Metropolis will start 90 new labs & 1,800 centres in the next three years: Ameera Shah, Promoter & MD

Ameera Shah, Promoter & Managing Director, Metropolis Healthcare, talks about Q3FY22 numbers, non-COVID and COVID revenue, investments in digital and customer experience initiatives, acquisition of Hitech Diagnostics test per patient matrix trend and expansion plans among others during an exclusive interview with Neha Anand, Zee Business. Edited Excerpts:

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Q: Despite an increase in the number of tests and footfalls in Q3FY22, the company has reported a decline in EBITDA, margin and PAT. Why is it so?

A: It was expected and we also provided guidance at the Q2 end that this will happen in Q3, so, this is not a surprise to us. If you will see then there are two to three things in Q3, normally, Q3 is always the weakest quarter of the year for the full industry and it is not something unusual. If you will have a look at the last 10-year trend, then festivals are there then Q3 is lower than Q2. Secondly, we have given guidance that in our government contracts it is expected that such volumes may not come in Q3 due to which there will be a decline in the revenue and that will affect the profit margin as well. So, this was expected and this has happened, so, we are not surprised and we have guided the analysts and investors on this as well. Thirdly, keep aside the COVID and government contracts and have a look at the core business, then actually there has been a growth of 31% year-on-year and in B2C there has been a 25% growth year-on-year. So in KPIs, the volume growth, revenue per patient among others are quite stable and are heading ahead in the right direction. This is only one-quarter of the impact and is visible due to the government contract volume and this has marginally affected the profit. However, our operational EBITDA is still at 27.5%. If you will look at our pre-COVID EBITDA then its normal range was 27%. In the last two years, at the time of COVID, the EBITDA margin of every company including ours has increased due to the volumes. Our EBITDA margin grew close to 30% but we all knew that when the COVID volume will go down then the margin will come back to this 27%-28% level and the same has happened. Our operational EBITDA this quarter is 27.5%. So, none of these is a surprise and I think the government contracts will normalise in Q4.

Q: The company's non-COVID revenue has gone up 9% YoY but there is a slight pressure sequentially, however, there is an increase in the COVID contribution. What is the reason behind this and how the demand scenario has been during the third wave?

A: Have a look at the trend of the last 10 years then you will find that Q3 (October to December) is always lower than Q2 this is just because festivals like Diwali and Dussehra are there in October and November due to which many people travel in India. This is a period when they do not focus on health but focus on spending time with the family. People do not focus on healthcare. Usually, we have seen that July, August and September is the best quarter because it is a quarter when rain is there, which leads to infections, leading to an increase in testing. So, this is a normal thing because our business is seasonal not a proportional quarter-by-quarter. So, looking at the results on a quarter-on-quarter basis will present wrong information. As far as our performance during the COVID Wave-III is concerned, then due to the Omicron, there was an increase in transmission but the government has encouraged a lot of Rapid Antigen Testing instead of PCR testing in Omicron. While we have seen volumes of COVID go up but obviously the revenue from COVID is not as high as before because price capping has reduced a lot and the profit is quite low. Usually, you will see that non-COVID goes down when there is an increase in COVID. I think, in Q4 you will see that in January month COVID will increase and non-COVID will come down. But for the quarter, we expect that with the government contracts growth in our normal business should be better and profit margins will better as compared to Q3.

Q: You mentioned earlier that the company will increase its investment in digital & marketing, manpower & customer experience initiatives. So, can you please explain to us the kind of investments are being made and how will it improve the financials of the company?

A: We are supposed to see the company's long-term and mid-term prospects. What is happening in healthcare is that the brick and mortar normal healthcare companies like diagnostic companies including ours and hospitals as well as the digital companies that are entering the healthcare, I feel after three to four years, will turn intimate because amid awareness people will opt for both online as well as offline. So, we must provide an omnichannel experience to our patients, so that if they want to do something online and something offline then everything is available to them. We are investing in the same. Now, if you go to our app or portal, you can pay and book as everything happens online. But we are investing in how do we make this more integrated and I feel that the front-end we are creating through this investment will benefit us a lot in the next 2 to 3 years. Other companies are not doing so due to which their cost is low but they may face problems in the future.

Q: Can you please provide an update on the acquisition of Hitech Diagnostics and going forward what kind of contribution you are expecting in terms of the incremental revenues and margins? 

A: Hitech's margin profile before the acquisition was similar to Metropolis margin profile, there is not a huge difference. I feel, there will be revenue synergies as well as cost synergies in the acquisition. Revenue synergies will help us in expanding ourselves, we have to make 100 centres in Tamil Nadu and Karnataka. In Chennai, we will have a dual-brand strategy but will have a single brand strategy in the rest of Tamil Nadu and Karnataka. So, we will make 100 centres and it seems that synergies can be created even on a cost basis. We are moving ahead with complete traction in it. Of course, just a quarter has been completed but the acquisition is moving on the right track.

Q: At the start of the interview, you talked about the growth of the B2C business. Going forward, what kind of target do you have?

A: We had a target of reaching 65% B2C contribution in our five focus cities and have already reached about 59% and we started the journey from 42%-45%, so, there has been good progress and we are moving in the same direction. We feel that there is a good opportunity to contribute.

Q: Kindly explain to us about the test per patient matrix trend and what kind of improvement is expected here?

A: Test per patient is normally between 2-3 tests per patient and we do not influence a lot in it but it is a decision of the doctor that what kind of prescription do they want. We are confident that B2C growth will continue to grow and it is a huge opportunity in healthcare and this is not a short term opportunity. The jump or fall that occurs in healthcare in a quarter or two is not surprising but overall we are very confident and positive about our short, medium and long term growth.

Q: Update us on the expansion plans of the company and what kind of funds will be required for the purpose and how it will be fulfilled?

A: Around June-July, we had announced that we will start 90 labs and 1,800 centres in the next three years. We are on the track and are doing around 20 labs and 600 centres this year, next year, we will be opening 30 labs and 600 centres next year and it will be followed by 40 labs. Currently, we are entering small cities and expanding ourselves. So, this aggressive geographic expansion will be very beneficial for revenue growth in the future. In addition to it, we are also investing a lot in digital, where we want to provide a very good and unique to the consumers where everything is integrated and is an omnichannel. At the same time, we are strengthening our leadership team and all these things are for the good of the organisation in the short, medium and long term and it will sustain the company in the next three to five years.