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Krsnaa Diagnostics’ ex-Covid, ex-Rajasthan revenue CAGR of c.46% over FY21-23 was strong and underscores robust execution capabilities, in our view. The company is in the process of executing the Rajasthan agreement post a favourable ruling from the Rajasthan High Court – and is guiding towards INR 3bn revenue in FY25 from this tender. Despite significant new centre additions, margins have remained resilient in FY23 but change in mix (towards pathology) and implementation of large-scale tenders may mean a more subdued near-term margin. Krsnaa’s guidance is overall better than we expected: (1) FY24 growth is guided to be 30-35% (excluding Rajasthan) with ~25% EBITDA margin; and (2) FY25 revenue is expected to be INR 10bn+ with EBITDA margin of ~28%. Given the healthy execution pipeline and improving performance trajectory, we bake in 26%/35% Revenue/PAT CAGR over FY23-26. We are fairly confident of Krsnaa’s execution capabilities and believe there is sufficient scope for earnings upgrade (our FY25 revenue forecast is still over 15% lower vs. guidance). We value Krsnaa at 24x Sep’25 earnings (30-40% discount to peers) to derive a TP of INR 1050. BUY.

? Revenue growth optically subdued; future prospects strong: Krsnaa’s Revenue CAGR of c.46% (ex-Covid, ex-Rajasthan) over FY21-23 underscores their robust execution capabilities. However, Krsnaa’s FY23 growth has been optically subdued due to Rajasthan tender expiry in Aug’22. A finer look at FY23 revenue indicates +30%YoY growth (exCovid, ex-Rajasthan). This trend has sustained in 1Q wherein adj. growth was +50%YoY (INR 1.4bn). We expect 26%/35% Revenue/PAT CAGR over FY23-26. Our assumptions include contribution from Rajasthan of INR 1.5bn in FY25 and INR 2bn in FY26. Krsnaa has multiple near term growth drivers such as Punjab, Himachal, Orissa, Assam and BMC tenders (Refer Exhibit 5) which cumulatively have revenue potential of INR 3-4bn.

? Margins resilient: Krsnaa added 26 CT/MRI centres, 147 tele-radiology centres, 50 labs and 556 collection centres in FY23 despite which margins have remained resilient (25.1% in FY23). In addition, Krsnaa added six labs, one radiology centre and 300+ collection centres in 1Q; while cost has been incurred, commensurate revenue is expected in subsequent quarters. This, along with change in mix, and implementation of large-scale tenders in Rajasthan and Assam, will keep near-term margins in check (24-25%). With operating leverage playing out, we expect EBITDAM to expand to ~27% in FY25-26.

? Strong guidance ups confidence, execution remains key: Krsnaa is participating in new tenders and will disclose further details subsequently (upside trigger). FY24 guidance: The management expects revenue growth of 30-35% (excluding Rajasthan). The expected contribution of Rajasthan in 4Q (vs. 3Q earlier) is INR 250mn. The management is now guiding towards INR 3bn revenue in FY25 (vs. INR 1.5bn earlier) post implementation. EBITDA margin will remain subdued at 24-25% due to large scale new centre implementation. FY25 guidance: The management aspires to deliver INR 10bn+ revenue with ~28% EBITDA margin as operating leverage plays out. The key risk to guidance is delay in executing Rajasthan agreement and implementation hurdles.

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