Thyrocare Technologies Ltd
NSE:THYROCARE
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Thyrocare Technologies Ltd
Earnings Call Analysis
Summary
Q2-2024
The company's total expenses stand at INR 60 crores, with a split of 40 crores fixed and 20 crores variable to revenue. They project maintaining an EBITDA margin in the 28-30% range, reinvesting operating leverage into business promotion rather than expecting significant operating leverage gains. CapEx investments were about INR 46 crores, mainly due to replacing 25+ machines at about INR 17 crores. They've secured around INR 30 crores in loans over a 3-year term at competitive rates for plant and machinery. The product 'Jaanch' has surpassed expectations, reaching INR 1 crore a month, with targets to double by next year to around INR 25-30 crores. An additional INR 10 crores is anticipated for replacement and infrastructure in H2, with INR 10 crores allocated for international expansion, primarily in Tanzania. The next financial year's CapEx is estimated to be in the INR 50 crore range.
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Ladies and gentlemen, good day, and welcome to Thyrocare Technologies Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Pratik Hire from Thyrocare Technologies Limited. Thank you, and over to you.
Thanks, Ashishti. A very good evening to all, and thank you for joining us today for Thyrocare Earnings Conference Call for the Second Quarter of the year FY '24. Today, we have with us Mr. Rahul Guha, MD and CEO; and Mr. Alok Jagnani, CFO, to share highlights of the business and financials for the quarter.
I hope you have gone through our results release and the quarterly earnings presentation, which has been now uploaded on the stock exchange website. The transcript of 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 may be viewed in relation to the risk pertaining to our business. After the end of this call, in case if you have any further questions, please feel free to reach out to the Investor Relations team.
With this, now I hand over the call to Mr. Rahul Guha to make the opening remarks.
Thank you, Pratik. Welcome, good evening, and welcome to all on the call. Thank you for taking the time out from your busy schedules to join us this evening. Quick introduction of those of us on the call. My name is Rahul Guha, I'm the MD and CEO of Thyrocare and I thank you for the opportunity to present the Q2 results for FY '24. I'm joined with my colleague, Alok Jagnani, who has recently joined us as our CFO. Additionally, Pratik Hire, who you heard is part of our strategy team and leads Investor Relations and is with me along with Aditya Shinde, who heads our finance, admin and sourcing functions.
Before we begin, as with all my calls, I will always start with the quote, but this time from Nelson Mandela in recognition of our foray into Africa. "It is in your hands to make a better world for all who live in it", and we believe Thyrocare can bring our business model to Africa to make affordable and good quality diagnostics available to all.
With that, I will give you some key highlights of what we have been up to in the last quarter. Before we get into the details of the quarter, I'll reiterate our pay-for-performance pricing structure that we implemented at the beginning of this financial year. Earlier, our discount structure was 1 size fits all, but now we have moved to a slab-based pricing model, which we implemented in May 2023.
This has led to an increased energy with our franchise network with motivation to move up volumes and enter higher slabs. This has resulted in both volume and value growth in the last 2 quarters. As always, we continue to selectively expand our offering. Aarogyam, which has been our flagship brand in the preventive healthcare segment. As I've discussed in previous presentations, we have 2 more brands, Jaanch, which is our diagnostic or illness package offering and Her Check, which is focused on women and largely focused in the maternity and women's health space.
Jaanch, as I said, is targeted towards lifestyle challenges for you to better understand your health. We have solutions across the spectrum for anything you might be worried about, whether it's fever or something more serious, hair fall, cancer screening as well as deep investigations for common chronic diseases like diabetes, heart health, amongst others. Jaanch is already doing INR 1 crore of monthly business. We have revamped our Gynec portfolio and relaunched it under the brand name Her Check, which is focused on women's health.
Our partnerships business, excluding API and the government business continues to do well as we grow existing accounts and add new partners. On the government side, I'm very happy to share that we have been awarded contracts for TB testing in the State of Gujarat and Assam and the work has started from this month.
On the international expansion side, we have signed the JV agreement, and the company has been incorporated in Tanzania. Our plan is to be operational in the Tanzania market by the beginning of the next financial year. As I told last quarter, we have revamped our equipment platform. Our equipment was quite old with an average age of 12 years. We have added 24 new machines from our vendors bringing our average age down to 6 years. These new additions have dramatically improved our reporting accuracy, performance and turnaround time.
As you would see in the financials, we have financed these machines over a period of 3 years. As we get into the results, I wanted to share with you a few highlights or pointers before we deep dive into the same. Our franchisee business showed a strong revenue growth of 20% year-on-year. And while our partnerships business saw a decline because of API and the closure of our MCGM contract. Our partnership business, excluding API and B2G showed a strong revenue growth of 22% year-on-year. The API business, while de-grown year-on-year has now stabilized quarter-on-quarter at a quarterly run rate of INR 12.7 crores, which is a growth of 5% quarter-on-quarter.
Our radiology business did a revenue growth of 20% year-on-year, which includes our new foray into full-scale radiology through Pulse Hi Tech. Overall, we did a 10% year-on-year revenue growth on a consolidated basis.
With that, I will hand over to Alok to take us through the results.
Thank you, Rahul. Hi, all. Good evening. Thanks for this opportunity. I'm very excited and thrilled to present my first financial highlights of Thyrocare. I will briefly update you about the key highlights of Q2 FY '24 financial performance. Before we get into the details, I will reiterate about the ESOPs program that we have been mentioning in the last few quarters. This program has been introduced at group level to retain talent at Thyrocare. These ESOPs of parent company will vest over a period of 6 years, and we are recognizing the same as per in-air IFRS as a book entry towards share-based payment and appropriately reflecting profit and loss account as an expense and balance sheet as an equity contribution from parents.
The total value of ESOPs granted are INR 45.53 crores over a period of 6-year period. But 1 thing we must note that this is a cashless transaction, and there is no gap outflow going to happen. As for the in-air, the options are valued at a grant period as per black school formula, which is charged to P&L over a resting period proportionately. And typically, it's result in a hit in the year of the grant, then proportionate charge over the vesting period.
The breakeven -- the breakup is included in the presentation. As these are not operating expenses do not impact the cash flow of the company, we have normalized EBITDA, which takes into account along with the provision of bad and doubtful debts. Now to go into the performance. Our overall revenues saw a growth of 10% year-on-year, driven by 20% growth of franchisee business and around 22% growth in partnership business excluding API and B2G.
Our employee benefit expenses have increased by INR 1.3 crore versus last quarter, mainly on account of actuarial valuation impact on leave encashment and gratuity, which may be a timing difference and expected to be actualized in a subsequent quarter based on the actual leaves availed by our employees during the festive and holiday periods, which are in Q2, Q3. Our other expenses overhead has increased by INR 4.8 crores versus last quarter on account of increased spend on business promotion expenses, loss on sale of end-of-life assets and onetime legal fees and some other IT expenses.
As far as the EBITDA margin is concerned, our stand-alone normalized EBITDA margin remained flat at 30% compared to the same quarter last year. EBITDA margin in NHL stood at 6% versus 17% Y-o-Y, mainly due to the 8 machines coming out of the CMC period and increased transportation costs due to the increased volume of FDG and plasma sales. Our consolidated normal EBITDA margin remained stable at 29%, same quarter last year.
With this brief highlight, I will pass it on to our MD, CEO, Mr. Rahul Guha for the strategic update. Thank you.
Thank you, Alok. Briefly, I would like to take a few minutes to recap to you our strategic direction, and then I will open it up for Q&A. First, I will reiterate our value proposition to the customer. We will 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 certifications and deep engagement with doctors. We have made substantial progress on this, which I updated in my initial comments and is reflected in the presentation.
This will remain at our core and will guide all that we will do. Second, our strategy. We hope to become the B2B partner of choice to all front-end health care services companies in India, whether it is a small diagnostic center in the semi-urban area, a pharmacy in a metro, a small nursing home, an individual doctor or a leading online diagnostic platform or HealthTech Marketplace. We are happy to provide low-cost, robust testing solutions to ensure 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 companies and 400 network phlebotomist to serve them better. This strategy has been working well for us with our franchise business at an all-time high again. And hopefully, the headwinds in the e-commerce space will abate and our partnerships business will be on a strong growth trajectory once again. We remain true to our strategy. We have 3 key pillars of growth, which I have shared in the last few quarters. I will reiterate once again, we are focusing on 3 areas. The first is our franchise business. The focus is to take our franchise business deeper into India with a focused test menu and provide our clients with a frictionless experience to transact with us and provide their customers the best testing experience that they can.
We will continue to focus on private as well. The second area is where we will focus on our partnership. We continue to focus on private as well as public partnerships. In the public space TB and infectious disease, which is our focus, where we are, by far, 1 of the strongest players in these segments, where we have won tenders now in Gujarat and Assam.
Additionally, we will continue to expand our partnerships across health care companies, hospitals and other health services companies and enable them to provide diagnostic testing to their customers. The third area is new for us. We believe we have a strong and robust B2B model with a core of execution. We are ready to take this model forward with our first entry in Tanzania. The opportunity is tremendous for us to be able to launch affordable tests. I'm happy to share that the JV is signed and Thyrocare Tanzania has been incorporated. That in a brief is our mandate as management. Thank you so much for giving us a patient hearing. As always, I will end once again with the quote from the Mahatma. "Find focus, the means will follow", and our purpose remains to provide high-quality, affordable testing to the masses.
With that, I'll open it up for Q&A.
[Operator Instructions] We have a first question from the line of Rahul Agarwal from Incred Capital.
Welcome Alok and best wishes to you. Sir, first question was on the TB testing contract. Could you please explain whatever is possible on the Gujarat and Assam contracts in terms of the revenue size, the tenure? And how does the business grow forward? That's the first question.
Sure. I think it's early days for the government business. These 2 contracts will total to about INR 4.5 crores. So, it's the first set of wins that we've been win after. I think now we will -- as we gain confidence and execution of that, I think we'll go after more and more contracts.
So INR 4.5 crores annual, right?
Yes.
And for what -- what is the tenure here?
It's for 1 year.
Okay. Got it. Secondly, on the working capital side, what I can see is as of September, we are down about 38 days of net sales, which is good. I just wanted to know what should be the sustainable level. Once we get whatever outstanding payments we have with the government on a sustainable basis, our net working capital cycle should stabilize at what level, sir?
So firstly, I think we've received most of our government payment. And overall, I'll let Alok take this. Alok, why don't you take this.
Thank you, Rahul. So on the trade receivable and the working capital piece, Rahul, we are expecting that the -- on an average trade receivables are going to be around 90 to 120 days outstanding because it's going to have a B2G outstanding and all, and it's required a longer period of payment. In case of our partnership business, we are expecting that it's going to be as for the terms and conditional business agreement, which is between 75 to 90 days. So on an average, it's going to be a 3-month working capital is going to be on the credit side in B2B business, most of the things are on prepaid model. So there is no working capital blocking is required there.
Just to clarify I think.
Rahul, I think you're saying I would expect from here I think 1 could expect another 20% reduction in -- as the remaining outstanding gets clear.
Right. So on a net basis, 30 days should be like a reasonable number long term? 30 days of sales?
Yes. I think 30 days of sales, working capital should be more or less what you should expect.
Get it. And Third question, then I'll come back in the queue but on CapEx, INR 47 crores for first half. This number has taken on the cash flow. Could you explain the breakdown, please?
Sure. Alok, do you want to take that? Yes. His question is INR 47 crores of CapEx in the first half. What is the breakup of that?
So Rahul, from where you have got the number of INR 47 crores. So as per our working -- in H1, we have incurred around INR 16 crores of CapEx, which includes plant and machinery, worth of rupees and INR 11 crores, IT and other software expense, which we have done INR 2.5 crores. And in office and lab furnitures, we have spent around INR 2.5 crores.
We have our next question from the line of Rahul Mulani from Aditya Birla Finance.
My question is there is a penalty of INR 2 crores from NMMC. Sir, what is the exact situation and whether we are going to appeal or not?
So we have received a notice from -- demand notice from LBT last week, and we have updated on the exchange portal. We are evaluating our options for appeal and further course of action. And we will update accordingly soon.
Okay. And the second question is like now you have entered the African continent. So any future plans like other geographical expansion?
Yes. As I had highlighted in my earlier presentation, we have shortlisted 3 main kind of geographies, one was Africa, second was Middle East and third is Southeast Asia. Tanzania is our first step into Africa, but our plans are to at least expand into the East African nations as our first entry into Africa. We are evaluating options to enter the Middle East. I think Southeast Asia is on the back burner at this point in time until we sought out both Africa and Middle East.
We have a next question from the line of Mike Shah from Prospero Tree.
Yes. I just have some simple questions. On the overall basis, our GP margin looks good. So what in terms of the operating expenses are [indiscernible]. And on absolute terms, when will the operating leverage we generated. What should be the revenues should be above group number for operating leverage should be generated after that. So what is that absolute number?
Okay. Can I ask you to repeat your first question because your voice broke a little bit at that point.
Okay. What is the percentage of fixed operating expense like fixed percentage of other expenses?
Okay. So see, our employee -- if you look at our total expenses, we were at about INR 60-odd crores. Employee benefits remained by and large, fixed. And I would say, in the other expenses, you can take a ratio of 50-50. So I would say about of the INR 60 crores total expenses about INR 40 crores would be fixed and INR 20 crores would be largely linked to revenue to a broad extent.
So if you're looking for operating leverage at this point, I think it will -- I have been always guiding that we'll kind of maintain our EBITDA margin in the 30s range because as we grow the business and invest in growth, as I said, both the franchisee business and our partnership business have grown at 20% plus. And our D2C or our direct-to-consumer business also has grown at 19%, right? All of this has required investment in business promotion and visibility and the like.
So we will continue to invest back any operating leverage we get into business promotion to fuel the growth. So for this financial year, I would not expect much operating leverage. I've been saying that we'll be in the 28% to 30% range for our normalized EBITDA. I'm hopeful if we are able to sustain the growth into next year, you will start to see operating leverage kick in. It's too early to comment, maybe towards quarter 4 results, I'll start to give guidance for next year. But I'm hopeful that next year, we will start to see operating levels.
Okay. So anything about 30% of EBITDA margin would be invested in marketing. That's what you are saying?
Yes.
Okay. That's pretty clear. My next question is -- so for the Radiology business, up to what level of revenue would the operating costs not increase? Like right now, the revenue has been quite flattish for some time of INR 10 crores this quarter as well. And operating costs are almost 70%. So what is the level of revenue where the operating costs will not increase?
See, the operating cost actually in our Nueclear business is by and large fixed.
The main categories of operating costs in our Nueclear business, if you look at it is about INR 8 crores. Most of that is actually CMC costs, rent cost for the locations. CMC is the maintenance of our PET/CT machines. Then we also have rent at those locations plus the staff at those locations. So I think the large amount of our cost in NHL is fixed. So I would say of that INR 8 crores, almost INR 4 crores would be fixed. The rest is commissioned that we pay to our centers where we have franchisees, right?
So that is linked to the revenue. My sense is, actually, we should be at a healthy profitable level. Once we cross INR 12 crores a quarter.
So when will that happen? Because it has been quite flattish since quite a long time. So when will the business grow [indiscernible] is not able to grow as of now?
No. Actually, that's not true. If I look at -- see, last year, we had grown on a very high pace right? So if you look at our last year full year consolidated growth rate for nuclear, I think it was 40-plus percent on a revenue basis. So -- and in this year, yes, it looks like about 10% year-on-year growth, but it's off a very strong base of last year. And what has happened is not all our centers are still operational. So as we get 1 or 2 more centers operational, you will start to see the growth rate come back in this business. I can't give you specific guidance on when we will hit 12%, 12.5%. I think I'm hopeful that by the time we enter the next financial year, we should be there.
So by '25 -- FY '25?
Yes. I would say you can take almost -- I would anticipate by the first half of '25, we should get there.
Okay. Got it. And in the other expense, you mentioned that there were some onetime expenses of legal fees. So what was the quantum?
So there are 2 onetime expenses in other expenses of the tune of INR 1.5 crores. INR 1 crore is because we had very old equipment, which we sold at scrap value there was a residual value attached to that, which we charged to the P&L. So that was INR 1 crore and the legal expenses of INR 50 lakhs, which is largely linked to our outstanding -- international outstanding.
So is this recurring?
No, no. Onetime.
Onetime.
[Operator Instructions] We have a next question from the line of Ankeet Pandya from InCred Asset Management.
[indiscernible] recievables from INR 85 crores to almost [ INR 65 crores ], but yet on a sequential basis, the provision for receivables is yet there. So any particular reason we are still charging for that accounting for that?
See, we still continue to have government receivables, which are long outstanding. And as per our provisioning policy, we are following the policy strictly, which is beyond a certain point of outstanding on a conservative basis, we provide it in the P&L. So until we finish all the government receivables, I think that provision is there. It's, of course, substantially reduced to, let's say, what it was in Q4 of last year. But the tail-end of our government money is still pending. So as per our own policy, we provide for it in advance. However, we are still hopeful that money will come because these things take time.
And from last quarter, I think you mentioned that around INR 38 crores has been received INR 35 crores or INR 38 crores. So what will be the balance amount from the government?
The total balance amount spending from the government is about INR 10 crores.
INR 10 crores. Okay. Sir, lastly on the CapEx one, so just wanted some clarity. So on the cash flow, you mentioned that around INR 46.9 crores CapEx has been done. And we have even the last quarter, the Q1 quarter, you had guided around INR 40 crores CapEx for FY '24. [indiscernible].
Sure. Could you just -- because you didn't come through clearly I am -- could you just -- your question was what did you spend the INR 46 crores on? For planning to spend additional CapEx.
Yes, INR 46 crores of CapEx has been spent in first half '24 and in previous Q1 call, you had mentioned that for full year, our CapEx will be around INR 40 crores. So I just wanted some clarity on the CapEx front?
Okay. No problem. Let me -- I'll give you at least a view on what we are planning to spend our CapEx on. And then I will ask Alok to reconcile for you the first half. So look, first half, actually, a lot of our CapEx tends towards plant and equipment and some of the office refurbishment and all of that. I'll ask Alok to take you through the details. In H2, actually, majority of our CapEx investment will be in the maintenance CapEx area.
We expect to spend about INR 5 crores more on some of the older machines in the lab and also overhauling our IT architect infrastructure of another INR 5 crores. So -- and then I think we will have our international expansion in Tanzania where the lab is getting set up, which I think we will incur another INR 10 crores. So in the second half of the year, I would anticipate about INR 20 crores of CapEx to happen. In the first half, I'll ask Alok to take you through the -- what has the INR 46 crore breakup more or less?
So in the cash flow, like you have seen that around INR 46 crores of CapEx investment was happened and mainly on account of -- like Rahul said that around 25-plus machines which we have replaced over a period of last 6 months, which required a CapEx and around INR 17 crores of CapEx investment has happened on account of that. We have invested on lab infrastructure facilities and expansions on efficiencies. Around the INR 16 crores of other investment has happened on account of that. And that is on around INR 33 crore of total investment rest is capital advance for other business plan, which has been given.
We have a next question from the line of Girish Bakhru from OrbiMed.
I just wanted to check, so these new packages, Jaanch and Her Check, is there a major overlap with Aarogyam? How are they exactly different?
No, they're very -- firstly, nice to see you, Girish, on the call. And just to give you at least the overall strategy, see, we have our routine test and semi specialized test. Aarogyam is largely a annual checkup preventive wellness brand, right? So it is focused for people who would like to do an annual health checkup. And the problem with annual health checkup is it is only once a year. Jaanch is really focused on the therapeutic side, right? So it is -- think of it as a consumer-facing therapeutic brand. So for example, if you have a fever and you're worried about whether you have malaria, right, then you would do Jaanch Fever. If you are, let's say, having hair fall and you feel that there is something wrong with your body for hair fall. So you do Jaanch Hair Fall.
Similarly, we have Jaanch Diabetes, Jaanch Healthy Heart. So if you're worried about heart attack risk, then you would use Jaanch Healthy Heart that gives you a 360-degree picture of your heart health, right? So Jaanch is very therapy specific and largely focused on lifestyle and chronic diseases. We have Jaanch Cancer, we have Jaanch Pollution and many other kinds of segments, Jaanch STD.
So it's really -- the way to think about it is Aarogyam is your annual health checkup for [indiscernible] body. Jaanch is really therapeutic focused. If you are worried about the detrimental effects of any lifestyle disease or chronic disease that is there in your body. Her Check is a pure women's health package. It is largely focused for gynecologists. It has 2 main legs, maternity. So all the maternity tests, double marker, triple marker, NIPT, everything that goes in the section of maternity all the way to newborn screening and so on, is under the umbrella of Her Check.
And the other area is infertility, which is really about doing investigations to understand the reasons for infertility, and that covers the whole gamut of infertility as well. Her Check is largely focused on gynecologists to treat women. So that's how you should think about the 3 brands. Aarogyam is the annual health checkup wellness brand. Jaanch is the therapeutic chronic disease focused brand, where if you're worried about something you do a Jaanch, and Her Check is largely for Gynecs to help them manage women's health.
That's a very detailed description. So when we look at these new packages, would it be fair to assume there are certain tests which you have, let's say, maybe introduced or they were in the panel before, but they were not getting scaled up. So is there like a higher mix of specials expected with these packages increasing in the overall contribution?
Yes. So just to give you a sense, our average Aarogyam package to the B2B channel, right, which is where we sell or actually, let me not comment on my B2B rates. Our average Aarogyam package typically operates at a INR 1,400, INR 1,500 MRP in the market. Our average Jaanch package actually operates at closer to INR 2,000 and so does Her Check. So I think these are 2 strategies also to move the mix upwards.
Understood. And what would be your, let's say, target to revenue for these packages put together, let's say, fiscal '25, '26, I mean, ballpark number?
See , Her Check is actually still too new. So we're still promoting and marketing it at this point in time. So it's too early to comment on Her Check. Jaanch has beaten all our expectations. I think within 3 months of launch, it has already touched INR 1 crore a month, right? I'm hopeful by the end of the year, we should be able to double it. So I would say between INR 25 crores, INR 30 crores is what you can take as Jaanch as our target for next year.
Understood. And just 1 more on the expansion strategy. You talked about, of course, international and B2G now coming with these contracts. What about the hospital channel? I mean, that you had mentioned in the past that maybe small hospitals, less than 100 beds could be a potential target. Are they still accessible?
Yes. We've been working on the hospital space, I think, now for about 4, 5 months. To be honest, I mean it is not scaling as per the expectation because it does take a long time to convince a hospital to hand over their lab to us. At this point of time, it's not material. We only have 2 or 3 hospitals, but we are learning the business with the help of those.
We have a next question from the line of Amit Agarwal from [ Nerway ] Investment.
Hello. My question is regarding the term loan we have taken off for the business. [indiscernible] has always been a very cash-rich company. So what is the need to take this term from and for how long this loan has been taken? And do you think that this is the unit practice in future also? And regarding your capital expenditure of INR 47 crores this company has been always a less capital-intensive business. So what is the change in future plan -- business plan because I think cash is becoming dear now.
Sure. Maybe first, I'll just share a bit of philosophy, and then I'll ask Alok to cover the details. See, I think one is to use equity to fund equipment. In my mind, yes, it is debt, but I mean it is not bad debt. It comes at a quite a reasonable cost and helps us overall expand the business and be more prudent about our capital allocation. So as a philosophy, we didn't feel it makes a lot of sense to deploy equity capital to fund equipment, right? And so therefore, we looked at loans and we said how best can we leverage the debt market rather than deploying equity capital that improves the return for our shareholders and everybody.
And the amount of equity that remains with us, we can deploy it to fund much better avenues of growth and hopefully grow the business faster. So with that philosophy in mind, we decided to take the loan to fund our equipment. I thought it was quite an attractive value proposition. So I'll let Alok take you through the details.
I think almost Rahul has covered, and we all know that debt is less costly as compared to the equity come at a higher cost. And we have taken around INR 30 crores of loans in our financial books, which you can see all against the plant and machinery, which is going to have a tenure of 3 years. And it's a very reasonable best rates what we have taken. And this give a leverage to expand our business and cash in our hands to further expand and opportunities in CapEx and business expansion fees, which were like to other expansions we are doing.
Sir, sir, you mentioned we have taken almost INR 16 crores for capital advances. So could you explain that item more because to INR 46 crores for capital expenditure has been a huge amount, and we have always been very less competitor in terms of business because I think there is a change of model of business right after the change of the management?
First, let me take the -- again, the first question around the change of business model. Look, as I said before, our average age of equipment was 12 years, okay? It becomes very difficult to run reliable testing on equipment that is so old. We had to replace that equipment to ensure that we could have much better accuracy, throughput and performance. So that was the need of the hour for the business to ensure that we have the right equipment so that we can give our customers the right and most reliable testing. So that decision to replace the equipment was not a change of business model. It was the need of the hour to ensure that we improve our accuracy and reliability in the lab. Now how we chose to fund it that I will let Alok to take over.
So like the funding piece we have already explained. So the total spend of CapEx and investment, what we have done until in H1 is INR 46 crores, what my friend, InCred friend has also asked. So we have spent on the machine expansions and replacement of existing old machines with the new machines and around 24 machines has been replaced, which resulted a spend of around INR 16 crores, INR 17 crores. We have our labs also require some infrastructure and improvements, and we have gone for the infrastructure improvement and expansion. And that leads to a CapEx advance of around INR 16 crores, which are going to be capitalized over the period of next 3 to 6 months' time once the entire expansions are going to complete.
We have done LLP investments, which is going to have around INR 6 crores in last 6 months, what we have done. And other IT and other CapEx investment, which has happened to around INR 3 crores, which leads to a total INR 46 crore of CapEx spends, which we have done. And depending upon the best leverage what is available, we evaluate whether we go with the equity or cash available or we will evaluate with the debt, which is available at best market rate. And then we take the decisions for the interest of best -- best to the interest of our shareholders.
My question is also that is this amount going to reduce in future? Or is this amount going to stay as it is in this financial year? And what is the investment requirement for Tanzania project?
So that I've already shared, as I said, in H2, we anticipate to spend another INR 5 crores to replace the machines and another INR 5 crores for our physical infrastructure and IT. So that is INR 10 crores. And our international expansion, which is primarily Tanzania is another INR 10 crores.
What about in the next financial year?
In the next financial year, I would think, again, depending on the maintenance CapEx and all, I'll be able to give you a more concrete guidance towards the latter part of the year. But if you force me for a number, I would say it would be in the INR 50 crore range.
INR 50 crores?
Yes.
For the whole year?
Remember I have a lot of old aged equipment even in the NHL business, for which we have will have to replace those equipments over time.
Okay. So are we significant from more term loan or we can manage these investments?
So currently, we are not foreseeing on the more term loans, but it's like an open opportunity depending upon the business CapEx investments, what we are going to happen. We -- based on the best available options we will evaluate. Currently, we have like INR 30 crores of debt in our books, which is having a tenure of 3 years. Against the assets, there's no bank guarantee, no collateral securities attached to that. In subsequent CapEx investments, maybe we can go. But as of now, we have enough cash.
And immediately, next 3 months to 6 months time, we are not planning to go for further debt funding. Yes.
And again, I wanted to once again just reiterate our balance sheet is very strong. Our cash flow is also very strong because we are a health care company, we get preferential rates as health care equipment finance. I don't see anything wrong in taking debt to finance health care equipment for our expansion. In fact, I feel using shareholder money to finance equipment is perhaps less prudent.
I understand this point, but I just wanted to evaluate how much dividend we will be getting in future? Like earlier 2 years it was 25%, now it is reduced to 18%. I think we don't foresee an increase in dividends in future, I suppose.
No, I would not anticipate -- expect an increase in dividends in the future.
We have a next question from the line of Aneesh Deora from Nomura.
Firstly, you did a clarification. Looking at the PDF Slide 9, where we have shown the breakup of the pathology revenues quarter-on-quarter. So in the footnote, it has been written that Q1 FY '24 and Q2 FY '24 refer to non-COVID numbers. And -- sorry, all numbers except Q1 and Q2 of FY '24 refer to non-COVID numbers. So I just wanted to understand if any COVID revenues are there in these 2 quarters? And if you can quantify the same?
Yes, just give me 1 second.
Yes, sure.
See, these numbers are largely our non-COVID numbers. The COVID numbers are almost negligible at this point in time. So we didn't see any reason to really bifurcate it at this point. I mean, Aditya can share. Aditya, what is our COVID number for this quarter, I think it's less than INR 1 crore, right?
It's INR 38 lakh per quarter.
So yes, our COVID number Aneesh, is INR 38 lakhs for quarter 2. So we didn't bother bifurcating it at this time.
Understand. And can I just draw the COVID number of Q2 of FY '23 in that case?
INR 2 crores, roughly.
Okay. Okay. I see. I understood. Secondly, I just wanted your comments around the pricing in the industry currently. Have you like taken any price increases? And what is the quantum of growth that we are seeing is through price? Just wanted to understand the dissection between volumes and price growth that is currently there?
Yes. See, for us, we are taking price up through mix. We're not taking price up through price hikes. So our price hikes have been marginal, I think to the range of about 4%, 5%. The rest, we have actually been driving through mix, which is larger and larger Aarogyam packages, Jaanch, the newer test menu, more movement towards vitamins and all of that. So I would say, if you see we grew about 20% by revenue in our franchise business, I think about 8% by volume. So roughly about 12% is price, which is about 4%, 5% has come from just price increase, and the remaining has come largely from mix.
Understand. And the price increases have been taken on like the entire portfolio or only on some specified portfolio of tests?
So we've taken the price increases across the board. There are just a few loss leader kind of tests that we have, which kind of brings the customer through the door. Over there, we have chosen not to raise the price.
We have a next question from the line of Rahul Agarwal from Incred Capital.
I think the CapEx question got answered. One question on the Nueclear business. How should this business grow? And what are the sustainable EBITDA margins for this business?
See, the business, as I said, one, we are faced with a few headwinds in Nueclear to be quite candid. As I said, the machines are very old. So the cost to maintain those machines is just going up and up, which is what you see in the other expenses over there. As a result, we have been steadily also increasing prices in line with that to cover the cost, but that naturally has an impact on the volumes as well. I would say, if I were to guide you a normal EBITDA for this business, given the state of the machines that we have and the kind of OpEx that goes into maintaining and running these machines. I would say in the between 10% and 15% range is where you should look at NHL on a steady state.
We are doing a lot to fix the business, but I would say I don't anticipate anything more than between 10% and 15%. If we touch 15%, I would say we would have done a fantastic job with the kind of infrastructure that we have.
And a related question, as you also mentioned on volume. I think I just wanted to know the customer growth here. The revenue growth in first half, I think it's 10%. What was the volume growth there is -- if you could share a number of scans for first half that will help?
For first half versus?
Y-o-Y -- Y-o-Y volume growth for Nueclear?
Okay. I think it will be in the -- I think about -- the total scan volume will be about 10% is what I think, which is where we've landed year-on-year in revenue.
Okay. So -- but you mentioned price hikes. So I just wanted to clarify that. The growth...
No, the price hikes we started now because we started in September and actually now going into October, November. The reason we started to do the price hikes is when the CMC costs started to hit us. And as you know, it's not easy to take price up in this business. So it takes a little bit of time to ensure it lands.
Got it. Another thing was we -- obviously, a lot of PharmEasy shareholders have got their forms for right issue. My sense is legally that process is going through. Sir as from a business perspective, API partnership would you expect that business to revive back on the growth path? Any color could you provide on this?
So I'm hopeful. I think it has already been publicly declared, so I can quote it that the rights issue has been oversubscribed. So I would hope that now that some of the funding issues at PharmEasy are resolved, that they would also go back on a full growth trajectory. As you know, our entire API business is just cross-selling on the Diagnostics platform on the PharmEasy medicine platform. So as that medicine platform goes back on its part to recovery, our cross-sell business obviously goes lock-in-step with that. So I'm very hopeful that with this funding issues behind us, the third engine of Thyrocare will now start to fire.
Our first 2 engines are firing quite well. The franchisee business, as you've seen, Rahul has grown at 20%. Our partnerships business, excluding API and government has also grown at 22%. In fact, surprisingly, even our D2C or our direct business has grown at 19%. The last engine that we have is the API cross-sell where I'm hopeful that would also come back on its original growth trajectory.
Got it. And sir, [indiscernible] overall investment is going to be INR 20 crores, INR 10 crores is done INR 10 crores in second half. Is that correct?
No, no. It's -- we have not done any investment till now. INR 10 crores will happen in the second half. That's all we will plan to invest.
Okay. Okay. And lastly, just 1 clarification. I think you answered partially, but I wanted to clarify. The provision, the line reads in your presentation essentially -- the provision for receivables taken for foreign accounts after netting of reversal from B2G business. Can you just explain this please?
Sure. So as you know, we have provided quite heavily for the NHM business, which we received the money. So there was a provision that was released from the P&L. However, as per our normal policy, our receivables from our from Thyrocare Gulf has been pending for a significant amount of time. And we have now gone into litigation. So therefore, our advisers have asked us to or our auditors have insisted that we provide for that. So these 2 are netted each other off and it's landed at about that INR 1.36 crores you see in the P&L.
So the Thyrocare Gulf receivable is higher than 1 and whatever release has happened from NHM is also higher than 1, right? And hence, the net number is 1.5. Is that correct?
Yes, yes. It's, I think, about 5 and 6.
Yes. Around INR 6 crores of ThyroGulf, which is netted against the NHM and a few other small receivables.
We have our next question from the line of Ashutosh Barsha from Mirabilis Investment Trust.
So just start...
Sorry, can you use your handset, please? You're not clearly audible.
Yes. Is it better now?
A little better. Please go ahead.
Yes. Sorry for that. So thanks for the opportunity. I had a couple of questions. So first, regarding so we had initiated this pin code expansion like 4 or 5 quarters back. So I wanted to check whatever new areas that we have entered into in the last 4, 5 quarters, how have those been performing? And if we were to sort of index it to a mature area. So currently, what level would be the areas we're operating at? So that is the first question.
So if I could repeat your question, so I've understood it, you're asking what is the status of the pin code expansion? And where do you think it will reach?
And how have those areas been performing for us -- the new areas basically?
Yes. So look, we continue to expand in the pin codes through our pin code expansion team. We actually now have started to track it from a number of active franchisees. So we closed last year, I reported on an annual basis. I don't report it quarter-on-quarter. But last year, if you remember, we had ended at about 7,488 active franchisees. And we continue to add franchisees at a run rate of about between 100 and 135 per month, depending on the month. So I would say, in July, August, September, net-net, we would have added about 400 new franchisees.
I think we will peak out at about 10,000. Of course, every new -- it's like same-store sales growth in a retail business, right? The new franchisees take a little time to scale up. So obviously, in the first year, there they operate at about 25% of the full potential of the base. And then it takes them about 3 years to reach the full potential. So it takes a little bit of time to scale up, but we are running at a healthy run rate over there.
Got it, sir. And secondly, on the Aarogyam portfolio. So currently, what is the total contribution of Aarogyam portfolio to total sales?
Sorry, could you say that again?
twenty-one is on the Aarogyam portfolio. So what is the contribution currently to our total sales?
Aarogyam remains at 36% of our turnover, which is the same as what it was last year.
And the Pro and Plus range that we have launched a couple of quarters back. So is it kind of contributing meaningfully -- would you be able to quantify the contribution?
See, we have now a full lineup. It is Aarogyam, Pro and Plus is all part of the Aarogyam. They are just how do I describe it, a completion. At that point, our Aarogyam average order value used to be about INR 1,200. Over time, it is moving up in that way. But we had also, at the same time, launched Aarogyam Mini and Aarogyam Basic, which were at the entry level. So at a mix level I would say we are kind of at the same place. But I would say our franchisee business has grown at 20% year-on-year, and Aarogyam remains at 36% of our overall business. So the Aarogyam business continues to grow at a strong clip of about 20%. Most of that driven by our investments in Plus and Pro because we haven't done anything else with Aarogyam.
We have a next question from the line of Siddhesh from ICICI.
Yes. So my question was regarding this depreciation policy. So if you look at plant and equipment, diagnostic equipments, we are depreciating that over 13 years. But you mentioned that some of the old assets that we replaced, those who are having average here of 12 years. So is there a need to revisit this depreciation policy of 13 years?
I'll let Alok take that.
We will go through the policy and come back on that. But the current policy, what we are having of 13 years asset life, which we are taking for our accounting purpose, remain varied, but point they can, we will evaluate. But on an average, our machines are having life cycles of around 13 to 15 years.
So just to clarify also, I just wanted to say the average age of our equipment was 12 years, right, before we bought the new equipment. That means, of course, that many of our equipment were well beyond 13, 14 even 15 years. So it's those equipment that we have replaced. It doesn't mean that we are not using equipment that is, let's say, 8, 9, 10, 11 years old.
We have a next question from the line of Mig Shah from Prosperotree.
I just wanted to confirm 1 thing. As on 31st March 2023, the total outstanding net of impairment was INR 83 crores of which INR 72 crores were outstanding from government. And right now, the total amount outstanding from government is INR 10 crores. Is my understanding correct?
Yes.
So in the quarter 1, we received INR 38 crores. And in second quarter, we received INR 24 crores?
So what you said is like INR 85 crores of total outstanding was there in March against that current outstanding, which is showing is INR 55 crores. The moment is of INR 30 crores, correct?
And I actually want to focus on the government part.
So on the government part, the outstanding, what was we have received around INR 41 crores of receiv -- amount we have received from NHM and a few other government collections also happened. In addition to that, other business partners where the outstanding was there, we have collected around INR 20 crores of rupees, which resulted in reductions of trade receivable. In addition to that, subsequently in 6 months' time, fresh feeling has happened and resulted to add on to the latest receivable piece.
Okay. So in March, the total outstanding from government was INR 72 crores according to the figures you have mentioned in the annual report.
No, so in March, the total outstanding with government was around INR 35 crores.
As on March, 2023?
Just INr 30 crores -- It's around INR 50 crores. Net of provision.
INR 50 crores net of provision?
So in March '23, the total outstanding from government net of provision was INR 50 crores. Now after -- in September, net of provision, the total outstanding from B2G business is around INR 10 crores.
Okay.
Let me try to make an attempt once again to receive. So net of provision. So without provisions, right? Our March outstanding was INR 71 crores. We received INR 45 crores. We have provided for INR 16 crores until now, which leads us to a net balance of after provision of INR 10 crores.
And all these are [indiscernible] figures, right?
Sorry.
All these are outstanding from government or total outstanding? These figures...
No, no. Only government outstanding.
Government outstanding only.
Yes, yes. Got it. Got it. Just a follow-up question of -- for the CapEx, which you mentioned of INR 47 crores. So I just wanted to understand that where is that amount reflected in the balance sheet?
So that is, you can see in the fixed assets addition and deletion, both addition and replacement has both has happened. So it was seen as a net of once you are going to receive a detailed financial in the month of March -- detail, which is going to come with the annual financials, you will find the [indiscernible] the additions and deletions can be seen.
Okay. Okay. Got it. So the net amount is the same. Right.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rahul Guha for closing comments. Please go ahead, sir.
Thank you, everyone, for spending the time with us this evening. I think this is the longest question and answer session I have seen since the time I joined. It has been now, I think, about 15 months or 16 months ago. As always, we continue to remain focused on our strategy, which is to be the most affordable, good quality diagnostic testing partner for anyone in the health care business, and we continue to execute on that strategy. We have been investing in improving our quality, improving our reach and ensuring our turnaround time is as close to best-in-class. We've made substantial progress on all of this as I've been reporting over the previous year, and I thank you all for your support in this journey.
With that, I'll hand over to Pratik for closing comments, and then we can close.
Thank you, ladies and gentlemen. On behalf of Thyrocare Technologies, that concludes this conference. We thank you all for joining us. Over to you, Ashishti.
Yes. Thank you. On behalf of Thyrocare Technologies Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.