Thyrocare Technologies Ltd
NSE:THYROCARE
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Thyrocare Technologies Ltd
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Ladies and gentlemen, good day, and welcome to the Thyrocare Technologies Limited Q4 and FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to [ Mr. Abhishek ]. Thank you, and over to you, sir.
A very good afternoon to all of you, and thank you for joining us today for Thyrocare's earnings conference call for the fourth quarter and full year ended financial year 2022. Today we have with us Mr. Rahul Guha 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 the 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 will 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 if 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.
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.
Thank you. I hope I'm audible.
Good afternoon, and welcome to all on the call. Our apologies, we had a last-minute technical issue. But thank you all for taking out the time from your busy schedules and apologies for the short delay to get us started.
Just a brief introduction to us on the call. My name is Rahul Guha, and I've joined as the MD and CEO of Thyrocare, actually, as recently as 4th of May. Prior to this, I was a Senior Partner and Managing Director in the Boston Consulting Group, a leading global consulting firm, and have been with them for 17 years before coming to Thyrocare.
Before BCG, I was a part of the founding team of a few start-ups. That being said, I'm quite familiar with Thyrocare, having spent the last few months supporting the integration of API group companies with Thyrocare and have been able to spend some time getting up to speed on the business.
I'm joined by my colleague, Sachin Salvi, who is our CFO. I will let him introduce himself. Sachin?
Good afternoon, everyone. Thank you for joining this call. My name is Sachin. I'm a Charter Accountant by position, working with this organization for the last about 11-odd years. I joined in 2011. And since then, I'm working in finance, basically in various strategic initiatives, which the management is all taking. So it last about 10 years.
After transition into API Holding, I have been promoted as the CFO of this organization in January 2022. And after listing, I have been attending to various conference calls. I have been interacting with various analysts. So most of you must be familiar with me.
With this, I'll again hand it over to Rahul to give a brief about the performance of the company and where we are heading.
Thank you, Sachin. Before we get into the results, I just wanted to take a few minutes to update you on what has been the focus over the last couple of quarters. As you would have seen from the results in H1, COVID was driving almost 43% of our revenue, which in H2 has come down to 14%.
As we had shared in our previous quarter report, our focus over the last few months has been to revise the non-COVID part of our business to ensure we get back on track towards growth.
As Gandhi once said, the future depends on what you do today. Therefore, I wanted to give you a sense of what we have been up to in the last few months.
We have been working on 3 areas. First, in the non-COVID part of the business. As you would have seen from the data, we had taken up price significantly from [ INR 233 ] per sample in quarter 1 to almost [ INR 261 ] per sample in quarter 3.
You would have also seen that had a large impact in volumes. Along with this, a number of our channel partners have churned with the new prices. Over the last quarter, we have tried to correct the prices to the channel through a mix of price cuts and volume discounts to ensure we are able to drive volumes. We have done this primarily in our Aarogyam profile, but we have also seen a significant growth in our non-Aarogyam profiles as well as a result as channel partners are regaining confidence in Thyrocare as a key partner in their business.
It's important to note, even after all our price adjustments, the March '22 exit pricing of [ INR 179 ] per sample is still higher versus our exit pricing in March '21, and we don't anticipate to reduce prices any further going forward.
Second, we are focused on getting the integration of API Group and the brands right, of which one is PharmEasy. At this point, 100% of PharmEasy volumes and API Group company now come to Thyrocare. We have taken over and integrated their labs and provide mid-mile services to them.
In this quarter, revenue from API Holdings accounts for 8% of our non-COVID revenue and will continue to grow quarter-on-quarter as cross-selling of diagnostic services to PharmEasy customers continues to grow. API Holdings, too, has a number of investments with which we have been integrating to ensure diagnostic services from Thyrocare can be made available.
RetailIO and [indiscernible], both API Group companies, together have a presence in 2.8 lakh pharmacy counters in the country. We have been working with them to complete a pilot in 5 cities, which enables pharmacies that use their software to book diagnostic tests for their customers on Thyrocare.
Finally, we are leveraging the relationships that API companies, Aknamed and Docon, have with hospitals and doctors, respectively, to expand our reach.
Beyond pharmacy, PharmEasy, we are also listed on the other e-commerce platforms in health care. And even beyond e-commerce, we are listed on the top 3 e-consultation platforms as well as the leading 3 health aggregators.
Third, we have been working on addressing the key perception gaps of Thyrocare with doctors and patients. From our market feedback, customers are concerned on quality. They have the impression that we are only thyroid-focused, and that reports take a long time because we have a single lab in number.
Just to address all that we have been doing on these subjects. On quality, our focus was to get the basics in place. We have been upgrading our infrastructure and processes to assure quality. We have been implementing systems that give us end-to-end visibility of samples on a real-time basis. We have readied several of our labs for NABL certification and have received NABL certification for 3 labs already. We are expecting 5 more labs to complete the NABL certification soon.
Our central processing lab recently completed its NABL and CAP, that is the College of American Pathologists accreditation. CAP's accreditation programs are universally regarded as the most rigorous choice to achieve and maintain accreditation. With this in place, we are now confident and have begun outreach to doctors and hospitals to explain to them our quality systems.
On being quality thyroid-focused, I wanted to share with you that, firstly, thyroid only accounts for 9% of our revenue today. More importantly, today, we have a test menu of 700-plus tests. Over the last few months, we have added 300-plus tests in our test menu to cater to the increasing needs of our customers and partners. Today, we cover almost all technologies and diagnostics and are continuously scanning for opportunities to improve our test menu going forward.
Finally, on delays in reports. I wanted to address the misconception that Thyrocare has only one lab in Mumbai. Today, we have 22 regional processing labs across the country. At our regional processing labs when we started, turnaround time was 24 hours. With our current regional network and investments in ensuring multiple pickups, visibility of samples, our current TAT is down to 18 hours for local samples and 24 hours for nonlocal cities.
This is measured from the time the sample is collected from your home to the time that the report is released. We have been working continuously to improve the stat and are targeting getting to a same-day report all the pin codes that we service. And all our investments and efforts have been to drive this. These are the 3 elements that we have been working on, as I mentioned.
Just to recap, we have worked on price and getting it right. the integration of API Group brands with Thyrocare, and then addressing the main perception gaps of quality being only thyroid-focused and slow in reporting because we have only one lab.
As I mentioned, we have made a lot of progress on these dimensions. And after Sachin covers the results, I will come back and share with you our strategy going forward.
Over to you, Sachin, to cover the results.
Thank you, Rahul. So I'll briefly update you about the key highlights financial year '22 financial performance. First, I'll start with revenue from operations.
Our revenue from operations for the current financial year on a stand-alone basis has increased by about 18% Y-o-Y. Our consolidated revenue for the current year has increased by about 19%, 1-9 percent Y-o-Y. Our financial year pathology revenue of INR 561.53 crores consists of INR 171 crores of COVID RTPCR revenue. Our pathology revenue, excluding COVID RTPCR revenue for the current financial year has grown by about 21%.
We recognized that the performance in the last few quarters has seen significant variations. In order to give clarity on these base businesses, we have included in our investor presentations our non-COVID profit and loss as well as COVID profit and loss.
As mentioned earlier, our non-COVID revenue for financial year '22 stood at INR 391 crores for the financial year. Our estimated EBITDA for the business is about INR 124 crores, which is 32% as a percentage of sales. However, to provide additional clarity and remove the effect of Q1 financial year '21, which was the first wave of COVID, which deeply impacted the businesses, we also split our revenue for the 9 months to the financial year '22 and the growth of this period has been 3%.
While the growth over this period has been low, we are encouraged by the performance in the quarter 4 financial year '22, that is the last quarter. Our revenue from operations for the current quarter on a stand-alone basis has increased by about 12% sequentially. Our Q4 pathology revenue of INR 123 crores consists of INR 16.1 crores of COVID revenue.
Additionally, if we compare our non-COVID business, then Y-o-Y, we have recovered to our previous levels of revenue. That is pre-COVID level of revenue. Further, the price corrections done in February and March have risen non-COVID volumes at an all-time high. We have seen very healthy development in preventive care business also in the current quarter.
Our consolidated quarterly revenue for the current quarter has increased by about 11% sequentially. Our Q2 radiology segment revenue is about INR 7.22 crores, which is flat sequentially. As far as EBITDA margin is concerned, our stand-alone EBITDA margin stands at 30%. Our consolidated EBITDA margin stands at 29%. Our stand-alone EBITDA margin of INR 36.83 crores has decreased by about 27% Y-o-Y.
Similarly, consolidated EBITDA margin has decreased by about 27% Y-o-Y. Most of this margin decline, as mentioned in our presentation, can be attributed to a decline in the COVID revenue in the last 2 quarters. Our non-COVID business margin stands at 31.86% and has grown significantly to [ INR 124..33 crores ] versus last year of INR 85.25 crores, which was 26.4%.
To give some financial highlights. Gross margin impacted during the quarter, mainly on account of erosion of high-margin COVID business or aggressive prices being offered on routine non-Aarogyam test and certain Aarogyam profiles as well to garner volumes.
Our employee benefit expenses of INR 17 crore increased, with additions mainly in growth team to sustain growth and in the laboratory team to ensure quality in reporting. Our other expenses consist of service targets, which we pay to phlebotomists and to runners. It includes sales incentive or [indiscernible] charges. There is an increase in the overall fixed cost anticipated with the expansion of the RPA network. As Rahul mentioned, we are having about 24, 25 RPAs as of now in the country.
In terms of volumes, we have processed in the current quarter about 5.2 million samples. We have performed 6,370 scans under our radiology division that is [ like CT scans ], which includes 77 [indiscernible] scans as well. For the same period, last year, we have processed about 6,670 scans.
With these great highlights, I'll pass it on again to our MD and CEO, Mr. Rahul Guha, for the strategic update to the investors. Thank you. Thank you very much.
Thank you, Sachin. Briefly, I would like to take a few minutes to outline to you our strategic direction, and then we'll be happy to take Q&A.
First at the core, I wanted to cover our value proposition to the customer. It's very clear 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 to our certifications and engagement with doctors.
We recognize the gap in our on-time reports, and we are continuing to invest in our logistics and regional processing network to ensure we can process reports within the same day. This will remain at our core and will guide all that we will do.
Second, coming to our strategy. 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 a metro, a small nursing home, an individual doctor or a leading online diagnostic platform or health tech marketplace.
We are happy to provide low-cost, robust testing solutions to ensure they can serve the patients in the most effective manner. If they require collection, we are happy to mobilize our phlebotomy network of almost 900 phlebotomists to serve them better.
At this point, our largest customer is PharmEasy. But as we mentioned, we are paneled on all major diagnostic platforms, several online medical consultation platforms, search aggregators as well as present in the physical world in our traditional channel.
The coming together of PharmEasy and Thyrocare differentiates us from others in the market. We're able to leverage the consumer brand and technology from PharmEasy, with the low-cost execution at Thyrocare to deliver exceptional value to the patient. Our competitors in this space will struggle to match this competition.
As we mentioned in the presentation, digital-only diagnostic players don't have the back end that Thyrocare brings to the table. Traditional diagnostics players don't have the technology, talent and backbone that we get from the PharmEasy team. And other health tech platforms don't have the back-end scale that Thyrocare has.
With this in mind, I wanted to cover our focus areas, linked to the strategy that I have just covered, which was to be -- remain a B2B partner of choice, providing low-cost diagnostic solutions to anybody who has a front-end presence.
Our focus areas, I will cover in 2 parts. Part 1 is about leveraging the power of the API brands and companies. As we mentioned in the investor presentation, we have 4 areas to maximize our advantage. Area #1, to serve PharmEasy's online customer base, which is 2.1 quarterly transacting users. The attempt is to get them to buy diagnostics when they buy medicines. We will partner with RetailIO and [ Mar ], the retailer network of 2.8 lakh pharmacy counters, as I mentioned, to expand the order points. We have already run a pilot with 500 pharmacy counters, 273 of them have started to sell diagnostics, which was an encouraging [indiscernible] rate, and we are now scaling up the model.
Our partner company, Aknamed Digital Hospital Supplies, we are working with them to approach the 900 hospitals where they have relationships to sell diagnostics labs, diagnostic services into those hospitals. As a result, we hope to expand our presence significantly in the hospital space, where currently we are a minor player.
We will also ensure the expansion of PharmEasy and Docon offline collection points. PharmEasy is rapidly expanding the off-line franchise presence. At Thyrocare, it is our goal to fully support these offline franchises of PharmEasy and enable them to sell diagnostics as well as medicine.
So that is on maximizing the opportunity with the API Group. Within Thyrocare as well, we have 4 priority areas to maximize and will remain our focus areas. First, we will continue to improve our value proposition to the franchise network. We are expanding aggressively. And as I mentioned, when we try to raise price in the past, we had a significant struggle with volumes. We need to remain true to our value proposition of being low cost and good quality. In order to do that, we have reversed our pricing, lift up policies to reward our large customer, and are taking a sharp look at our overheads to ensure we remain a lean customer-oriented company.
With this value proposition, it is our aim to expand the network aggressively so that anyone looking for a low-cost diagnostic test in the offline world has access to a Thyrocare franchise partner.
In order to do that, we are adding some capacity and network expansion over the next few quarters, which you are seeing in the manpower cost. We will also continue to focus on our health packages, that is Aarogyam, to promote to corporates, both online and offline. Our health packages are our jewel in the crown, and we will ensure we offer our low-cost value proposition and go direct to patients through this channel.
Lastly, as I mentioned, we have 3 core pillars: low cost, good quality and on time. On the first 2, we are in a good place. On, on time, we will continue to selectively expand our network and really use technology to optimize our mid-mile operations. The goal is same-day reports.
Beyond that, we are investing significantly to import that there can be no doubt about Thyrocare's quality. So far, 3 labs have been accredited for [ any deal ] in the last 3 months, and another 5 labs are due for accreditation coming soon.
And lastly, we will leverage PharmEasy technology expertise to improve our customer experience and phlebotomist productivity. A big learning for us has been that -- the collection agent must arrive at the customer's end on time. They are deploying technology that allows us to track the entire consumer experience, and ensure that the collection agent arrives at your home plus/minus 15 minutes of the time that you have selected. Today, we offer 60-minute slots and track the slot adherence. We are already at 90% plus, both for our and PharmEasy served orders.
That brief is our plan as management. In conclusion, I would like to share a small quote once again from Ghandi, full effort is full victory. Please be assured that your management, at this time, is putting full effort into the business to ensure that we deliver growth.
Thank you so much for giving us a patient hearing. We are now opening up for questions and answers.
[Operator Instructions] The first question is from the line of Aashita Jain from Edelweiss Financial Services.
First of all, congratulations, Rahul. My first question is on your growth expectations. Sir, you have clearly laid out your growth expectations in your opening remarks as well as in your presentation. But my question to you, how soon can we see our base business growth return? Should we wait for a quarter or 2 or maybe a year before we see that growth in our numbers? And in continuation to this, what are your growth expectations for, say, for the next 1 to 3 years that you would be very comfortable to achieve?
Thank you, Aashita, and thank you for the question. I think -- on the first question, in terms of the near-term growth, I think there are 2 parts to that. One is the recovery of the base business. As you would have seen in the last quarter, actually, we were able to come back to the pre-COVID levels. And actually, we are now looking to grow back from there.
That business, I anticipate will come back to its historical growth rate pre-COVID, and we should be able to get there quite quickly. But we also have a very, very strong tailwind that comes below us, which is the demand that comes from the API Group companies, particularly the PharmEasy platform.
This quarter was the first quarter that we integrated and served the entire orders. I expect that as that scales, we will also see the benefit of [ this ].
Now coming to your second question around the 3-year growth trajectory. We're still, at this point, working through our 3-year strategic plan and where we expect to end. But what I can say is that our ambitions are to be the industry leaders in growth, particularly in the diagnostics space.
My second question is on the prices and the margins. While you have briefly mentioned this in your opening remarks, I just wanted to understand were these price cuts offered to only to a traditional a B2B channel or also to the platform, to your e-pharmacies or other online agriculture? And is it stabilized now?
And in continuation to this, historically, Thyrocare used to make margins in the range of 35% to 40%. With all these cost rising and investments decreasing as well as these aggressive prices, what should be the sustainable margin profile going forward that we should see for Thyrocare?
Understood. Thanks again for the question. On the first one, the price cuts were largely limited to the B2B network because that is where we saw the maximum churn -- and that is actually the most price-sensitive segment amongst all our channels. So to answer the question very specifically, the price cuts were very focused to address the churn in our B2B channel. And so therefore, we were there.
I think at the price levels that you would have seen exit March. We are very confident that our channel has found confidence in the Thyrocare brand and is able to sustain their business going forward. So I think on that side, we don't anticipate to be doing any more price cuts over the next couple of quarters.
To your second question around EBITDA, yes, we are investing significantly, but we are also taking a hard look at our overhead structure to see where we can optimize. As you would have seen in the presentation, our overheads are already 30% of our revenue. So we are going to take a hard look at that and see if we can balance our investments versus cost savings.
That being said, I think I can't give any specific guidance at this point of the EBITDA range. But I would say that a good base would be the exit of March '22 without the COVID impact.
[Operator Instructions] The next question is from the line of Chirag Dagli from DSP Mutual Fund.
You talked about 8% of TTL revenue, non-COVID revenue coming from PharmEasy. What was this number prior to the PharmEasy takeover maybe [ pre-COVID ] because Thyrocare has always been a big player in the online aggregators market?
So thank you, Chirag, for the question. Actually, before API Group and Thyrocare came together, PharmEasy used to run its own lab network. And actually, used to process labs, their diagnostic tests in-house and would only outsource a very small portion of their volume.
So I would say that, that number would have been negligible in the past. It's now that we have taken over the labs and we process 100% of the samples is where it has become a significant revenue contributor.
Understood, sir. Okay, sir. Sir, you also talked about cross-sell, and you said that you want to reach -- this number needs to reach to 7% over the short term, and 15% over the long term is what the presentation talks about. Question is, where are we currently on that cross-sell?
So just to -- so I can't give you a specific number, Chirag. But I would say we are in the 4% ballpark. The target is to double that over the next year and then, of course, as you mentioned in the long-term presentation.
Understood, sir. And sir, the test menu expansion that we've done historically, Thyrocare has been very strong at the cost line item on the tests that they've done. How is our cost position in the expanded test? How are we -- where do we stand in terms of costs on those tests?
Very good question, Chirag. We have been very calibrated in the way that we add tests into our menu. The reason being for us to get the rates that Thyrocare enjoys on thyroid and others, we typically require to commit volumes to the vendors. So therefore, whenever we add a test into our test menu, we try to include it in our Aarogyam packages so that we automatically get some volume, and then we're able to negotiate low cost.
So that remains the strategy. So we've been very calibrated in what we add. We could have added -- if you look at our competitors, it could be 2,500, 3,000 tests. We have had very selective -- we picked 300 tests where we believe there is complementarity with our Aarogyam portfolio today. So therefore, we have a certain assured volume that we can use with our vendors as well as there is a medical rationale to include it into our test license.
Understood sir. And sir, just a last question. What is the strategy behind the whole hospitals business that I'm not actually clear, I'm sorry? But what was the -- what is our right to win here in this market in the hospitals market?
Very good question, Chirag. It shows that you have a strong understanding of the diagnostics business. Certainly, if you look at an all-India level, if you look at the pathology market, Pathology OPD and keeping pathology IPD, the urgent tests out of the picture, but if I just look at pathology OPD, our estimate is 30% of the pathology OPD happens in hospital labs.
At this point, Thyrocare has a very limited presence in the hospital space. So if we are going to be an industry leader in diagnostics, we cannot ignore 30% of the market. So that's the first question why are you looking at hospitals?
The second is we had the advantage of a sister company that actually handles the hospital supplies for 900 hospitals in the country and has existing relationships. So from a go-to market, we thought that we could at least get introduced very quickly and meet these hospitals at a scale that is far faster than if we had to do it on our own one by one. So that was the second reason.
The third reason is, if you look at the hospital segment, it is one of the most price-sensitive segments where hospitals, particularly for tests that they are looking to outsource are very keen to get the best price in the market.
Actually, in that business, we are very, very competitive because we have a very strong cost structure. In many of the hospitals that we have met, even when we are able to better their existing competition, in many cases, we enjoy a significant margin even after that. And so therefore, we believe these are the 3 reasons we are getting into it. It's a large market. We have a very strong book-to-market advantage from our sister company, Aknamed.
And when we have gone and studied the costs that these hospitals are getting served at, when we look at our cost structure, we believe that we can easily match those prices or do much better than that and enjoy a good margin.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Congratulations for your role at Thyrocare. So first question is on the B2B, B2C and B2G. Like I'm just looking at your Slide 7. We have had -- historically, Thyrocare's philosophy has been to play into the B2B market. If you look at a 3- or a 5-year history, we used to take prices lower with the anticipation of volumes coming through given the price sensitivity like you said, at least the March data seems to suggest a good uptick in volumes.
So just your thoughts around the B2B piece. How different or similar it is to the past? Why we think the price is the way forward to grow this business?
Thank you, Shyam. Excellent question. I think I will say that if you look at our quarter 2 and quarter 3 results, actually, particularly quarter 2, we took a very [indiscernible] jump in price with the assumption that the investments that we have made in the brand and the fact that there would be limited competition at our price point that we would be able to sustain the business.
Actually, what we saw is a massive amount of churn in that time. We also saw -- and it's reflected in the volumes that you see between July and November, where we went from in our B2B business from 12.4 lakh per code, all the way down to 9.2 in a span, literally, I would say, 1 month after we raised the prices.
So what we've realized is that our channel partner network and actually most channel partner networks, fortunately, there is a -- there are alternatives now in the market to Thyrocare that come in with a low-cost value proposition.
And when we raise price to that extent, our channel moved down from us. The good news is that when we corrected this, the channel came back very fast. So I think the combination of the Thyrocare brand being known as a quality low-cost testing provider, along with prices that were competitive, actually showed us the uptick in March. And you will see actually a lot of the strategies that we implemented actually got implemented in mid-Feb and have started to show results in March.
So I think to answer your first question, how different is this from the past? I don't think it is very different from the past. I think the diagnostics testing industry tends to remain price-sensitive, particularly in the B2B segment, absolutely.
And if we are able to manage and optimize our price within our tight band, actually, the volumes are there for us to take. And we'll still be at a very healthy EBITDA.
That's helpful. So just the second part of the question is on the plan to grow B2C. It's -- I think it's like less than 20% -- close to 20% of revenues today. So just any thought process there? Is there a plan to kind of now do like what the other guys are doing, either in terms of retail formats? How will -- is there a plan to grow B2C at all?
Yes. So just to give you a little background on the definitions of B2B and B2C for Thyrocare. B2B is when we just receive a sample. B2C is when we collect the sample ourselves or collect the blood ourselves and our phlebotomists go.
So while we say that, that is the B2C business, it is really a B2B2C business, which is we work with an aggregator, a platform, let's say, a corporate and collect -- they pass on the lead to us and we collect the sample and issue the report.
So actually, if you look at the pure B2C, where a customer walks into a Thyrocare franchisee and gets his blood and collects a report, actually, that's a very small part of our business. We are largely a B2B business, and it's segmented on whether we collect the sample or we collect the blood. Think of it that way.
Now in that, I think, firstly, there are very strong plans to grow our B2B business. We are investing significantly to add counters, ensure that anyone who offers the diagnostic test or has a diagnostic test collection center in the country thinks of Thyrocare as its back end. And that is one of the big areas that we are focusing on.
The second is on the B2C side. We are ensuring that anybody in the online space, of which PharmEasy is one of our customers, but we are working with almost all the health tech platform. We are working with many of the new innovative marketplaces on diagnostics. We are even actually working with several of the e-consult or medical consultation companies as well as the traditional health aggregators.
And the plan is really to scale that up as much as possible. We have built up a team that actually goes to corporates to some of these large health tech players, large diagnostic -- not diagnostic, e-consult players and getting them impaneled as Thyrocare -- getting Thyrocare impaneled as a diagnostics partner on those platforms. That's where we are.
The plan to grow B2C slowly, where we would set up franchisee counters and actually set up or invest significantly in Thyrocare.com is actually not on the card. We believe this is our efficient business model, and we can grow our business this way.
Got it. That's very clear. If I can squeeze the last question on Aarogyam versus non-Aarogyam. Again, historically, we have had close to 50% from Aarogyam. But if I look at Jan -- I think Jan to March, that number is lower.
Any thought process around how you will look at Aarogyam packages versus non-Aarogyam? You expanded the test numbers like what you mentioned as well. So I just want to understand how we should look at the whole wellness part of your business?
Sure. I think what happened in GFM. So I think what we have realized now is that a large part of our franchise looks at the Aarogyam package and then determines our overall price. So when we corrected the price on Aarogyam and the franchise network came back it had a massive knock-on effect on non-Aarogyam as well. So that, I think, was a plus that we got when we corrected the prices on Aarogyam and to some of the what we call the price perception drivers.
Going forward, Aarogyam will remain our primary focus because the account we have significant brand recognition there, people understand the packages, customers understand the packages. So I would expect that you would get back to the same ratio you alluded to, Shyam.
The next question is from the line of Aditya Khemka from InCred AMC.
Congratulations, Rahul, on the new role. Rahul, so what I hear from you is that March was basically the first month of the newly reformed strategy at Thyrocare. And we are looking onwards -- going forward, you're looking onwards for growth beyond the March numbers.
So in March, if our diagnostic revenue was INR 480 crores -- sorry, INR 41 crores, which have an annualized translation roughly INR 480 crores and very little revenue from COVID. So all of it, lion's share is non-COVID. So would it be the same let's say therefore, you are looking beyond INR 480 crores from your non-COVID business?
Yes , yes, absolutely, Aditya. I think without giving specific guidance here, I think we would all be disappointed if we land at INR 480 crores.
Right. And that would also translate to a sample volume of 20 lakhs per month, which you did in March. We're looking at growth beyond 20 lakhs per month in FY '23 for all 12 months?
Yes. I don't anticipate to be reducing prices for the [indiscernible].
Fair enough. Just one clarity I wanted -- when you bill to -- so when you use the Aknamed network to reach hospitals and when you use PharmEasy network to connect with customers, are your economics there similar to what they used to be before acquisition when you had channel partners? Or is the economics with Aknamed and PharmEasy better or worse compared your independent channel partners?
See, Aknamed is just a lead gen partner. So actually, there are no economic sharing with Aknamed. Once we approach the hospital and we agree to work together, Thyrocare bills directly to Aknamed. So I'll keep that one aside -- sorry, not to Aknamed, to the hospital directly. So you should think of Aknamed only as a lead gen partner, not a wire media to reach the hospital.
When it comes to PharmEasy, the economics, the way to think about it is there is economics at a gross margin level and economics at the EBITDA level. I would say if you compare at the gross margin level, PharmEasy enjoys a certain amount of discount because of the volume that they do.
But if you look at it at the Thyrocare level at an EBITDA level, it will be more or less the same as our normal partners because we don't incur any of the fixed costs in sales, collection, routing for PharmEasy.
I would also like to clarify all prices to any of the related parties as per our standardized discount sheet, and that has been ratified as part of our audit committee for related party transaction. So we follow a standard discount sheet, regardless of whether you are PharmEasy or any other online platform giving a certain amount of business. And that discount is exactly calculated on the net gross margin realization and the fixed cost that is required to serve that business.
Got it. Just one last question. So pre-PharmEasy, pre-COVID, Thyrocare was a 40% EBITDA business. Now we are on a non-COVID piece, we are in the low 30s. 3 years out in your mission that you have stated in the presentation that you shared, margin outlook seems to be missing. So I just want to understand, is 32, 33 where you are comfortable being 3 years out? Or is 40 really going to be your target, which used to be the case pre-COVID?
I think over the next year or 2, Aditya, we will come to know where we are. I think the way to think about it is keeping COVID aside, right, let's keep COVID aside, which was driving -- as you would have seen when we broke it out, driving a large part of that 40%, right? The base, over the last couple of years also has been at about 32.
Pre-COVID, the question is, do you want to have 40% EBITDA but single-digit growth or industry-leading growth at the 30 -- in the 30s? That is the trade-off. I can't comment at this point because at this point, we are in the investment phase. But certainly, over the next 3 years, we see enough investments to be made to deliver industry-leading growth, and we will do that.
Next question is from the line of Nikhil Mathur from HDFC Mutual Fund.
Congrats, Rahul, on your new role. My question for a bit on the cost side only. I mean, I'll just get your comment that in an investment phase perhaps we'll come back with Aknamed margin outlook in a few quarters.
But just looking at more granular basis, if I look at Aarogyam cost as a percent of sales in 4Q, it has somewhere around 32%. Can you highlight any basis points or percentage point of savings that you'll get from your vendors or your reagent suppliers that relies on the basis of scale?
Sorry, just to -- Nikhil, just to ensure I've understood the question. You are saying -- you've asked my material cost has gone up over the last couple of quarters. Is that because I have stopped getting discounts from my vendors?
No, my question is a bit more, are there any material savings that you get or like material discounts you get from your vendors because of scale as it [indiscernible]?
Yes, yes. So that -- I think, without getting into the details of that, I think I'm reasonably confident at the scale that we -- and volumes that we commit upfront to our vendors, we will be getting the best reagent prices in the market. I would be very disappointed if we were not.
We'll be sitting down across the table and discuss what are the volume commitments. And typically, our volume commitments are in excess of any other diagnostic lab in the country. And then we negotiate or find win-win solutions to get the best prices for us. So that's on that part.
I think your question also was what has happened to gross margin between Q3 and Q4, right?
No. My question was more on the first part itself, asking are there any material savings. And I actually have a question tied to that.
Now, I think you have clearly laid out the expectation on the pricing front. But on the cost front, especially the raw material side, I think there's an elevation of competitive intensity in the industry. We have pharma companies, we have [indiscernible] retail outlet venturing into diagnostics.
So does that put pressure on your bargaining power with your suppliers on your reagent cost? Because the vendors are now spoiled for more organized choices and because in the past working more with an omni experience but they are more omni experience who are perhaps willing to offer better economic proposition to the vendors as well? So is there any headwind to your gross margin because of elevated competitive intensity on the organized front?
I think to be quite candid there, Nikhil, I don't think so at this point. Just as we talked about, at March, we were at a scale of 21 lakh samples a month. I think it would be very difficult for anyone to be at that scale to sit down and negotiate prices that we are talking about.
Got it. And also just on the cost front, on the fixed cost front or variable cost front, now collection of samples is done by phlebotomists and phlebotomist is a slightly specialized job. I mean not everyone can do. So even on that front, is there any wage inflation that you are witnessing in the -- across the industry because of, again, competitive pressures coming in or possible inflation pressures are also there.
So what are your thoughts on the availability of the tool required to connect the samples? And is there a fight for a constrained tool and that can lead to elevated cost in the coming quarters?
No, that's a very good question, Nikhil, and it's something that we have also been mulling on. I think we will recognize that the collection agent or phlebotomists, as we call them, will be the constrained resource over the next, I think, a few years actually because they are medical technicians and have to be trained as such, and then onboarded on this platform to be able to serve the customers.
And as competition increases and more and more people want to collect the samples on their own, they would see costs go up per collection. The way that we are combating this is in twofolds. One is using our technology, particularly using some of the app-based technology that we get the benefit from PharmEasy on how to rule, how to schedule and how to ensure that the phlebotomist is utilized to the maximum possible. So while costs may go up, hopefully, we will be able to compensate it with productivity increases of the phlebotomists. That's one part.
The second is we are also exploring, and we have actually very successfully done it, is a bit of a part-time model. As you may know, in the diagnostics industry, a large part of the collections happened in the early morning after fasting. And then actually, we have a long period of low utilization in the day for a particular phlebotomist.
We have also explored where we onboard nurses who are working for the full day, let's say, in a patient's house or even in a hospital, where they support us for the first 3 hours in collection, and then continue with their normal job and earn a little bit extra on the day. That actually has been a very successful model for us.
So to answer your question, Nikhil, I believe this will be a constraint resource, cost will rise. We are combating it through 2 ways. One is, of course, as I mentioned, using technology to enhance productivity. And two, this -- how would I say, almost like a gig economy for phlebotomists, where we are trying to engage nurses and other health care workers to use their spare time in the morning to collect samples as well.
Ladies and gentlemen, in the interest of time, we will be able to take the last 2 questions. The next question is from the line of Rahul Veera from Abakkus Asset Manager.
Sir, just a quick question from my end. March [indiscernible] sample. So what's the peak sample in the current capacity we can go to?
Sorry, you were saying, what is the...
The testing sample -- sample testing capacity we can work to?
Okay. So the way we measure our capacity is actually in how much capacity do we have to release a sample in 6 hours, right? Today, our capacity utilization, as measured by that metric, is about 67% to 70%. So we have adequate capacity to service the demand temporarily.
I also wanted to call out that the way we measure capacity is sample release in 6 hours. If I was, for example, to release or increase that time to 8 hours, then I already have 25% more capacity. So -- but our rule is that all labs turn around samples in 6 hours. So we measure our capacity in that way, and we are at about 70% capacity utilization at this point.
Sir, given this kind of a metric and the kind of reach, outlets they're targeting whether it's [indiscernible] any other channels, within 2 years, you will fill out the capacities, right?
Within 2 years, we will sell out our capacity, but we are also, at this point, as I mentioned, in order to solve the turnaround time challenge, we have already added several what we call regional processing labs. And we will continue to [Audio Gap] and what we call very small footprint satellite labs to be able to augment the capacity.
The next question is from the line of Rahul Agarwal from InCred Capital.
Appreciate holding this call after some time gap. Best wishes to Mr. Guha for the new title, and congrats, Sachin, for the promotion. Sir, firstly, on -- first question is more top down, as purely on Thyrocare as an entity within the API Group. Will it stay like a pathology and radiology-focused business going forward?
Key additions to our senior leadership to achieve what you have just said, to support Mr. Guha in this endeavor. And thirdly was on the capital allocation. Obviously, we've talked about growth and margins, but we haven't talked about capital utilization and taking care of balance sheet doesn't dilute because B2B business is obviously a bit more challenging.
So any -- in terms of your mind, what is the priority on return on capital? And what kind of investments are you looking at? That's the first question.
Thanks, Rahul. So I'll just take each of your questions one by one. I think the first one was, at least for the foreseeable future, we see Thyrocare as a pathology and radiology company. I don't think we will move beyond that as far as our mandate is concerned.
In terms of the key additions to the team, I think some of our big priorities, as I mentioned, really expanding the B2B channel. So we've had someone recently joined us to head the entire B2B sales and drive that entire broad team, so to speak. We are also doing select additions to ensure we build our hospital franchise business and are able to cater to that. And the pharmacy counter is an important strategic leg, and we have someone who will be driving that business as well.
Other than that, we will see other key additions as we go along. One other important addition, not on the revenue side, but on the operations side, we've had someone join us as the quality head to be able to oversee all our labs and ensure that our quality processes and NABL accreditations are well underway.
I think those are the main additions that we've already done. When it comes to capital allocation, Rahul, as you know, unlike most other B2B businesses, we do insist on a certain deposit from our channel partners, and we typically extend them credit, this is the initial deposit. So from that point of view, typically, our receivables are not out of whack as a result. And we've been always very tight on our credit limits and how we extend -- what we call credit into the channel.
That being said, when it comes to capital allocation and capital utilization, we will invest into capital, particularly, as I mentioned, on the regional labs and the satellite labs. That estimate we are working through, but I don't think it will be, let's say, north of 20, but it will be in that range of INR 20 crore to INR 25 crore range. But that's where we'll expand on capacity.
Beyond that, I think we will do some select investments in the radiology space to see if we can augment capacity and turn around that business. Those are the 2 areas where I see us deploying capital to a large extent.
I don't see us, at this point in time, pursuing the inorganic route. Actually, that was one of the reasons also we didn't take a large part of the cash because if you look at our capital commitments to grow the business, which is mostly in receivables, to grow or expand the capacity and also to invest selectively in radiology, we thought from a cash position, we were quite pleased.
Yes, I agree with you that broadly, Thyrocare, as an entity, was very efficiently managed on the working capital side and on balance sheet, on cash generation. So basically, going forward, even when we grow higher and we grow faster, I think if that discipline or balance sheet can be maintained, will be great.
And then secondly, just last question from my side on the service network. So earlier pre-acquisition, we used to discuss about Thyrocare aggregators, Thyrocare service providers, [ tags and PSPs ], overall touch points, B2B partners. But going forward, after the integration, how should we look at service network for Thyrocare? Like could you help me with like top 3 things we should track over 3 to 5 years just to understand what is the reach of Thyrocare after the integration, along with API Holdings?
I think our channel partner network remains core to our business route. So we will continue to invest and support them. And actually, we are investing heavily to put in place -- not heavily, I would say, selectively to put in place a growth team that will expand that network, right?
The way we categorize, we used to have. I think if you look at B2B, we had 5 different segregations of channels. And in B2C, we had 4 different segregations of channel. We are trying to keep it as simple as possible now.
Within our B2B business, we think of our channel in 2 categories, direct and indirect. Direct being Thyrocare and Thyrocare branded works largely for Thyrocare as a storefront, is okay giving -- working with the Thyrocare back-end and following our particular processes in terms of deposits, work order entry and all the processes. So that's one kind of direct channel that we have, which is in the earlier parlance was the [ PSP ] and [ GQC ] term that we used to use.
And then the second is the indirect channel, which is largely the trading channel that effectively kind of is a B2B2B, where they go ahead and sell to other diagnostic labs and so on.
If I look at our total channel partner network, right, if I look at the first category, which is direct, I would say we have about 1,500 direct partners, right, and about 2,500 indirect partners. And those 2,500 in turn service many, many more diagnostic labs, hospitals and so on. At this point, we actually don't have visibility on them. Our attempt is to actually understand who is the end customer and try to reach them directly through our B2B channel.
And for the B2C, you said 4 channels. Anything on that, please?
So 4 channels it's -- I will spend a lot of time explaining the terminology. But simplified terms, there was what was called the DSA, which is many of the portals that would come to us and think of it as a lead -- online lead-gen or offline lead-gen channel.
We had what was the corporate channel, which were corporates that we would work with for our business. And then we had our own Thyrocare channel, which was web and calling. So those were the channels that we had.
I think we have come to the realization that in this competitive environment, it will be very difficult for us to burn money and build thyrocare.com. Today, the customer acquisition cost for a diagnostic test, as many of you know, is quite substantial. It will be very difficult for us to replicate that model.
So we are largely focusing on our corporate business, where we are trying to go direct to corporate and get a part of the annual health checkup over there using our Aarogyam brand. And then on the DSA side, we are really, in a way, chasing after every single large health care platform, consultation platform, treatment platform aggregator and trying to get Thyrocare impaneled assets diagnostic provider.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rahul for closing comments.
Thank you so much. Thank you, everyone, for joining us and for giving us a patient listening over an hour and 10 minutes. My apologies, once again, for the delayed start. We had a technical glitch. Hopefully, in the next call, we will not have this.
We will continue to engage with all investors and analysts every quarter. I know we've had a bit of a silent period over the last year or so, but we will continue to now maintain this cadence and explain where we are going with the business and our strategy.
I really appreciate all of you taking the time. Thank you for the congratulatory notes on joining. This is my second day -- third day at Thyrocare. So thank you so much for having such a patient listening as I walk you through how we intend to take the business. Thank you, everyone.
Thank you. Ladies and gentlemen, on behalf of Thyrocare Technologies Limited, we conclude this conference call. Thank you for joining us, and you may now disconnect your lines.