Expect 20% revenue growth in next few yrs: SRL Diagnostics

Sanjeev Vashishta, CEO, SRL Diagnostics, says the company has all the right elements like superior technology, wider geographic reach and a quality team required to tap the huge potential in the diagnostics industry in India.

Vashishta believes that the diagnostics sector has a huge scope for growth with limited competition but there is immediate need to increase government spending on the sector to improve the efficiency and quality of service.

The major roadblocks faced by smaller unorganised players and new entrants into the industry is widening their reach geographically and concerns over undercutting of prices by competitors at the cost of quality, Vashishta says. Below is the verbatim transcript of Sanjeev Vashishta’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Sonia: Your own company has seen a growth of about 11 percent in the year gone by but going ahead in the next couple of years given the kind of momentum that this diagnostics space is seeing what do you think the compounded growth could be say in the next two to three years? A: If you look at the compound annual growth rate (CAGR) growth over the last four years it is good, it is odd 17 percent. Now why in the last year our growth was slightly subdued was for the simple reason that we had moved out certain centers those were non-accretive to us.  Going forward I see easily given the opportunity that we have on board in the diagnostics space I feel the growth should be somewhere in the vicinity if 20 percent odd.

Latha: What is the sense you are getting of the competition from the unbranded space? Do you think that makes it difficult to raise prices, it is pressure on margins? A: It is kind of a misnomer. If you look at the kind of spend that we have on the healthcare side as a percentage of gross domestic product (GDP) it is a abysmally low; just about 4 percent of the overall spend for GDP as opposed to 18 percent odd in US and even the emerging economies like Brazil it is 10 percent.  So, first of all a lot of funding has to get into the healthcare space. Secondly, I feel that there is so much to be done in this space; we haven’t even scratched the surface. If we have the right kind of building blocks I think this is a huge opportunity for us. There is no competition so to say. Let me just elaborate this point. While, even a small shop in the next corner may be a compared to me but if you look at larger thing we are talking about esoteric markers, we are talking about good technology high-end technology. So, if you have got all the right kind of building block there is hardly any competition.  We haven’t gone to the tier-II, tier- III or those ‎ towns where we ought to be. So, to me there is this huge space. There is hardly any competition so to say. However, having said this in the routine space or what we call has routine markers or routine assay everybody is thronging this space. We have to have a differentiator in the form of high-end technology. We have to have a differentiator in the form new tests that we are able to bring on board and especially for SRL if you look at it we have all the right kind of building blocks today.  One of the main things is the reach, today with 285 labs and over 6,800 collection points we are virtually across the length and breadth of the country. As place like back of the beyond Imphal, Silchar we have the labs there.Sonia: This industry has really good margins going. You own company sees about 28 percent margins which is much higher than what a lot of pharmaceutical companies see and Dr Lal PathLabs which is going to be listed is also sitting at about 24 percent margin or so do you think that given the new avenues that you guys are getting into the margins, the blended margins could go up in the years to come and if yes what could the growth be?A: First of all I will give you the industry’s perspective. The expectation form the industry is to give at least 25-26 percent margin. They will be outperformers, there will be certain companies and I can talk about SRL why we are best poised to beat this expectation. They are multiple factors to it. I mentioned to you about the reach. Now if you look at our spread in the country today we are very evenly distributed. We get about 33 percent business from north, 18 percent from south, 27 percent from west and 22 percent from east. So, we are evenly distributed. I will less-less take another company which is let us say north-centric or west-centric to come out to the other locations or to start operating from the other location they will have to may be spend a bit more capital expenditure (CAPEX) as well as operational expenditure (OPEX). The mistake which most of the players even in the organised sector they do is they will start undercutting the prices which is not the right thing. If you have to maintain the quality we have to the right kind of manpower. We have to be charging the price whatever is reasonable. Now, one is the reach, second is the people; in SRL we have got about 500 doctors and scientists in the overall numbers of 6,200 people that work for the organisation. Obviously the healthcare is all about trust; healthcare is all about word of mouth. So, if people they come to SRL and they realise they are getting the right kind of quality, they are getting all kind of esoteric test which were not hider to available in the country I think we are pretty much sorted. So, I feel that the margins are going to grow steadily. If you look at our records over the last four years we have grown on the EBITDA margins side at the rate of 38 percent. I would surmise that we have got the right kind of building blocks in place to take it up further. Latha: 38 percent growth would be sustainable?A: Compound annual growth rate (CAGR) I think so, that should be sustainable because as I told you there is immense opportunity. Sonia: No plans to list any time soon?A: That decision will be taken by the shareholders and the investors. We are running the business. Management is absolutely oblivious of that, so it will happen as and when it happens.