Vijaya Diagnostic Centre’s Q1FY23 performance was broadly in line with our estimates with revenue declining 14.9% YoY to Rs 1.0bn (I-Sec: Rs 1.0bn) on a high Covid base. EBITDA margin contracted 810bps YoY and 300bps QoQ to 38.2% (I-Sec: 41%) due to higher expenses linked with new centres. Non-Covid revenues witnessed healthy YoY growth at 11.7% led by recovery in footfalls. Covid revenue slumped 90% YoY to Rs 32mn. We remain positive on the stock mainly due to the company’s B2C focus (95% of revenue in Q1FY23), highest margin within the industry and continued focus on deeper expansion in its dominant regions. These strengths synergise with supportive macro factors, including the likelihood of a faster shift of market to organised players. Further expansion in east, especially Kolkata, may drive medium- to long-term growth. However, intense competition may affect near-term performance. Maintain BUY with a revised target price of Rs 597/share.
Business review: Revenue declined 14.9% YoY in Q1FY23 due to waning Covid-led revenues. Non-Covid revenues witnessed healthy recovery and grew 11.7%/2.9% YoY/QoQ while Covid revenues slumped 90% YoY and 82.1% QoQ. Overall realisation declined 16.5% YoY to Rs 469/per test with falling Covid contribution, but was largely stable QoQ. Total number of tests grew 2.3% to 2.23mn. On a high base, we expect 8.1% YoY volume growth over FY22-FY24E driven by the addition of new centres and increasing footfalls in non-Covid segment (ex-Covid, we expect volume to grow 15.8%). Higher contribution from radiology (36% in Q1FY23 vs 32%/31% in Q1FY22/Q4FY22), wellness packages (10% in Q1FY23 vs 4% in Q1FY22) and non-Covid revenue supported gross margin expansion of 470bps YoY (290bps QoQ) to 87.5%. Higher expenses toward newer centers dragged EBITDA margin by 810bps YoY (-300bps QoQ) to 38.2%.
Concall highlights: 1) Reiterated intent to add 14-15 centres this fiscal. 2) Rajahmundry facility to be inaugurated on 11th Aug’22. Expect annualised revenues of ~Rs 120mn-130mn once stabilised. Panjagutta centre to be launched in a couple of months and expect Rs 400mn annually. 3) Guidance: non-Covid business to grow in double-digits in coming quarters. Revenue per patient to be ~Rs 1,250-1,300.
Outlook: With higher contribution from radiology and B2C focus, Vijaya commands best-in-industry EBITDA margin, which we believe would likely continue and sustain above 40%. However, due to higher base of Covid, we expect revenue to grow at 5.1% CAGR over FY22-FY24E. Due to fall in the margin-accretive Covid business and cost inflation, we estimate EBITDA to grow at a CAGR of 2.9% over FY22-FY24E with 180bps decline in margins. Despite continuous expansion, the company is likely to generate free cashflow of ~Rs 1.8bn over FY23E-FY24E.
Valuation: We cut our revenue and EBITDA estimates by 2-3% each year for FY23E and FY24E to factor-in loss of revenue from Covid business, cost pressures and increasing competition. Retain BUY with a revised DCF-based target price of Rs 597/share (earlier: Rs 614). Key downside risks: Slowdown in growth in southern region, and regulatory hurdles.
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