is still a lot of work for us to do. It also means there is a lot of, how do you say, headroom for growth in the near term as we bring back channel partners who over the last couple of years because of the price moves and some of the decisions that we had taken had left us. As we continue to bring them back into the fold and convince them that Thyrocare is the brand to work with, I believe there's a fair headroom to recover back.
Just to give you a sense, over the last couple of years, of course, COVID was such a large part of our business, that in some way, we didn't focus too much on our non-COVID business. So a large -- there was a substantial decline that over the last couple of quarters, I would say we have started to correct and really drive the business and the fruits of that effort are there to see, right? Channel partners are coming back. Channel partners are increasing their share of wallet with us, and we are able to onboard new channel partners, which is what is driving the quarter-on-quarter performance. So that's the first one. But as I said, you've pointed out the right point. In a 3-year CAGR, it is only a 5% growth. I look at it as an opportunity rather than a headwind because there is upside to recover to where we used to be.
Second is on the cumulative number...
Sorry to interrupt, but just on this question, is it also a function of competition because we're seeing a lot of new guys being very aggressive on wellness [indiscernible]. Is it also a function of that? Or irrespective of that, we think we should go back to 15%, 20% growth?
No, actually, so just we are a B2B player, as I mentioned. And in the B2B space, I would say there have been new entrants in the last, I would say, 2 years, but they are not brands that typically make you would read in the papers and so on. That being said, I believe many of our channel partners when we reach out to them and communicate our current pricing strategy, current philosophy of working very closely with them are actually very happy to come back because we continue to actually have one of the lowest prices as a B2B player in the country. So from that end, I haven't really seen the impact of the new competition that is creating the buzz on our B2B business.
I got that. Yes. On the second question on the lab and pin codes.
So cumulatively, we will be at 22 labs and our PIN codes today, we will be at about 3,500 PIN codes.
And what is the goal?
Sorry?
What is the target here? I mean, what are we looking at, at 12 months, 24 months, whatever? I mean internally, how are you thinking about these 2 numbers?
Yes. So 22 labs, so we have what are called large footprint labs. We will add only 2 more in this year because once we do that, actually, in any Pin code -- any pin in India, if you drop a pin anywhere in India, there will be a Thyrocare lab within 200 kilometers. So -- and with our logistics network, we believe we should be able to get samples to the lab between, I would say, between 8 and 12 hours maximum. So after the 2 labs that we have planned, which I'll share the details when we meet next time because by then, hopefully, we will have inaugurated those labs. We don't plan to add any more large labs. So we'll end our network about 24. Selectively, we will invest in what we call satellite labs. That will be largely micro market, small format labs, where we will really kind of invest, I would say, about 8 of them in this year, which are there really in highly dense markets to be able to manage the TAT and the turnaround time expectations of our clients.
Just to give you a sense, for example, today in Mumbai, if you're familiar with the geography of Mumbai, we have 2 labs, one in Navi Mumbai and the other in Kurla. We are looking at expanding a satellite lab on the western side of the city because we struggle with our TAT on that front. Similarly, in Bangalore, we are only present on the northern side of the city towards the airport. We are actually looking at areas, expanding a satellite lab in the southern part of the city. So that is what the satellite lab footprint will be used for Rahul. But on the lab side, we will kind of end at, as I said, 24 regional labs and maybe about 8 satellite labs.
On the target is to be in 5,000 pin codes by the end of the year. I think we currently on average, add between 150 to 200 PIN codes every month, and we expect to continue that run rate.
Got it. And lastly, on the doctor engagement, please?
So on the doctor engagement, it's an interesting question. We have realized that we will have to tackle this at 2 levels. So let me first talk about the national level what we are doing. On the national level, we are actually working with very, very senior doctors to create educational videos for the doctor network for different diagnostic tests and how they can be used in the treatment paradigm. These are Thyrocare sponsored videos with very senior key opinion leaders. The last one that we did was in the area of PCOS or polycystic ovarian syndrome with a very senior KOL. It's there on our website. It's there on YouTube. We got about, I think, about 1.5 lakh views of those that web video, which was largely promoted to the doctor network, particularly through the [ proxy ], which is the large gynecology platform for doctors and then, of course, on our own social media channels.
We are planning to do similar work in TB. Actually, the videos are ready. We are just launching them in a phased manner, expect one every month coming out, which are very senior doctor kind of top of the line key opinion leaders who will be talking on a Thyrocare branded platform. We also are participating in many of the national conferences, typically by specialty. Once again, to educate and share about Thyrocare, our practices, our technology and educate doctors on how we can play a role in their treatment. So that's at the national level, what we're doing.
At the local level, as I mentioned, we have invested in a field force. The field force actually works very closely with our franchisee network and goes out and meets doctors and actually shares with them the Thyrocare processes. As I've shared in multiple calls before, we have 100% barcoding of all our vials. We have a fully automated technology system across our 22 labs that allows us to process samples real time and release give you status of your barcode and samples in real time. And all these times and all of that is actually published in our report, including when your blood was drawn, when the sample arrived in our lab and when we released the report.
So all of this, we have -- we talk about with doctors. Our sales force goes out and actually educate doctors about Thyrocare and what our technology is. We have also invested in a trained pathologist in every lab so that should any doctor have a question about any of our reports, a trained pathologist is there at our labs to be able to answer and help the doctor understand our reports and the results there. So those are the 2 levels that we are working at a local doctor-by-doctor level using our field force to educate them about the technology and quality processes that we have and at a national level using the key opinion leaders on a branded Thyrocare platform, along with our participation and conferences to once again talk about what we are doing.
[Operator Instructions] Next question is from the line of Dheeresh Pathak from White Oak Capital.
This B2C revenue, just to clear my understanding. This is business directly moved to the website or app?
So Mr. Pathak, just to clarify our B2C business is where...
Dheeresh, may I request you to mute your line from your side please.
Yes.
So Dheeresh, just to clarify, our B2C business is where we collect the sample. So it is where a Thyrocare phlebotomist goes to the customer and collect the sample. It is not necessarily our Thyrocare app or Thyrocare website. It could be one of our many partners who basically books through a lead generation platform, and then we go ahead and collect the samples. For example, as I shared with you, we have now onboarded 900 pharmacies to book diagnostic tests. These pharmacies typically engage with their customer and then book a test using our B2C platform and then we send a phlebotomist to the customers house to collect the sample. That is also considered a B2C order. But it's really B2B2C, if you think about it, we work with large aggregators. I can't share their names, but many of the famous HealthTech platforms and aggregators would actually book a test through Thyrocare, where a Thyrocare phlebotomist would go and collect the sample.
The other area is our work with corporates. So just imagine a large corporate that has 100,000 employees, may onboard Thyrocare as its diagnostic partner. They would punch an order on our system, our phlebotomists would go and collect the blood sample and we will process the order. That order is also classified as B2C.
So in that lead generation that the partner is doing, let's say, for example, I was looking at one of your Aarogyam packages, INR 800, so how much -- let's say, the customer is paying INR 800. How much is the partner who is generating the meet keeping and in case of B2B, how does it vary? Like is this B2B2C and in case of B2B, how much does the partner see if from the retail price?
Yes. So in the B2C side, we typically offer basically what we call direct selling agent commissions, that can range between 30% and 40% on the net order value. So if the patient has paid INR 800, you would top up about 40% on that, which is what would have been the list price and -- sorry, if the patient paid -- let's say, my Aarogyam package was INR 1,600, which is typically my largest selling package. Then the agent would make about between 30% and 40% depending on their scale. So for the sake of argument, let's say, 30%, so INR 480 is what the direct selling agent would retain. And then once INR 1,120 is what the company would realize. The patient would be paying INR 1,600. Whereas...
This is B2C -- how does it work in B2B?
It is B2B2C. In B2B we have a fixed price that we sell into the channel. So to give you a similar thing for the INR 1,600 package, our B2B price would range between, I would say, INR 800 to INR 1,000 depending on the size of the partner. And then we invoice the partner for sake of argument, INR 1,000 at this point. And then the partner basically decides between the INR 1,000 and INR 1,600 at what level we would like to price to retain the customer. So the B2B is a company forward billing, whereas our B2C is a patient realized commission.
Understood. And one last question. In B2B, who is paying for the logistics from the partners collection point to your lab, who is -- that is booked in your P&L or that is taken care of by the partner?
No, no. The collection from the B2B franchisee to our lab is booked in our P&L.
That is shown in other expenses as service charge right?
Because that logistics network [ Devesh ] is entirely owned by me.
Yes. And that when I see your published numbers in your other expense, it shows up at service charge. Is that the line item?
Dheeresh, are you done?
I just wanted confirmation on that logistics part.
The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.
My first question is on the API platform that Thyrocare is leveraging. Post Thyrocare's acquisition by API, can you share some numbers on what's -- how the contribution from the platform...
Can you hear him?
Hello?
Yes, I can hear you.
Yes. Are you able to hear me?
Yes, I can hear you.
Okay. Sorry, I'll just start my question again. So post acquisition, how has the sales contribution from the API platform moved up for the most recent month? Can you share some numbers here? Hello? Can you hear me?
[Operator Instructions] Sir, you may go ahead with your question.
Yes. I'm audible?
Yes, sir, you are.
Okay, sure. Sir, my first question was on the sales contribution from the API platform. Can you share some numbers on how that has moved up till the most recent quarter?
Yes. So sorry, I didn't get your name.
This is Nikhil Mathur from HDFC MF.
Nikhil, just to give you a sense, 2 quarters ago, I mean, the API platform numbers were negligible. As I shared in Jan quarter -- Jan, Feb, March or Q4 FY '22 is when we started to integrate with the API platform. In that quarter, API revenue was 8% of our total revenue. As I've shared in this quarter, we have finished the integration overall. So the -- and as I've shared, it's about 13% of our overall revenue. So in Q3 of FY '22, it would have been close to zero. In Q4 of FY '22, it was 8%, in Q1 of FY '23, it is 13%.
Okay. And this revenue from the API platform, would it be entirely B2C or combination of B2C and B2B, how would that play out there?
So it is a B2B business for us as all platforms, because API Group actually has its own phlebotomist network and they collect the samples themselves. We actually collect the samples from their collection points or drop points and then process the samples in our labs. So in that way, it is exactly like with any of our other B2B partners. So it's actually considered a B2B business for us.
Okay. So considering that the part of the sample collection cost is shared by the API collection network. Would the margins be superior to other B2B contracts or the pricing would adjust accordingly and keeping the margin neutral versus other B2B relationships?
Yes. So the way we've done it is given the size of course, the API Group is substantially large account for us, we have, for all our B2B accounts, a volume discount labs that is actually available to any of our B2B partners. That volume discount labs are calculated essentially basically at -- when we give the discount while we may take a hit on the gross margin level because we get a significant operating leverage at the lab level. At a gross margin level, we may be lower. But at an EBITDA level, actually, we kind of end up either neutral or better off. So that's how our slabs are constructed. So we have a slab. If you are a INR 1 crore a month party, we have a slab if you're a INR 5 crore a month party and so on. And we have calculated the discounts essentially to share the operating leverage benefit that we get from volumes. That same pricing policy is applied to the API Group as well.
Got it. Got it. Another question I had on the lab infra and that is kind of tied to TAT. Many of your peers on the B2C side, they're working with a lab infra of 200. SRL has a lab infra of 434, 440 labs. And then you mentioned sample collection or sample delivery is still taking 18 hours. At a very high level, don't you think that there is a pressing need to take up the lab infra at a very high pace, so that you can lower the TAT and only then can your various initiatives that you have mentioned in your 8-point agenda can work out the way you are envisioning over the next 2, 3 years?
So it's a very good question. It's actually a very deep question also. See, a large part of our competitive advantage comes from having labs that are significantly large and therefore, have a very high throughput and therefore, we get the operating leverage benefit, right? And also because of our volumes and the way we are able to consolidate, we are able to negotiate with our reagent partners to get the best possible rates. That's the source of our competitive advantage and why we are able to offer the kind of prices that we are able to do in the overall market. As and when you start to expand the lab network into smaller and smaller labs, you lose that operating leverage on every incremental small lab. And as a result, you start to dilute the overall EBITDA for the company, because you are running then from a tight network of 22 highly efficient labs. You're running a network of about 250 not so efficient labs right? And each of those labs would have 500, maybe 1,000 samples, maybe even less than 500 samples a day, which then makes it very difficult to run an efficient and optimal cost structure kind of lab.
So with that being said, therefore, the problem in conundrum is how do we kind of optimize our logistics stat while preserving our competitive advantage in the scale of our labs. And for that, actually, technology is the solution. As I mentioned in the earlier part, we will have a lab after I finished the last 2 labs that I talked about. We will have a lab within 200 kilometers anywhere in the country, right? Then if we are able to leverage technology, I believe we can bring the logistics down. We are currently, as I mentioned, at 18 hours. I believe with technology and being efficient on how we run some of this, we can bring that down to 12 hours, which means across the country, we will be able to deliver reports on the same day.
To be honest, these are preventive packages. To a large extent, I mean, patients are on fasting in the morning. They will probably go see their doctor only the next day. There is not that much of a demand at least that we have seen from patients that requires the test shorter than, let's say, the end of day, same day. And so we are -- we keep that as our value proposition, and we'll deliver that to the patients, which is same-day reports. The way we will do it is keeping our lab network efficient but also then squeezing as much efficiency as we can out of our logistics using technology.
Right. So I mean, one question kind of attached to this. So given the strategy of being efficient right from the initial days of setting up a lab, would it be fair to assume that the focus test menu for Thyrocare would be restricted versus what the peers would be operating with? Can that be a fair assumption?
So yes, I mean, my peers would have upwards of 2,500, 3,000 tests. Our test menu will be about 700, 800. So in that way, yes. But I would say this is a testing business with a very, very long tail, right? So if I look at the 700 tests that I run also, out of those, I would say, almost 300 tests would account for less than 5% of my revenue. And that tail gets even longer when you go from 700 to 2,500, right? And so yes, we will, of course, not be only thyroid focused, right? We have a test menu of 700-plus tests. But we don't see us going to 2,500, 3,000 tests because that will be an impossible long-tail [ demand ].
[Operator Instructions] The next question is from the line of Chirag Dagli from DSP Blackrock.
With the API business being about 13% of our overall revenue, non-COVID revenue at the moment. 3 years CAGR of low single-digit. It seems like the non-API channel business is almost flattish, maybe declining as well. Anything specific that you want to highlight in terms of what's going on over there? Have you undertaken any rationalization? Just how should we think about the non-API piece?
Actually, the non-API business is not flattish. If you take the growth, about half the growth will come from API on a sequential basis, half the growth will come from API, half the growth will come from the base business. And as I said, the base business is growing also quite strongly. The largest bet that we have made is actually geographical expansion, where we are adding channel partners on -- as I mentioned, at a run rate of about 150 a month, and we will continue that journey.
So -- but when you -- the reason I look at 3-year CAGR is because it sort of normalizes everything that's happened with COVID. So when you look at the 3-year CAGR, it seems like that the non-API business has not grown much on a 3-year basis.
On a 3-year basis, yes. See, as I said, a 3-year CAGR, yes, while helpful to look at overall. As management, we have taken over in the last few -- last couple of quarters, we are pushing very hard to drive recovery in the base business. We track the business quarter-on-quarter to be able to show that we're on the right trajectory of growth. You're absolutely right, year-on-year versus last year because of the base effect while you look at 33%, you think it's an overall great performance. However, what we as management track is just continuous growth quarter-on-quarter, which is driven by -- and as I mentioned in the initial part, last 2 quarters, we've been able to basically grow the business consistently over the last quarter -- over the last 2 quarters at 10% plus. That growth actually is there. We are seeing our franchise growth also kind of grow quarter-on-quarter as well as the API business is a nice top-up on top of that. But I would not say that our entire quarter-on-quarter growth is driven by API. That's not true.
Understood, sir. And can you quantify the number of samples for COVID RP-PCR in the first quarter, absolute number?
The absolute number of COVID RT-PCR in the first quarter of this year, just give me a second, someone will pull it up for us. It's not a very large number...
So we reported about...
I would say...
$26.9 million of revenue. Commensurate to that, I wanted to know what was the number of samples.
Number of samples will be 72,000.
72,000. Okay sir.
Next question is from the line of [ Aditya ] from SiMPL.
Needed clarification on one matter. It is mentioned in the presentation that there are almost 2.1 million transacting users in PharmEasy. So how much of these users will be booking tests through our Thyrocare platform?
So as I mentioned, today basis, the transacting users, roughly our cross-sell number is at about 4% overall. We hope to take that to between 5% and 6% by the end of the year.
Right. And pre-COVID, Thyrocare used to make margins of around 40%. And now it is currently doing 20%, 29% for the last 2 quarters. So can you just explain the reasons what has happened, which has led to such a drop in margins?
Yes. See, as I mentioned earlier, firstly, actually, during the entire COVID period, I hope I have been able to explain over the last 2 presentations that a lot of the 40% margin that was there was actually driven by COVID. In the pre-COVID period, there are 2 effects that are largely playing out in where we have invested in the -- to drive the overall margin. As I said, in the pre-COVID period, also, we had a stance of very, very high prices and we have started to take up prices even at that time. So one is, we have been investing in basically bringing back our channel partners and so to a certain extent, the GM is lower than what it used to be about 3 years ago. And then the second is, if you look at the 3-year history, the company never really invested in a field team in managing -- in going out and meeting doctors or invested in to a large extent, creating some of these education and accreditation concept. So some amount of our overhead and manpower cost is being deployed towards growth, which is the secondary effect that you see in the EBITDA.
Right. So these will be the sustainable margins at least in the near future, right?
At least in the near future I think as we are driving growth, I would expect margins to remain in this range. As the growth comes, of course, we will get operating leverage, and that will flow down into the bottom line. So as the business scales from here and we start to see the benefits of the operating leverage, you should see that getting reflected in the margins. As I said, our investments, both in terms of manpower and kind of doctor engagement and all of that, I think we have now completed all of that. So our overheads will kind of remain in this range. And then as we get growth, we'll get the benefit of the operating leverage.
Right. And sir, one bookkeeping question. With the free cost mentioned in your annual report, is it part of the service charges? The logistics cost.
Sorry, I couldn't hear that. Could you repeat the question?
There is repeated question. The freight cost, logistics cost, which we incur. So where is reflected in the P&L?
The freight cost.
The cost of the phlebo and cost of the last mile effective for carrying the sample to the laboratories sitting in service charges.
Next question is from the line of Aashita Jain from Edelweiss.
Can you hear me now?
Yes.
So, sir, just one question from my side. Could you just help me with your Aarogyam revenues for this quarter?
So our Aarogyam revenues Aashita is INR 45 crores for this quarter.
Next question is from the line of Tushar Manudhane from Motilal Oswal.
Sir looking at the non-COVID diagnostic service revenue, which has grown by 12%, while the volume growth has almost to the tune of 19% quarter-on-quarter basis. In data implies the realization to be getting lower. So while you alluded that the online platforms has not kind of disrupted the pricing, then if you could just explain what is dragging this realizations lower?
So as I mentioned, to a large part, I think in our franchise business, realization at the GM level has kind of remained steady. As I had mentioned, with our large online players, so of which API Group is one, but we have several other online platforms that we work with actually all the online platforms to service their diagnostics revenue. As I mentioned, we have a slab-wise discounting structure. So while you see the impact at the GM level, overall at the EBITDA level, it has not impacted. So it's just a little bit of a mix effect coming out from that, the 12% value growth versus the 16% volume growth.
Next question is from the of [ Santan Maji ] from Credit Suisse.
Sir, my question is...
Can I request you to speak a little louder, please?
Can you hear me?
Slightly better, sir.
Yes. So my question is basically on -- since the API Group has become such a large part of our revenues now. So is there any specific promotions that API Group is doing out specific promotions that you guys are planning to do to further increase the revenues as API customers also increased and as you have planned for more cross-sell opportunities as well?
As you know, we are the 100% exclusive diagnostic testing partner for the API Group. So actually any test that is booked on the PharmEasy platform actually flows through to Thyrocare. That being said, I think the group on the PharmEasy platform continues to kind of push diagnostics as a priority area. If you visit the app diagnostics visibility is substantially higher than where it used to be, I would say, about 6 months ago. The cross-sell journey also is actually much more seamless. It's much easier actually on the pharmacy app to book a diagnostic test than if you tried on almost any other HealthTech provider app. And that's largely because there has been a lot of focus on the pharma end to be able to drive diagnostics on the platform. That's one.
The second is, as I mentioned, there's a lot of focus on ensuring Retailio and the pharmacy counters under Retailio are fully educated to sell diagnostics. So as a result, there is a lot of promotion. There is a field force that is going out and meeting retailers counter-by-counter to convince them that selling diagnostics at a pharmacy counter is something that adds to their bottom line. So that is the second substantial investment that the group is doing to drive diagnostics.
So in sum -- on short, 2 main investments, I think there's a lot of investment in the PharmEasy app to optimize the diagnostics journey as well as on the discounting side, which is anyway visible. And on Retailio, there is a dedicated field force that is going to convince the captive -- not exactly captive, but the onboarded retailers, both on Retailio and Marg ERP to actually help them sell diagnostics.
Okay. Great. On the choice between B2B, B2C, it a conscious choice where you drive one part of the segment? Or are the realizations more or less the same and at EBITDA level, so are they similar?
Actually the realization at EBITDA level is similar because while my revenue realization in B2C is higher, my cost realized cost is also higher because I incur the cost of the phlebotomist and incur the cost of the kit to collect the sample and then the rest kind of flows from there. So I would say our B2B and B2C net realizations are kind of comparable. The only reason we continue to focus on both. The way I think about it is if you are a customer who has a phlebotomist or the ability to draw blood, I can be a diagnostic partner for processing. But however, if you are, let's say, a partner who actually talks to patients and talks to health-conscious customers, but don't have the ability to collect the blood sample, then my B2C business is there to support you in that journey. But otherwise, on a net realization point of view, there is nothing different. It's just 2 sets of capabilities. The second one really so that I can expand my footprint of customers.
Okay. That's clear. And just one last question. So this B2 -- is there any cost that you incur below gross profit and above EBITDA in B2B?
Sorry, I didn't understand this question.
Yes. So I was checking if you incurred any costs, say, below gross profit and above EBITDA in B2B part of the business in SG&A overhead expenses because sample is being collected by your partner.
So we incurred the logistics cost of transportation of the sample from the franchisee to our lab and we incur the lab overheads, the manpower cost to process the sample in the lab. And then of course, our own central customer service, call center, and the processing of reports and all of that. Those are the 3 main cost items. And then, of course, the corporate overheads.
Participants, we will take the last question from the line of Nikhil Mathur from HDFC Mutual Fund.
I just had one question. So on the raw material cost front, which is the reagent cost, it seems -- I mean, it is my understanding, you can please correct me if I'm wrong. The -- at your end, at Thyrocare's end. the industry is still fragmented across unorganized and organized players. But my sense is that on the reagent side, some of the global companies, which supply these agents, they are much more consolidated at a global level. So is there a mismatch today between the bargaining power of companies like yourself who are procuring these stages from these companies? And given that the inflation environment that we are in, you might actually see higher reagent costs going forward. Your prices remain the same and that can be a pressure on the gross margin for the next 1.5, 2 years. I'm not taking account any mix changes here, but just like-for-like gross margin movement, if that can be a risk over the next couple of years?
No, certainly, I think given the dollar and the rupee and how that dynamic is playing out, we are also seeing many of our vendors coming back with requests for cost increases and so on. I will say that our share of the cost increase may not be as high as if you were a smaller customer in the network. But I think that as a given -- I think as an industry, we will also to -- in some way, and form tweak our packages in a way that we pass on that cost to the customer. We may not, for example, just to give you a sense, we may not increase the price point that the customer may pay for a particular package. But we may tweak the package itself to kind of compensate for some of the cost increases.
I now hand the conference over to the management for closing comments.
Thank you, everyone, for joining the call. As I mentioned, this is my first, I think, 90 days in the job. So looking forward to continuous engagement, continuous dialogue and discussion. I hope in this call, we've been able to present the strategy and the fact that we remain true to the strategy. We continue to execute against that strategy. The way we kind of measure ourselves because of all the COVID noise is we have been just looking at our growth as we progress each quarter and execute against the strategy. And many of the things are working. Some of the things we still have a lot to learn. So I hope to keep engaging with you and giving you updates as we progress on this journey. Thank you, everyone, for your time.
Thank you very much.