Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metropolis Healthcare Ltd (BOM:542650, Financial) reported an 11% year-on-year growth in Q4 FY24 revenues and a 15% growth in core revenues.
- The company's B2C revenue grew by 20% year-on-year, with a 7% volume growth and a 13% increase in revenue per patient.
- Metropolis Healthcare Ltd (BOM:542650) has successfully expanded its network, adding 24 new labs and over 550 collection centers in the last 12 months.
- The company has zero debt as of March 31, 2024, and a net cash surplus of INR117 crores.
- The company plans to focus on organic growth through new test enhancements, expanding its collection center network, and improving service standards and digital marketing initiatives.
Negative Points
- The diagnostics sector faces significant challenges for new entrants in scaling profitable revenue, which could impact Metropolis Healthcare Ltd (BOM:542650)'s competitive landscape.
- Hospital entrants into the diagnostics segment face structural challenges, such as differential pricing and difficulty in attracting prescriptions from specialized doctors outside the hospital.
- The company plans to reduce its dividend payout from 30-35% to 15-20% of tax for the next couple of years to retain cash for growth opportunities.
- There is a potential risk in the company's aggressive expansion plans, which could lead to short-term EBITDA margin dilution.
- The company faces competitive intensity in the B2B segment, which could impact its pricing strategy and overall profitability.
Q & A Highlights
Q: My first question is on the quantification of any sums that we would be keeping aside for this M&A activity in the next two years.
A: Currently, we have approximately INR120 crores cash on our books. We'll use internal accruals, raise debt, or use stock equity. It's difficult to quantify an exact amount now, but we won't raise debt beyond 2 to 2.5 times our EBITDA. Each deal will be evaluated from an IRR, ROCE, and ROE perspective.
Q: Would there be any specific region that we would be planning to target for M&A?
A: We have three strategies for M&A. For geographical expansion, we will focus on north and east India, but also consider south and west for markets where we lack a strong B2C brand. The other two strategies involve acquiring technical capabilities and regional players, which could be anywhere in the country.
Q: Any indicative broad margin guidance for FY26 post our network expansion plans?
A: We are comfortable with our Q4 margin and believe we can sustain it into the next year, aiming for 25.5% to 26% cumulative margins.
Q: Is the trend of larger chains outgrowing the market linked to pricing or other factors?
A: Health tech firms used convenience and aggressive pricing during COVID to drive business. However, post-COVID, people prefer brick-and-mortar labs. Pricing was never the key; trust and quality are more important in healthcare.
Q: What factors decide the number of labs we add each year?
A: The number of labs is determined by our ability to generate demand and set up collection centers. The hard part is not building labs but generating demand and setting up distribution. We have accelerated our lab addition pace and plan to add 25 more labs this year.
Q: Does your B2B business include some business from online players?
A: Yes, but the contribution from online players and aggregators is very low. Our B2B revenue primarily comes from labs and hospitals.
Q: What is driving the double-digit revenue growth in Mumbai?
A: Three factors: expanding our distribution network, increasing engagement with top hospitals for specialty business, and maintaining productivity of existing centers. We plan to increase our centers in Mumbai from 430 to over 500.
Q: Can you elaborate on the challenges hospitals face in the diagnostics market?
A: Hospitals face structural issues like higher pricing inside compared to outside and difficulty in attracting prescriptions from outside doctors due to fear of patient loss. These challenges limit their ability to compete effectively in the B2C market.
Q: What is the outlook for revenue growth in FY25?
A: We aim for mid-teens growth, with volume growth of 8% to 9% and realization growth of 5% to 6%, driven by price increases and product mix changes.
Q: How do you plan to reduce debtor days in the coming year?
A: We aim to reduce debtor days from 30 to around 24-25 days by focusing on cash and credit business and improving our cash conversion cycle.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
