Buy Krsnaa Diagnostics Ltd For Target Rs. 1,072 By JM Financial Services
Strong 2Q, Rajasthan contract to add incremental value
Krsnaa’s 2Q revenue/EBITDA/PAT grew 11%/20% /22% YoY, which was In-line/+11%/+14% vs our estimates. The EBITDA margins came in at 28.7%, up 221bps YoY, and, beat our estimates by 228bps. Retail and Rajasthan wins are the key positive takeaways from the quarter. On the Retail front, revenue grew 11x YoY led by the B2C segment, thus bringing the company a step closer to realising it retail aspirations. The Rajasthan contract is all set to materialise with operationalization of the first 10 labs in November, followed by another 25 labs and 500 collection centres by December. This is a 5 year contract, with revenue meaningful revenue materialization anticipated from FY27, and will be amongst the largest PPP diagnostics projects in India. Krsnaa is one of the most uniquely placed amongst its peer set of listed players, leveraging the PPP infra to offer services at a fraction of the competitor’s prices. We believe the ramp-up of Retail segment, execution of Rajasthan NHM project and future tender wins will enable the revenue, EBITDA and PAT to grow at a CAGR of 24%, 24% and 34% over FY25-28, respectively. This makes Krsnaa one of the fastest growing diagnostics player in the Indian listed space. We value the company at 22x its Sep’27 EPS to arrive a TP of INR 1,072. Maintain Buy.
* Rajasthan- Assets’ operationalization from 3Q: The Rajasthan project is progressing as planned. The company will operationalize 10 labs in November, followed by another 25 labs and 500 collection centres by December. The remaining 152 labs and 1,100 collection centres are targeted to be commissioned by Q4. There was no financial impact from the Rajasthan project in Q2, as both revenues and costs will start flowing in from Q3.
* Retail business- To contribute 8-10% to revenues, breakeven by FY26 end: The retail pathology business (RPL) is expected to scale meaningfully over the next few years. The company is targeting RPL to contribute 8–10% of overall revenues by the end of FY26 and 15– 20% by FY27. Over the longer term, retail could account for 40% of total revenues in the next five years. Growth is being driven by AI-enabled processes and an improved value proposition, which is supporting a faster ramp-up. PPP facilities and operational synergies are expected to help accelerate retail expansion. Although opex remains elevated during the scale-up phase, costs are expected to trend lower as volumes build. The retail business is not yet breakeven, but management expects it to break even by the end of the year.
* Receivable days- impacted by new policies: Receivable days currently stand at about 150 days, and the company is working to bring this down to nearly 100 days. A change in central government guidelines has temporarily impacted collection timelines. Around INR500mn of receivables have already been cleared, and the remaining elevated levels are also expected to be recovered, supporting the company’s track record of zero bad debts. Floods in Himachal and Punjab have affected both receivable recovery and operational performance in the impacted regions.
* MH- Asset setup on track: In Maharashtra, the MRI installations are progressing, with 10 units nearing completion and another 5 planned. In addition, several tenders are currently in the pipeline at different stages of evaluation and execution, supporting continued expansion visibility.
* Revised CGHS rate- Benchmark for new tenders: The recent CGHS pricing benefits provided to hospitals do not currently apply to Krsnaa’s operations. For new tenders, the revised CGHS rates will be used as benchmarks, but existing tenders will continue to operate at the older contracted rates.
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SEBI Registration Number is INM000010361
