With a capex of Rs 75 crore, Thyrocare Technologies‘ CEO A Velumani is confident of increasing its reach with 25 laboratories in the coming year. He expects the company to clock a CAGR of 25-35% in the next few years.
After a stellar debut on the bourses on Monday, Thyrocare Technologies’ CEO A Velumani is eyeing a four-fold expansion in the country.
Speaking to CNBC-TV18, he said the company targets setting up 25 laboratories in major Indian states, up from the present tally of 6. The company needs a capex of Rs 75 crore, which is already present in its balance sheet, he added.
The diagnostics firm has had a 24 percent growth rate in the past couple of years and Velumani expects to build on it and envisages a compounded annual growth rate of 25-35 percent going ahead.
He said that the company has clocked 40 percent margins in the past 10 years and will continue to do so for the next 5-10 years.
Below is the verbatim transcript of A Velumani’s interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.
Sonia: Your margins at 40 percent are much better than most of your peers. Is this a trajectory that you hope to sustain in the future?
A: I have sustained for the last 10 years. I have a comfort to manage it at least for another 5-10 years. Might be if 2-3 percent less, but it certainly will be a good earnings before interest, taxes, depreciation and amortisation (EBITDA) as good as what is today.
Latha: You had the advantage of a smaller base. Now you are a fairly well expanded company, what is the kind of expansion plans you have?
A: We are planning to put some 25 laboratories across the countries. In all major states we will have one laboratory. So, in the laboratory side we are making a single laboratory model into multiple laboratory model.
Latha: At the moment you have how many labs?
A: We have one plus five, i.e. five metros we have got Mumbai, Delhi, Hyderabad, Coimbatore and Bhopal and we will be putting another 20 in another 24 months time.
Sonia: What will all of this do to your sales growth because if we look at what you done over the last four years your sales growth has been a healthy 24 percent. Give us an expectation over the next four years what kind of sales growth you envisage?
A: There will be competition which will be trying to put the growth down and there will be this multiple laboratories which will help me to add more to the growth. So, I have a reason to believe somewhere between 25-35 percent is possible by the top 25 players in the industry and I would be very happy if I am ahead in this 25.
Latha: You have said your five plus one lab will become 25 labs. How many touch points do you already have?
A: I have today 1,200 franchises, each of them touching 30 laboratories across the country. Which means 36,000 touch points we have got currently in the network. Out of the 100,000 we are literally speaking one third of the touch points we are touching.
Latha: So, what is the growth that you are envisaging over there? What are your plans?
A: Sustaining at 25-30 percent compound annual growth rate (CAGR) next five years is the dream and maintaining the existing EBITDA to the same level is another dream and the rest of the things are done once these two things are achieved.
Sonia: What about competition are you facing a lot of that because we do understand that you had to take a price cut in many of your thyroid tests a couple of year ago and that put a bit of pressure on your margins. How has competition been this year and expectation going ahead?
A: Having too good EBITDA is a risk factor to beginning business because it will attract the eyes of many players. So, I in fact wanted to bring down the EBITDA percent and that is why it took the cut, otherwise no necessity for me otherwise to take the cut. However the growth was also a bit plateauing, so I thought by reducing the rate I might push the growth up and as expected the growth has gone up in these last two years and also the profits. In fact this is the only business where you reduce the rates and profits are going.
Latha: From six labs going to 25 labs that is a fourfold growth in just two years. You rose to five or six labs over the past 10 years. This is a huge quantum leap that you are taking.
A: Till January 2015 we were a single lab. And within one year we have put up five labs. Within another one year we will be putting up another 20 labs.
Latha: So will that mean a lot of capital expenditure (capex)?
A: No, each laboratory what we are planning is only a Rs 3 crore capex, Rs 75 crore capex needed, that is very much existing in the balance sheet.
Sonia: Currently according to your business model we understand that less than 20 percent of your revenues comes from thyroid test. Do you plan to grow that percent over the next couple of years and if yes, how much?
A: I want that percent to go down by improving the percent of Aarogyam turnover which is a preventive healthcare which is a growing market which is my true tomorrow's product.
Sonia: And is that a high margin business?
A: Of course. Thyroid margins are hardly 20 percent. The Aarogyam margins are almost 60 percent on an operating level.
Latha: So, what is the plan in this value added segment of Aarogyam. Will that be the only one, will you offer other value added products, packages as well?
A: Currently Aarogyam is doing well and that is growing my business and for the next five years I will keep focussed on Aarogyam. Maybe by 2020 my Aarogyam will be 80 percent of the total revenue. I won't be losing Thyroid but in the growth probably Aarogyam will move much faster than any other segment.
Latha: What will that mean? How much money does that package bring you now and what is the pace of growth in that that you are envisaging?
A: Currently in our total revenue it is 51 percent. It should go as high as 75 percent.
Latha: And any other packages that you are planning. You have Thyroid, non-Thyroid and your Aarogyam package. Should we expect other such value added packages from you?
A: Without money I started business. I have reached up to here. Today we have great value, great fund and great internal accruals. We should be adding lot more technologies inside. So, I was just thinking if Thyroid does well, if Aarogyam does well let us explore as much as possible in that. So, as long as the company grows 30-40 percent if it grows I don\\'t think I need to unnecessarily look right and left but there are enough of alternatives in hand to explore.
Sonia: If you just give us an estimate for the industry as a whole on the wellness business. Currently it is only about 6-8 percent of the healthcare market. What is the prognosis going ahead, just for wellness how much do you think it can grow?
A: No country is said to be developed country till at least it has a 50 percent preventive care market. In India it was one percent 20 years back, it has become five percent. So, we have a long way to go to reach 50 percent. So, year 2040 or 2050 will be the peak of Indian healthcare. Until that time it is going to be rocking for everyone present in the industry.
Latha: Just to complete your capex plan, will you be acquiring existing labs as well?
A: We have never gone inorganic, we don't have any plan to go inorganic. We have been finding organic growth is cost effective.