Metropolis Healthcare Q4 FY23 Earnings Call Summary

Freevest

4 min readJun 9, 2023

Earnings Call Transcript can be found here

Takeaways from Management Presentation

Positives:

Strong brand recognition and trust among doctors and consumers.
Double-digit growth in key markets like Mumbai and Pune, outperforming peers.
Focus on expanding the network into Tier 2 and Tier 3 towns, leveraging brand recognition.
Emphasis on wellness testing as a pillar of growth, with margin-accretive premium packages.
Widest range of test menu and continuous addition of new tests.
Strengthening doctor engagement activities and conducting CMEs to gain trust and increase volumes.
Investment in IT infrastructure and digital channels to improve customer experience and drive efficiencies.
Exploration of inorganic opportunities and complementary businesses for strategic growth.
Certification as a great place to work, emphasizing talent retention and addition.
ESG initiatives focused on energy conservation, water and waste management, diversity and inclusion, and ethical standards.

Negatives:

Financial challenges in the diagnostics industry due to increased competition and pricing pressure.
Mismatch in profit and loss due to COVID revenues falling off steeply and increased manpower costs.
Impact of external challenges like CEO change, rumors, income tax surge, and unethical competition.
Decline in PPP contract revenues due to government decision to insource business.
Dilution of margins due to investments in network expansion.
Limited growth in digital platforms post-COVID, with preference for in-person diagnostics visits.
Potential pricing pressure in non-illness and non-specialized B2B segments.
Need for continuous improvement in technology and network expansion strategies.
Industry consolidation with larger players controlling the market share may pose challenges.
Impact of competitive intensity on Metropolis’ growth and market share.

Key Takeaways from Q&A

PPP revenue accounted for 5–6% of the revenue in the last quarter of FY ’22. However, it is not a core focus for Metropolis due to its one-off nature and the commoditized nature of routine testing in other PPP contracts.
The NACO contract, which focused on specialized testing, was won by Metropolis for three years and later extended for another two years. However, the government decided to insource the testing after five years, and no new tender has been issued.
The realization in the wellness segment has declined by 8–9% year-on-year. Metropolis operates in the premium wellness space, with realizations ranging from 2,000 to 3,000. The decline may be influenced by changes in geographic mix and efforts to create more inclusivity in testing packages.
The core business volume growth for Metropolis is around 15%, with 10% contributed by existing stores and 4% from new network additions after April ’22. The volume growth is driven by an increase in patients per center and the implementation of direct-to-consumer initiatives and health camps.
Metropolis implemented a 4% price increase on selected specialized tests, which is expected to contribute 1% growth in the coming year. The company is evaluating further price increases in the future based on market opportunities and competition.
Metropolis believes its brand premium can sustain price increases, but the current strategy focuses on volume growth without significantly impacting realization through price. The company aims to increase realizations through product mix and specialized tests.
The entry of new players in the market has been limited in the last 12 months, with some pharma and hospital companies preparing to launch. Employee attrition has normalized, with technical team attrition during the COVID year and sales team attrition due to new players entering the offline market.
Metropolis expects the next three years to be stronger for non-COVID business compared to the last three years. The impact of COVID and disruptive trends, along with increased competition, affected non-COVID volumes. Metropolis believes it is well-positioned to capitalize on the opportunity and execute its plans.
The PPP revenue for fiscal year ’22 was INR 67 crores, entirely from the NACO contract. The PPP business is not expected to continue into fiscal year ‘24.
Metropolis aims to protect its current margin of 25.5% and continues to invest in infrastructure and IT. The company plans to add 30 labs and 600–800 centers, and while this investment may dilute margins, they believe it is necessary for future growth. The operational EBITDA level can be achieved once the expansion phase is completed.
Growth potential: Despite the challenges faced during the COVID-19 pandemic, the company expects its core business to continue growing. While specific growth figures were not mentioned, the management believes that the overall growth rate will be higher than the 5% mentioned by the questioner. This indicates a positive outlook for the company’s future performance.
Expansion into radiology: The company plans to foray into basic radiologic tests, such as ECG, x-ray, and sonography. This expansion is expected to leverage existing infrastructure and real estate without significant additional costs. By offering a holistic service of both pathology and radiology, the company aims to provide value to consumers and patients, potentially attracting more customers.
Market positioning: The management highlights that the COVID-19 pandemic has increased consumer awareness and recognition of branded pathology services. The company, being a trusted brand among doctors and consumers, sees this as an opportunity to capture a higher market share. This indicates the company’s focus on market dominance and its potential for sustained growth in the organized sector.