We have talked about our revenue growth guidance of mid-teens for the next 2 to 3 years. Can you give some more colour on this? In the last 2 quarters, have you seen some structural shift from unorganized player to organized player, and any competition from online players?
Ameera said there is no third-party data on the unorganized-to-organized shift but on-the-ground sense is that consumers and doctors are finding more comfort in bigger brands with more predictability, and the specialty market is increasing. Oncology and neurology are the two fastest-growing therapeutic segments globally over the next 10 years; as more of these issues come into India, more specialty tests will happen rather than just routine, which naturally favours organized players. The mid-teens 14% to 15% guidance for the next 3 years is a combination of volume growth, RPP increase, and some price increase.
Bookkeeping question — looking at your bridge from organic to growth: when you say Core Diagnostics is at high-single-digit but if I subtract MHL Group revenues and EBITDA from MHL organic numbers, the M&A portion margin comes to around 4% to 5%. Is there some intersegment elimination happening that prevents me from reconciling to high-single-digit?
When business is generated from MHL and the processing happens at Specialty and Core, at consolidation level there is an elimination of revenue and margin. So the benefit may be sitting on the organic margin. Sameer also confirmed the depreciation increase is a mix — genomics machine has come, capex investment in the later part of the year (full depreciation impact in Q4), and more aggressive H2 network expansion.
On productivity, efficiency, and use of technology — from a 5-year or 10-year perspective, what kind of steady-state margins should this business have? The kind of gross margin expansion we have seen — when the labs are fully utilized to optimal level, is this 27%, 28% EBITDA margin the aspiration or can margins move further if we don't invest aggressively?
Margins can keep expanding while you have operating leverage — as long as you keep growing the business with cost growth lower. But when building a business we look at it not only short term but also medium and long term, and keep reinventing and investing in strategic initiatives that build second and third growth engines. Maximizing the EBITDA may not be the smarter strategy. We believe a sustainable EBITDA of 27% to 28% over the next 3 years makes sense for us. If we generate more operating leverage we would like to invest it back in the business — adding services, building the brand, building further distribution.
Previously you mentioned growth in Tier 1 areas is less than single digits. In Mumbai, broken down by area (North, South, East, Kalyan etc.), what would your expected growth rate be and how would Metropolis' presence and growth differ across these areas?
Mumbai is our biggest market with about 500 service centres across Mumbai — not only metro but spread into the outskirts. We are present in Kalyan, Borivali, Virar, Vasai — all areas — and keep increasing footprint. In Mumbai we are growing at 13%, 14% kind of revenue growth YoY. It will be difficult to share further micro-market segmentation of Mumbai. At an overall level most parts of Mumbai are growing at 13%, 14% kind of growth. Ameera added — Tier 1 growth is not single-digit, but closer to 11%.
Do you plan to take a price hike in this fiscal?
At this point of time we are not looking at a price increase. But as the year progresses, if there is a need for us to do it, we would not hesitate to do so.
Follow-up on EBITDA margin guidance — we have guided 27% to 28% next 3 years; how should one see the next fiscal? Will the range of 26% be quite achievable?
We'll definitely be looking at about 125 to 150 bps improvement in the coming year.
Follow-up on the guidance — you mentioned 14% to 15% CAGR over the next 3 years. How much will this be from patient volume growth, and how much from better price realization coming from Specialty and Core Diagnostics?
About 8% to 9% of patient volume growth is what we are estimating for the coming fiscal, and the remaining 5% will be coming from the realization.
On Specialty division — for the past 2 years contribution has been hovering around 35% to 37%. Are you planning to increase your wallet share in the Specialty division going forward?
There are two big levers beyond existing specialty testing capabilities — first, the genomics journey already started and accelerating; and second, the Core Diagnostics' product capability that will be used across the network. These added to the existing Specialty portfolio should take Specialty contribution further higher. On a follow-up, Surendran agreed it could be around 40% this year.
In the initial comments, you said you are adding some 100 mini hubs. How is this different versus your collection centers? How many do you have in the existing network? What is the differentiation in capex?
A normal collection centre just collects blood samples for transport to a lab. Over the past 2 years we added ECG, x-ray, and limited sonography to increase RPP per patient — that worked. Mini hubs will not just be x-ray and ECG but also more basic radiology modalities (not CT/MRI) — bone density, mammography, or a bigger x-ray machine — plus in some cases consultation possibility. The idea is to create enough services at the local level — blood plus radiology plus consultation — utilized for retail and corporate customers. Capex will be higher than a collection centre, similar to a satellite lab — about INR 30 lakh, INR 40 lakh approximately.
On growth — Tier 1, Tier 2, Tier 3 growth across regions looks similar based on revenue mix Y-o-Y. The understanding is Tier 2 and Tier 3 should grow faster than cities. Are we not anticipating better growth beyond Tier 1?
Tier 1 has Core Diagnostics added largely on the Tier 1 setup driving much higher growth in Tier 1 last year; Tier 2 has Dehradun, Agra etc. added; Tier 3 is growing at about 26% to 30% in the last few quarters. So definitely Tier 3 and above is showing much higher growth than Tier 1, Tier 2 on a like-to-like basis, and that will continue.
Are digital initiatives a lever for margin expansion or do they drive volume?
Digital drives volume first, and the cost of servicing is lesser than non-inorganic channel, so margins get better as digital revenue scales. Ameera added it depends on the way you acquire a customer — many health tech companies use deep discounting (not the Metropolis way) which has weak unit economics. Metropolis's digital business is on the back of a strong brand in physical channels, giving lower acquisition cost, lower servicing cost, and higher CLTV — and therefore better margin.
On inorganic growth — having done Core Diagnostics, are we focused on organic? Targets in Indian diagnostics are more or less singular labs largely, so M&A possibility looks limited. What is your view?
There are some 3 lakh labs in India and 90-odd percent of them are single labs; some chain labs created regionally; many assets available for acquisition. But quality often doesn't meet Metropolis standards. We will remain selective but continue to explore opportunities — when something looks like the right candidate adding something strategic at the right price, we close. Broadly we can see inorganic action for the next few years.
What portion of test volume would be led by insurance companies?
Very insignificant at this point in time. We don't have high volumes from the insurance segment as of now. We are just building our portfolio at this point in time.
On increasing branch / network productivity by 20% for mature stores, can you double-click on that?
We set up 500 centres last year and 500 the year before. In initial days we drive walk-ins via doctor engagement, hospitals, clinics, and customer activities. That improves productivity year-on-year by 8% to 10%, over a 3-year period delivering 20% improvement from the same centres set up in the last couple of years. Average productivity in own centres is around INR 3.5 lakhs to INR 4 lakhs per centre; by end of year one a new centre does INR 1 lakh, INR 1.5 lakhs and we bring this above INR 3 lakhs by end of year three. The number is different for franchise centres and rural centres.
On digital channels — you said they now contribute 25% of revenue. Could you explain that? Is it like D2C?
Largely D2C. There are three distinct channels — first, the Metropolis app where we drive customers and engage with them; second, acquiring customers through the website where the customer comes and places a test request; and third, the customer data platform — a CLM engine for existing customers — through which we reach out via digital modes with next-best-action recommendations based on past testing trends. These are three big initiatives that drive digital customer acquisition.
Can you elaborate on the intersegment eliminations? How long will these eliminations continue?
It will be there always because when the core business processes genomics and oncology business and revenue is generated across the network — that is the synergy benefit of expanding the test menu across the country to all clients and clinicians. Revenue is generated there, then processing happens, so the intercompany transfer and elimination will be there. Surendran added one of the objectives is to drive high-end oncology revenue of core products through the MHL distribution network, so as revenue grows there will be more intercompany adjustments — but at the group level this anyway gets utilized and the net number is reported.
Should we split the intersegment eliminations between the organic and the inorganic EBITDA when you report it? Or do you think organic EBITDA is what the true EBITDA is?
We can split the heads but the reality is now the acquisition is a year old. So everything is going to be organic anyway from April 1. So it really doesn't matter. It will all get consolidated into the group anyway. Surendran added Q1 onwards there will be only one number in the presentation — the organic or company-level number; last year separation existed because acquisitions and integrations were just happening.
Despite not taking price hikes, you have been seeing a good increase in revenue per patient and per test. Premiumization and TruHealth have been important drivers. Specifically on TruHealth, from 19% currently, to what level can the mix increase over the longer term?
This can definitely go beyond 25% in the next 2 to 3 years period. Every year we are moving this up by a couple of percentage; in the coming year we will further step up our efforts. In TruHealth packages we are including vital checkups, consults, basic radiology, and going forward maybe some other adjacent services — RPP will keep getting better on TruHealth packages. We want this contribution moving faster in the coming years.
On gross margin expansion seen for Metropolis and other diagnostic players — is it scale advantage from suppliers or on-ground competitive intensity softening in the last 1 year? Second, on core markets like Mumbai, what volume growth are we witnessing — is the market-share gain trend continuing? Third, you talked about brand expansion being behind us and operating leverage going forward — could you double-click on current utilization on a consol basis and how that moves in FY27 and FY28?
On gross margin: two things — first, we have undertaken lab platform consolidation and upgrades — consolidating vendors, moving to higher-efficiency, more productive, technology-enabled and scalable platforms — which gives scale advantage and improves material consumption. Plus barcoding introduced across all 220 labs has further improved material consumption percentages. Second, last year we did not significantly add new labs — that addition phase is over — and in the coming year too we are not planning to add a high number of labs. On Mumbai: growth is largely in line with overall company volume growth — 13%, 14% YoY across geographies — but higher patient volume growth on the northern part because of new acquisitions there. On utilization: lab productivity has gone up by 14% during the year — labs are of different category (regional reference, global, satellite, greenfield) so it's difficult to give one unit of lab utilization; when a lab is set up fresh and growth goes up 14%, 15% that's the utilization growth one can relate to.