Thyrocare Technologies Ltd
NSE:THYROCARE
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Thyrocare Technologies Ltd
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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. Kapil Gupta from Thyrocare Technologies Limited. Thank you, and over to you, Mr. Kapil.
Thank you, Rutuja. A very good evening to all, and thank you for joining us today for the Thyrocare Earnings Conference Call for the second quarter of FY '25. Today, we have with us Mr. Rahul Guha, MD and CEO of Thyrocare; Mr. Alok Jagnani, CFO of Thyrocare; and Mr. Nitin Chugh, Chief Commercial Officer of Thyrocare, along with other key members of the senior management on this call to share highlights of the business and financials for the quarter.
I hope you have gone through our quarterly results press release and earnings presentation which has now been 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 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 Mr. Rahul Guha to make the opening remarks.
Thank you, Kapil. Good evening, and welcome to all on the call. Thank you for taking out time from your busy schedules to join us this evening. Just a quick introduction to us on the call. My name is Rahul Guha, and I'm the MD and CEO of Thyrocare, and thank you for the opportunity to present the Q2 results of FY '25. I'm joined with my colleague Alok Kumar Jagnani, who is our CFO; and Nitin Chugh, who is our Chief Commercial Officer; along with Kapil Gupta, who is part of our Strategy and Investor Relations team.
As in all my calls, I will start with the quote 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.
I'll give you some of the key highlights of what we've been up to in the last quarter. Before we get into the details of the quarter, I'll reiterate the pay-for-performance pricing structure that we implemented last year. Last year, our discount structure was one size fits all, but now we have moved to a slab-based pricing model, which we implemented in May 2023. It's been 1 year plus since that implementation, and this has led to an increased energy with our franchisee network with motivation to move up volumes and enter higher slabs. It will also result in a movement towards larger franchisees and enable much greater reach from our large partners.
Quality continues to be our top priority and we view it as an ongoing journey. We are proud to say that currently, 28 out of our 32 labs are now NABL accredited. Currently, 96% of our total sample load is processed in NABL Labs, a significant achievement considering only 2% of pathology labs nationwide hold this accreditation. To validate our commitment to quality, we conducted an independent study published in the International Journal of Advanced Research, Ideas and Innovations in Technology. The findings revealed that 9 out of 10 doctors trust Thyrocare reports and confidently recommend our services to their patients. This endorsement underscores the dedication and effort we've invested in maintaining high-quality standards.
Further, in September 2024, we were recognized and rewarded by the College of American Pathologists, CAP for short, for maintaining excellence in high-quality laboratory care for 15-plus years. CAP is the international gold standard accreditation that represents the top-tier quality in pathology and laboratory medicine. We hosted our third Advisory Board Meeting in August 2024 with the panel of esteemed doctors to gain insights on enhancing our quality milestones. Doctors witnessed our cutting-edge technologies and stringent protocols, reinforcing our commitment to diagnostic excellence.
I'm also very proud to say just this week, we launched the largest HbA1c study across the country where we have studied 20 lakh HbA1c results to publish the largest HbA1c study in the country. This quarter, we have also reduced our complaints per million samples by 58% as compared to last year.
Beyond the work on quality, we continue to selectively expand our offerings. Aarogyam remains our flagship brand in the preventive healthcare segment, but now we have 2 more brands, Jaanch and Her Check. Jaanch, as I've said before, is targeted towards lifestyle challenges or for you to better understand your health. We have solutions across the spectrum for anything you might be worried about. Is it fever or something more serious? Why is my hair falling? Cancer screening as well as deep investigations, common chronic diseases like diabetes, heart health amongst others.
We are very proud of some of the key milestones that we achieved in this quarter. On the revenue front, we have achieved a record high of INR 177.4 crores this quarter, surpassing even our peak during the COVID period. This remarkable achievement is a testament to our strategic business expansions, investments in quality improvement and our unwavering customer-centric approach. We have 8,400 active franchisees. As a result, we processed 6.7 million samples and served 4.4 million patients in this quarter, which is 15% and 9% year-on-year growth, respectively, in volume. Total tests conducted during this quarter was around 44 million, which grew by 15% year-on-year.
I'm happy to share that we have completed the acquisition of Polo Labs on 29 July. Polo Labs is a pathology diagnostic company based out of Punjab with a wide presence in Punjab, Haryana and Himachal. This allows us to expand our footprint in North India. Additionally, I'm delighted to share that we signed a business transfer agreement to acquire the clinical diagnostics business of Vimta Labs on 30th August. Vimta's Clinical Diagnostics division with its established presence in Telangana and Andhra Pradesh offers us an excellent opportunity to further strengthen our presence in South India. This transaction was successfully closed on 11th October.
Partnerships business did phenomenally well in the quarter and grew as we onboarded new clients in HealthTech segments and continue to grow our existing accounts. Also, with the acquisition of Think Health, it has strengthened our offering for the insurance segment with the additional capability of ECG at home. This allows us to give our insurance partners a one-stop solution for blood and ECG testing and further deepen our presence in the pre-policy medical checkup and annual health checkup business. And we are now the company who offers health checks with ECG at home, and I'm sure that will enhance our Aarogyam brand.
On the B2G side, we continue to execute TB projects in the state of Gujarat and Maharashtra. In Tanzania, since going live in March 2024 and processing our first sample in April, we have successfully partnered with over 50 health care facilities in Dar es Salaam. Our mission is to continuously collaborate with major hospitals ensuring they have access to comprehensive diagnostic services. With our state-of-the-art laboratory equipped with world-class machines and infrastructure, we're poised to make a significant impact on health care in the region. With that, I will now hand over to Nitin to cover the highlights for the quarterly business performance.
Thank you, Rahul. A warm welcome to each of you. First, I would like to start with our pillars of growth which have been contributing strongly to our consistent performance. The first one is customer success. The focus is to ensure accurate, timely and affordable diagnostic services through quality control, robust data management and customer support. With advanced technology and streamline processes, we aim to enhance customer satisfaction. Launching of live reports for our franchise base and our D2C customers is a testament of our continuous work towards customer success.
The second pillar is network expansion. We are deepening our presence across India by going deep into the country with our franchise network and through our acquisitions as well. Also on the partnership side, we are expanding our footprint going deep into the PPMC in insurance business. The third pillar is our test menu expansion. We are introducing a wider range of specialized tests and health packages for our partners using targeted marketing to drive adoption and increase value for both partners and our customers.
Now I will briefly update you about the business performance highlights for the second quarter of FY '25. Overall, at a consolidated level, we did 20% year-on-year revenue growth this quarter, primarily driven by our pathology business. Our franchise business showed a revenue growth of 14% year-on-year. We have started focusing towards opening up smaller labs in partnership along with franchise and storefronts, which shall lead to higher processing capabilities and ultimately leading to a higher franchise business growth in coming quarters.
Our partnership business grew by 33% year-on-year, and if we exclude API, it showed a tremendous growth of 40% year-on-year. Radiology business, including Pulse Hitech, did a strong revenue growth of 21% year-on-year. With that, I will hand over to my colleague, Alok, to cover the results.
Thank you, Nitin, and a warm welcome to everyone joining us today. I'm pleased to announce that we have achieved the highest ever consolidated revenue in a quarter with robust growth across all key business parameters. I would like to highlight that the pathology diagnostic industry is growing in the early mid-teens, whereas we had consistently delivered mid-teen to high-teen growth over the past few quarters. This highlights our sustained strong performance and reflects the strength of our leadership and strategy.
For the quarter, revenue stood at INR 163 crores stand-alone and INR 177 crores consolidated, reflecting a 20% year-on-year growth. Of this, 19% was coming from organic and the remaining 1% attributed to inorganic expansions, what we have done recently. This growth was driven by 33% rise in the partnership revenue, whereas 14% revenue is coming from franchisee business. Total pathology revenue grew by 20% year-on-year, while radiology business saw a 21% year-on-year increase. Our stand-alone gross margin for the quarter was 71% up by 95 basis points, primarily due to the improved negotiation, favorable revenue mix and better infrastructure utilization.
Employee expenses increased year-on-year, driven mainly because of annual increments and head count increase from the new business acquisitions. The stand-alone normalized EBITDA margin for the quarter stood at 31%, an increase of 186 basis points, primarily due to the margin improvement and operating leverage. EBITDA margin in radiology NHL declined, largely due to the onetime professional charges and other costs.
At a consolidated level, gross margin stood at 71%, while the normalized EBITDA margin was 29%. Reported EBITDA grew by 28% year-on-year, PAT grew by 29% year-on-year despite some margin pressures from the recent acquisition and geographical expansions.
In terms of cash flow, we have done a great job, and we generated around INR 89 crores from the operations during H1 FY '25, which shows around 28% increase over H1 FY '24. This demonstrates improved operational efficiency and stronger cash flow generation, reflecting our strategic initiatives to drive growth and enhance profitability.
Now I will hand over the call to Rahul for a strategic update.
Thank you, all. Briefly, I would like to take a few minutes to recap to you a 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 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 continue to guide all that we will do.
Second, our strategy. We continue to maintain our strategy of being 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 a metro, a small nursing home, an individual doctor or a leading online diagnostics platform or HealthTech Marketplace. We are happy to work with them to provide low-cost, robust testing solutions so 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 1,500 phlebotomists, including our network partners, to serve them better. This strategy has been working well for us as is reflected in the really strong growth in our partnerships business.
We remain dedicated to expanding our business, and with the acquisition of Polo Labs and Vimta Clinical Diagnostics, we plan to significantly increase our presence where we had gaps, particularly in North India and in particular, Punjab, and in South India across AP and Telangana. Additionally, to further boost our partnerships business, the acquisition of Think Health allows us to offer ECG at home services, further enhancing our value to our insurance partners.
That, in a brief, is our mandate as management. Thank you so much for giving a patient hearing. I will once again end with the quote from the Mahatma, "Find purpose, the means will follow," and our purpose remains to provide affordable, high-quality testing to the masses. With that, we will open up for Q&A.
[Operator Instructions] The first question is from the line of Prakash Kapadia from Spark PMS.
A couple of questions from my end. Currently, what would be the revenue contribution from packages to the total pathology revenues? And if I look at the presentation, the active franchises further increased. So how much can it grow from here on, and partnership revenues has seen a 34% growth. So is it low base or what is happening on the partnership side of pathology. These were my questions.
Got it. So I'll let Nitin take the packages question. I'll address your other question. See, we are -- the second question, which is how much -- with 8,500 franchisees? How much more can you grow? You must recall, we are a B2B partner of choice. India, depending on who you ask, but the rough estimate is there are about 1.5 lakh pathology labs. We work with 8,500. So we are only scratching the surface when it comes to our penetration into that base. So I think there, there is ample opportunity to continue to grow.
On your other question on partnerships, is it a low base? Actually, partnerships now is almost 33% of our business. So it's not a low base anymore. But as I said in the beginning, being a B2B partner, it allows us to service a lot of health care companies and enable them to offer diagnostics. Just to give you an example, if you are a hospital and you do diagnostics in the hospital. When it comes to home collection, it becomes very difficult for a small hospital to offer home collection to their patients, right? Because once they walk out of the hospital, it becomes difficult. And for those situations, they turn to Thyrocare. Similarly, if you are a HealthTech platform, largest being PharmEasy, but we work with every single major HealthTech platform. It becomes difficult for them to maintain a lab network, phlebotomy network for what is not exactly their core business, right? And so therefore, they offload or outsource that part of their business to us.
And we're seeing a lot of traction on that front, Prakash. I'll let Nitin answer your question on the packages.
And just to add on to this, even at a franchise level, if I compare Q2 of last year versus this year, we have added almost 2,500 franchises, right, to the transacting base. And we feel that, like Rahul said, this is just scratching the surface, and we feel that over 1,500 franchisees can be added the next year as well, 1,500, 2,000 franchisees.
Now talking about packages, more than 30% of our revenue -- a little more than 30% of our revenue comes from packages and rest is all stand-alone tests. And when I say packages, I include all our brands, Aarogyam, Her Check, et cetera, and Jaanch.
Okay. And just one last thing, if I may. In terms of the pathology revenues over the long run, in case there is a mix change between franchisee and partnership, does that change the overall margin profile of the company or no? And is there any broad direction which we are working to have a mix or grow franchisee at a certain level or partnership at a certain level?
Maybe I'll take that. The Partnerships business does come at a lower margin than the Franchise business, marginally, not a big difference, but yes, it comes at a lower margin. But our aspiration, and I have always been saying this, I expect Franchise business to grow in the early double digits to mid-teens, and we have been consistently performing on that front. And I expect our Partnerships business to outperform our Franchise business, and that is what is panning out.
The next question is from the line of Nilesh Sharma from Anantnath Skycon Private Limited.
My question is regarding the shares pledged by parent company. So is there any clarity how we can see in future the pledge will be removed?
See, we, as management, are operating Thyrocare Technologies Limited. We are not privy to all the discussions on the pledge front. So it's difficult to comment or give any guidance on this.
The next question is from the line of [ Amey Chalke ] from [indiscernible] Financial.
So first question I have is on the franchise sales, which is around 68% [indiscernible] shown in the PPT. Is it possible to give a breakup in terms of how much would be roughly coming from mom-and-pop local labs and nursing home and hospital?
For the Franchise business?
Yes.
So I would say -- I'll let Nitin take that.
Yes. So see, generally, because our end customer is the franchisee, right? So we only categorize our franchisees into, say, large and small franchisee so the end customer for a franchisee, like you rightly said, can be a mom-and-pop laboratory or a direct consumer or a hospital wherever they are picking a sample from. We generally, at our end, only categorize those as large franchisees or small franchisees. But we have a rough estimate in mind, but...
But just to give you a broad -- I mean, broadly, I would say 90% of our franchisees are pathology labs. They in turn may be servicing hospitals, but direct hospital as franchisees, actually, that's not a very large number. They get served -- because there's a fair amount of credit and all of that, and we work in our franchisee model as a prepaid company. So therefore, our franchisees service those hospitals. Direct hospitals would be a very small proportion of our revenue.
Got it. And one more question. On the volume growth side, is it possible to give a breakup like the franchise growth is around 14%. So is it possible to give the price and volume breakup here?
Yes, yes, it's there in the presentation, but Nitin can clarify it.
Yes, around 9.5%, 10% has come from volume growth out of the 14%.
The next question is from the line of Bino Pathiparampil from Elara Capital.
A quick question on the number of labs added. This Polo which you have acquired, does it come with the lab or so?
So Polo comes with, I think, 3 or 4 labs, which we have not included in our lab count. It's a good call out. But our total -- of about 8,500, we have not included the Polo count as yet because it's too early.
Okay. So I mean, is it just this quarter thing, next quarter onwards, I assume you will add that to the number of labs?
Yes.
Okay. And you have added 2 labs on your own in the quarter. So going ahead, what would be the plan to add more labs? Would you be organically adding a couple of them a year or so?
Yes, I would say -- as I guided, maybe a year ago. Today, there is a Thyrocare lab anywhere in India within -- if you drop a pin anywhere in India, roughly in 200 kilometers. There are still some white spaces that we don't occupy. Those -- you can expect at best 3 or 4 labs a year.
Understood. And finally, on the imaging business, this 21% growth that we have seen in the quarter, is that sort of a sustainable number? Do you plan to invest more there, accelerate it? Or is it just a base effect and it will gradually come off a little bit?
See, I have always been saying you should expect -- I will be happy if we do mid-teen growth with stable EBITDA. I don't think we are in a position at this point to change the guidance.
The next question is from the line of Aditya Khemka from InCred PMS.
Rahul, on the EBITDA margin guidance, just a little perplexed. In your opening remarks, you made a comment that you guys have been able to maintain EBITDA despite the operating deleverage of opening new franchisees, expanding your reach. So natural corollary would be that once your new franchisees become productive enough, breakeven and then start producing profits, your EBITDA margin should expand from here. So care to clarify on that?
Yes, but we'll continue. This expansion, Aditya, is a never-ending journey, right? So as the current franchisees stabilize and come back to normal EBITDA, we will continue to add new franchisees and I don't expect that journey to stop anytime soon. And we are also, as you know, on the lookout for more acquisitions. So therefore, what I've always been saying is, any operating leverage coming out of the business, we will invest back into growth, and I continue to maintain that.
Understood. That's helpful. Secondly, I saw a 4% increase in realization per test in your deck. Again, can you sort of explain if this 4% realization per test is a function of the mix or is it the pricing that we have used to produce this?
It's mix. We haven't raised prices, so it's only mix.
It's all mix. Okay. On that side then, Rahul, if I look at Thyrocare historically, one of the strengths or weaknesses of Thyrocare was a narrow test menu, which obviously limited your ability to attract customers, but at the same time, it gave you operating leverage because you were able to use the same analyzers a lot more than other labs are able to do. So when you expand test menu and you offer new more esoteric tests, wouldn't that sort of impact asset utilization adversely?
Yes and no. We are very cautious about the menu that we expand. We try to -- without getting into the technicalities, right? If you have an analyzer that can do, let's say, 20 tests. Currently, we do 10, right? We know there is a demand for 5 more, but it does not require any additional CapEx. It does introduce complexity in the number of reagents that you store and the number of controls that you have to run and all of that. But from a CapEx point of view, there's hardly any additional investment.
So our expansion of test menu is what more can we do with the technologies that we have rather than entering into new technologies. The exception is histopathology, where we felt there is a definitely large market there, which we have been unable to tap into, right? And we invested in that technology.
Also, with the acquisition of Vimta, they had a much larger test menu than us. And we were able to see areas which were white spaces, which we hadn't tapped into, right, where there is a significant demand, but we hadn't gone into that test menu. But I think with the exception of histopathology, we haven't expanded our technology platform. Our technology platforms remain the same. Within the technology platforms, we have expanded the menu.
Got it. And actually, my last question was on Vimta itself. So you have recently closed the transaction. Could you give us a flavor of what it's looking like? Or is it too early to say?
It's quite early, but I'll let Alok give you some snapshot.
So, Aditya. So we have recently completed the Vimta deal BTA on the 11th of October only. And in the presentation also, we have given some highlights that what the turnover of business, what they had. Around INR 30 crores of top line, what they are carrying. And they have a more or less very close to breakeven or some minor negative EBITDA margins, what they are currently managing. We are very hopeful that now it's going to be in our portfolio, we are going to change and turn around the same over a period of next 9 to 12 months' time and going to bring back to the Thyrocare parameters and margins what we are looking for, normally what -- so that's what we are expecting.
Vimta was having around 7, 8 labs, but all the labs we have not taken over. We have a consolidated a few labs. A few labs, we have taken over and continue to do what they are having. And over a period of time, we are going to review that what can be consolidated and what can be expanded depending upon the volumes and other things. So next 6 months, let's wait and watch how Vimta businesses are moving towards.
The next question is from the line of Nilesh Sharma from Anantnath Skycon Private Limited.
Sir, will you please guide us any improvement from the front of insurance company tie-up that you were talking in your last con call, that you're planning to tie up with the insurance companies for a big corporate tie-up where we can increase our regular checkup. So is there any significant development on that front?
Sure. I'll let Nitin take that question.
Yes. So see, our focus continues to be on the insurance business, both on the annual health checkup as well as the PPMC. Yes, we have made some strides because I cannot obviously name the people that we are working with and name the companies. But yes, there are a few clients that we have added on and we are adding regularly every quarter.
Just to clarify also, the July, August, September period tends to be a low period for insurance. You will actually see the pickup as we come into November, December and then, of course, the peak is Jan, Feb, March.
Okay, sir. Sir, in continuation of this answer, roughly how much percentage of revenue we can capture from this segment?
Difficult to give you an estimate at this point in time. It's still early, but I would say our insurance segment roughly in partnerships is how much?
Okay. Under partnerships, you say...
It's about -- 30% to 40% of our partnership business is insurance. And that, of course, is a very low base compared to the opportunity in the insurance space.
Addressable market is very high. Yes. We have hardly touched anything on that.
But difficult to give you an estimate. I think as we come into the March quarter is when I will be able to have a clearer view on how large this segment can be for us.
Okay. Sir, our focus in this area is because of the GST council meeting, which is going to happen in October, where the GST decision will be taken on health insurance segment. So is there any positive outcome that we can also expect from that GST meeting that's indirectly favorable for our business as well?
Alok?
So I think it's going to be early to comment on that, but valid point, may be possible that like currently, we are not getting any standard credit on the procurements, what we do. But once the GST is going to come, then maybe we are going to get a cost benefit on the inputs, what we are going to have. But let's see if some amendments come, then what will happen?
Another impact is going to be that like currently, customers are not paying GST. Once GST is going to be cost to them, then the price how it's going to be cover up in the price or we are -- customers are ready to pay additional GST, that we have to see in the market also, how market responds to that?
So I think this question -- so just to answer for us, at least our internal view is that GST in diagnostics will only give a boost to the organized segment where we are present. On your question on the GST Council meeting in insurance segment, we haven't studied the outcomes of that. So difficult to comment at this point.
As this was the last question, I would now like to hand the conference over to Mr. Rahul Guha for closing comments.
Thank you, everyone, for joining us and spending the time with us this evening. 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, and I thank you all for your support in this journey. With that, we can close the call. Thank you, everyone.
Thank you. On behalf of Thyrocare Technologies Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.