Analyzing Krsnaa’s annual report we have compiled a report, with an overview of the sector, growth strategies, balance sheet and management changes as well as our observations. Read our Initiating Note to understand Krsnaa’s business model in depth.   

Profile of the company- 

Krsnaa Diagnostics (KDL) is one of the largest players in the diagnostic sector through Public-Private Partnerships (PPP). The company focuses on making quality diagnostic services accessible and affordable to a large portion of the Indian population. By collaborating with both government and private hospitals, Krsnaa Diagnostics serves communities in urban, semi-urban and rural areas. Its wide range of radiology, pathology, and teleradiology services has allowed it to expand its presence across the country.

Sector tailwinds and increased government allocation aiding PPP diagnostics- 

• Governments’ budgeted expenditure on the health sector reached 2.1 percent of the GDP in FY23. It is expected the Government will increase the expenditure to 2.5 percent by FY25, especially focusing on the underprivileged population.
• The fiscal year 2024 observed a significant 15% increase in budget allocation for healthcare as compared to the previous year. The growth can be attributed to various initiatives undertaken by the Government such as the Pradhan Mantri Atmanirbhar Swasth Bharat Yojana (PMASBY), Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) and Pradhan Mantri Jan Arogya Yojana (PMJAY).
• The National Health Mission (NHM) has become one of the largest initiatives by the Ministry of Health and Family Welfare (MoHFW), with a budget estimate of Rs. 35,947 crores for 2024. As part of NHM, a free essential diagnostic initiative was launched to reduce the high out-of-pocket costs for diagnostics and improve overall healthcare services. This is expected to boost the growth of PPP diagnostics. 
• The diagnostic market is projected to significantly expand between FY23-28, reaching an estimated market size of Rs. 1,20,000 Cr, with a Compound Annual Growth Rate (CAGR) of 8-10%.

Opportunity and threats

Growth Strategies 

• Tapping into New Markets- Krsnaa is participating in new Public-Private Partnership (PPP) tenders to tap into under-penetrated and growing diagnostics markets, creating additional revenue streams for future growth. 
  • The company is focused on the timely and successful implementation of new projects to ensure efficient growth and service delivery. 
  • It plans to expand its presence in Tier I, II, and III cities to meet the increasing demand for quality diagnostic services, which will strengthen its position in these regions. The company also plans to further extend its reach into semi-urban and rural areas.
• Expansion of Pathology Business - By capitalizing on the extensive infrastructure of existing centers and the addition of new collection centers to reach more consumers
• Increasing Visibility- Digital campaigns to increase consumer awareness about Krsnaa’s competitive price offerings

B2C – leveraging existing infrastructure to directly reach customers 

KDL is strategically expanding its retail segment, which currently accounts for only 1-2% of its revenue, revealing significant growth potential. The company plans to leverage its existing infrastructure in key locations like Maharashtra, Punjab, Orissa, and Assam to scale its retail presence. The company will first start by offering pathology services and setting up collection centers using existing labs for testing. This will ensure initial capital outlay will be limited. Pricing for such services will be higher than the B2G segment but will remain competitive compared to the broader market. Margins by year-end are expected to be in line with broader operations once stabilized (~25% EBITDA).

Krsnaa has already inaugurated its first B2C private lab in Mumbai, covering 15,000 sq. ft. To enhance brand recall and customer growth, Krsnaa is focusing on telereporting, effective branding, and marketing initiatives while ensuring affordable, high-quality services. Additionally, it aims to strengthen brand recognition and customer loyalty through efficient service delivery and is expanding its in-home visit services for greater healthcare accessibility. To further this expansion, the company plans to broaden its service portfolio, diversify its reach through a franchisee model, and solidify its Hospital Lab Management (HLM) model.

Profitability to be driven by newly launched and semi-matured centers- 

Source: Moneyworks4me research

Centers operational for over 3 years show higher margins, while those under 3 years tend to be around break-even levels. New centers (less than 1.5 years) face negative margins due to higher initial costs during the ramp-up phase. Revenue growth happens gradually, with investments today laying the foundation for future profitability. Typically, PPP projects take 1-2 years to stabilize, and by year 3, centers reach maturity. Although this can vary by project, this trend indicates performance will improve as projects mature.

Some changes in the balance sheet that are worth highlighting-

• Working capital stretched temporarily 

Source: Moneyworks4me research; Note- Numbers before FY22 are on standalone basis

• At year-end, receivable days stood at 104 due to delays from election-related activities (The same happened in FY19 as well) and increased receivables from Himachal Pradesh. Excluding Himachal Pradesh, receivables were 68 days. Payments from Himachal Pradesh started in April and May, with receivables expected to return to normal. 
  • These extended receivables resulted in short-term borrowings increasing by Rs 96 Cr at the end of FY24.

Source: Annual report

• In Q1 FY25, receivable days were around 100, totaling Rs. 190 crores, with significant collections in June and July post-elections. Full recovery is anticipated by the end of Q2, between June and August.
• Healthy financial position-

Source: Moneyworks4me research

• Net debt stood at Rs. 84 Cr at the end of the financial year. As explained above, the increase in short-term borrowings is due to the receivables increase which is temporarily stretched. 
  • While EBITDA/PAT conversion has fallen in recent times, it is because of the business being in the investing stage. 
  • The company incurred ~Rs. 200 Cr+ capex last year. Next year capex is to be in the range of ~Rs. 150-180 Cr and if the Rajasthan tender comes through then it will be ~Rs. 250 Cr. 
  • As of Q1FY25, the company holds gross debt of Rs. 170 Cr and cash and cash equivalent worth Rs.240 crores. The balance sheet looks healthy with a debt-equity ratio at ~0.2x in FY24.
• Change in useful life and residual value of certain assets
  • Based on the technical expert’s assessment of useful life, certain items of property plant, and equipment are being depreciated over useful lives different from the prescribed useful lives under Schedule II to the Companies Act, 2013.
  • Management believes that such estimated useful lives are realistic and reflect a fair approximation of the period over which the assets are likely to be used.

Source: Annual report

• Due to this change in accounting estimate, depreciation expense is lower and profit before taxes is higher by ~Rs. 4 Cr for FY24. 
  • Our opinion is that this is in line with industry standards and should not be a cause for concern. 
• Utilization of IPO proceeds - The Company appointed ICICI Bank Limited as the monitoring agency, in line with SEBI ICDR Regulations, to oversee the utilization of IPO proceeds. Monitoring reports were obtained and filed with both stock exchanges where the Company’s shares are listed. The IPO proceeds have been utilized according to the objectives outlined in the Company’s prospectus.

Source: Annual report

Changes to the board, CEO and capability highlights- 

Source: Annual report

• Ms. Bhatevara has resigned as Managing Director (on 31^st Mar’24) and will continue as Whole-Time Director, designated as Executive Director of the Company. 
  • Mr. Yash Mutha has been appointed as Joint Managing Director (w.e.f Feb’24) and will also assume the role of Manager of the Company, effective from April 1, 2024.
  • Dr. Prashant Deshmukh was appointed as the Chief Executive Officer of the Company w.e.f. February 12, 2024. He resigned on 1^st July 2024.
  • Mr. Mitesh Dave has been appointed as Group CEO. He brings extensive experience from his career in FMCG (Cadbury), OTC pharmaceuticals (Cipla), telecom, diagnostics (Metropolis Healthcare), and specialty hospitals (ASG Eye Hospital). With a proven track record in driving financial outcomes and managing large-scale operations, his leadership aligns with the company's growth goals. Under his guidance, Krsnaa aims to leverage its existing infrastructure to accelerate its B2C market expansion.
  • The board has a sufficient number of independent directors and is taking steps to add the right people to the team.

In conclusion, Krsnaa Diagnostics continues to strengthen its position as a leading player in the diagnostic sector through strategic initiatives and expansion plans. The company’s focus on Public-Private Partnerships (PPP) and the maturing profile of its centers will drive growth. With increased government support, sector tailwinds, and the expansion of its B2C segment, Krsnaa is well-positioned for the future. The company's financials remain healthy despite temporary working capital challenges, and its leadership changes signal a strong foundation for further growth. Krsnaa’s ability to capitalize on emerging opportunities and deliver affordable, quality healthcare services will be key to its long-term success.

Good results with growth on track. Revenues to be driven by ramp up in recent contracts as well as pathology and retail expansion. EBITDA margin has room to improve further. 

• Radiology segment contributed 55% and pathology segment contributed 45% to overall revenues. 
• Krsnaa has no plans to establish new franchises for its retail segment. Instead, it will leverage its existing network of laboratories and radiology centers to expand its retail presence. This strategy focuses on utilizing current infrastructure to enhance market reach without the need for additional resources.
• Difference in margin profile - In the company's mature centers, radiology services (higher margin) have a major share, while the newer centers mix is skewed towards pathology (relatively low margin). However, RoCE profiles of both segments will eventually move closer. 

• CEO change- Dr. Prashant Deshmukh has stepped down for personal reasons and new CEO - Mr. Mitesh Dave has been appointed. He has over 20 years of experience in diversified business segments from FMCG to OTC to pharma, followed by diagnostic and other healthcare spaces. Previously he has worked with ASG Eye hospital, Indira IVF group, Metropolis healthcare, Cipla, Abbott India and Cadbury plc.
• Company maintains a stable financial position- Gross debt level at Rs.170 crores with cash equivalents worth Rs.240 crores. 

Steady growth continues in the quarter, the company  achieved 25 % YoY revenue growth and 28% YoY EBITDA growth on account of incremental revenues from newly launched centres & operational efficiencies. 

Few points worth noting are:

• Krsnaa remains the biggest radiology player in the country with a total of 109 CT machines and 39 MRI machines spread across 148 centers. It has 120 Labs and 1895 collection centers under its Pathology division. It reported a Revenue growth of 25% to Rs. 619 Cr in FY24 from Rs. 487 crores in FY23. The company is working towards achieving 25% CAGR revenue growth targeting revenue of Rs.3,000 crores by FY29.
• Reported a revenue growth of 25% to Rs. 166 crores in Q4FY24 and a slight degrowth in profit to Rs. 18.7 crores, from Rs. 18.9 Cr in Q4 FY23.
• Krsnaa welcomed Mr. Mitesh Dave, new group CEO to head its B2C operations. Mr. Mitesh brings experience from his illustrious career in FMCG, OTC pharmaceuticals, diagnostics and single specialty hospitals. 
• The company is also awaiting honourable High Court’s final order in the much awaited Rajasthan Tender worth Rs. 250-300 Cr.
• It has 16 operational centers with further 57 centers under implementation in radiology segment, and 719 operational centers as well as 2594 centers under implementation in its Pathology division. Around 70% of its total centers are still under implementation.
• The company’s revenue mix will stand at 60:40 going forward in favour of radiology with the rest 40% coming from pathology and it remains focused on expanding and leveraging their presence in underserved tier II and tier III cities, by tapping into the rising demand for quality diagnostic services in these regions. 
• Krsnaa has also committed to enhance its centre profitability in the maturing centers and bring in operational efficiencies through process automation and cost control measures.

Overall decent results even though they look bad optically. We expect positive trajectory of revenues along with 25% EBITDA margin to continue in the coming quarters.

The Indian diagnostic industry is expected to be supported by various fundamental growth drivers like the ageing population, rising awareness for healthcare, penetration in rural areas, as well as increasing investment by both government and private players.  The industry is expected to grow at a CAGR of around 15% for the next few years, which presents a huge opportunity size.

With increasing government focus on providing high quality healthcare services, the rising prevalence of schemes like Ayushman Bharat, it is expected to boost the PPP (Public-Private Partnership) model in the diagnostic industry and Krsnaa’s business fundamentals are fully aligned to tap in this growing opportunity.

Krsnaa Business Model:

The company provides Radiology, Pathology and Tele-Radiology services. It has a leadership role as a PPP diagnostic entity, boasting 134 radiology centres, 1,370 tele-reporting centres, 105 pathology processing labs, and an extensive network of 1,336 pathology collection centres. The 3 important dimension of its business model are: 

1. B2G (Business to Government): The diagnostic industry is highly underpenetrated in large part of our country. To address this gap, the government engages with private partners to collaborate with public hospitals and expand the reach of essential diagnostic services. Krsnaa, with its high quality services and disruptive prices, has emerged as a preferred partner for public health agencies. It has the largest presence in the diagnostics B2G segment. Thing about B2G is that you don’t have to open a big centre and then spend on marketing and then have a big gestation period to get decent volumes. Pathology centres in B2G are placed at captive hospitals premises which are already running at a lush of volumes, here Krsnaa comes in, bring in efficiency from its experience and capability of running large volumes. It de-stresses the stressed government infrastructure and ensures service quality is maintained. This segment contributes 70%+ to its overall revenues (Non-Covid).
2. B2B (Business to Business) : In addition to the PPP model, Krsnaa also have strategic tie-ups with various private hospitals. Generally, hospitals prefer to outsource their tests rather than set up an in-house laboratory testing facility. Tertiary hospitals, which may not have the equipment to conduct advanced tests, may also send samples to other high-end labs. Given that equipment for advanced tests is expensive, many hospitals find it economically unviable to operate them owing to low testing volume. In this model as well, Krsnaa enters into a contract with private healthcare companies, who provide space in their hospital, and Krsnaa sets up the Radiology and Pathology centres on a revenue sharing model which typically is about 20-30%. B2B segment forms 10%+ of its overall revenues. 
3. B2C (Business to Consumer): Krsnaa with its focus on the B2G & B2B business has gained strong reach due to word of mouth publicity. With help of this, B2C is the new segment that Krsnaa is trying to build. It wants to leverage its existing network of labs and centres and spread them more through initiatives like Wellness packages wherein large number of tests are bundled together at prices that are higher than what it charges in the B2G & B2B segment, but it also includes services like home visit which is a good value proposition for well off customers like upper middle-class segment of the market who are not fine with visiting government hospitals and can afford to pay higher prices. This is a relatively high margin business but it involves having a franchise with revenue sharing arrangement and high gestation period. It still has high incremental benefits because it will help Krsnaa make better use of its existing level of capacities that it has built. Krsnaa recently launched its home collection services in Punjab, which is another initiative, which allows it to go to the doors of the citizens, and provide them with all collection services, which is over and above the patients who come to the government centre. The company is keen on expanding these to other states, including Maharashtra, Orissa, and Assam, where it already has pathology labs. B2C is recently launched and we estimate it contributes less than 10% to its revenues. 

Value proposition:

Krsnaa offers quality diagnostic services at disruptive prices. Its tests are almost 40% to 70% lower than the market rates which makes it a good value proposition for low-income households.

(Source: Company reports)

Despite these lower prices, the company has been able to deliver healthy operating margins which are equivalent to its peers.It has been able to do this because of the following reasons: 

1. Zero doctor referrals fees for patient acquisition and limited expenses incurred in marketing and promotion which can be as high as 30% for its peers.
2. The company has tie-ups with Wipro GE Healthcare, Siemens Healthcare and Fujifilm India. Due to large procurement, equipment is purchased at lower cost and maintenance contracts are availed at discounts. Thus, setup costs are 10-15% lower than competitors.
3. Zero rentals to government hospitals for providing the space and availability of subsidized utility and electricity rates.
4. In the pathology segment, volumes play a significant role in pricing for reagents & kits for testing, due to its large volume requirements it is able to get a good bargain on its variable costs.

Competitive Advantage: 

1. Volume Stability: Long-term of contracts (3-5 years for Pathology & 7-10 years for radiology) with inbuilt price escalation mechanism of 3-7% ensures higher and consistent visibility of revenues. 
2. Diversified Revenue base: Krsnaa’s business comes from 14 states. Even though some states contribute higher to revenues at the moment, there are new states coming into picture and thus the business shall become more diverse going forward.
3. Tender winning capability: Existing investment in equipment and infrastructure, large scale of operations and cost competitiveness has resulted in strong bid-win rate of 79% with 100% technical qualification in the past.

The loop of  low cost due to high volumes & additional contract wins due to being the lowest-cost provider works as follows:

(Source: Company reports)

Segment-wise Business Performance:

(Source: Company Reports, Moneyworks4me research)

Radiology Segment: This includes CT Scans, MRI, Sonography, Mammography and X-rays. Machinery costs are high in this segment (~2 Cr for a CT scan machine & ~6 Cr for an MRI machine) while variable costs are very low. Once Radiology centres reach optimum utilisation levels (~60-70%) is when we get high ROCE from these centres. The maturity profile for the company’s radiology centers is outlined below.

(Source: Company reports)

Radiology segment has been growing at a CAGR of 36% from FY18 to FY23. Newly launched centres reaching semi-matured stage shall provide a high incremental ROCE for the company going forward.

(Source: Company Reports, Moneyworks4me research)

(Source: Company Reports, Moneyworks4me research)

Pathology Segment: This includes Routine Testing (Microbiology, Histopathology, Serology and Immunoassay) and Specialized Testing (Biochemistry, Molecular Biology, Oncology Genomics and personalized precision-based medicine). Capital outlay in this segment is significantly lower as against the Radiology segment. Major costs are Reagents and testing kits (20-25%).

(Source: Company Reports, Moneyworks4me research)

Pathology segment has been growing at a CAGR of 33% from FY18 to FY23. Recently secured tender are dominated by Pathology and thus this segment shall form a significant part of the company’s future revenues. 

Tele-reporting Segment: 

Krsnaa’s Tele-radiology services which it operates from Pune, is one of India's largest Tele-radiology reporting hub. At this facility, it has a team of 240+ radiologists from India and abroad, wherein it examines digital images and prepares reports. It provides 24x7 uninterrupted connectivity between diagnostic centers and the hub. This is a unique proposition that addresses the issue of shortage of full-time doctors and staff in the diagnostic industry. It also considerably increases the turnaround time for the reports. In addition, it also allows it to serve patients in remote locations where diagnostic facilities are limited.

(Source: Company Reports, Moneyworks4me research)

In FY23, the Tele-radiology segment had a revenue contribution of Rs. 49 Cr. However, Reporting costs associated with the tele-reporting segment were Rs. 52 Cr which implies that the segment is making nominal losses at the moment as there are significant fixed costs associated with maintaining such a setup. Currently, utilisation in the Tele-reporting segment is low as seen in the radiology capacity utilisation matrix provided below, but it is improving at a fast pace and soon the segment will provide a lift to the margin profile.

Concerns: 

1. Delayed receivables from state authorities: In B2G business, payment from state governments getting delayed is the most common concern. The company's transparent data reporting and real-time data sharing with government authorities ensure periodic audits, providing confidence in their numbers. Additionally, their recoveries are supported by the National Health Mission, known for timely payments. Government tenders now include clauses allowing vendors to suspend operations if payments are delayed, indicating the government's commitment to addressing this issue. While procedural delays are common, there's no significant challenge foreseen in the future. 
2. Re-tender risk: As tenders reach their expiration, if the counterparty is not interested in extending the contracts, we might see a sudden dip in revenue and cost escalation with respect to moving the owned machinery to a different center. As of now, there isn’t any big tender coming up for expiration. 
3. Lower Utilisations at new centers: The company is undergoing a significant capex investment in the tender it has won, if the utilisations in the new location do not reach the optimum level, the company might go on diluting its ROE in search of revenue growth.

Levers for Growth:

• Operationalizing tenders under implementation:

The company is set to deploy & commercialize significant resources in the states of Maharashtra, Rajasthan, Assam, & UP as provided below:

(Source: Company Reports, Moneyworks4me research)

The Rajasthan project hurdles have finally been removed, The Government of Rajasthan earlier had proposed to implement the project in 33 districts only, which it has now increased to 50 districts in total. The expected revenue from this project alone could be to the tune of Rs. 250-300 Cr per year (3 years contract with 2 years extension optional between the parties)

The company has recently secured a significant tender in the state of Assam. This project encompasses a network of 10 laboratories and 1,256 collection centers, significantly boosting its growth prospects in the northern-eastern region of the country, where government healthcare holds an 80% share. 

(Source: Company Reports, Moneyworks4me research)

Capex outlay in FY 24 & 25 for the above project is Rs. 120-130 Cr per year. This shall keep ROE diluted in the meantime. The key thing to focus on here is that once all the capex is done and these facilities reach considerable utilisation, how big a size the company can become.

• Scope of winning new tenders:

Due to its existing investment in equipment, large scale of operations and cost competitiveness, Krsnaa has a strong bid-win rate of 79% with 100% technical qualification in the past. Tender contracts typically range between 3-5 years for Pathology and go to about 10 years in the Radiology segments. The ability to quote attractive pricing at the time of renewal and a track record of successfully renewing the contract provides them revenue visibility in terms of tenure as well as gives a high chance of renewal. 

Presently company is present in 14 states; however majority of the revenue (44%) comes from the West region. In some of the states where it already has a presence, the size of the contracts is very small. Their strategy involves both organic and inorganic growth. They plan to expand organically by partnering with public health agencies, private hospitals, medical colleges, and community health centers. Inorganically, they aim to make value-enhancing acquisitions to consolidate their business and leadership position. There are quite a few states currently that aren’t yet on the bandwagon of the PPP model in hospitals, their coming in will provide further scope for the growth of the company.