Vijaya Diagnostic Centre: Inventory analysis stays unchanged publish itemizing

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The Hyderabad-based diagnostic center Vijaya Diagnostic Center (VDC) was flat in the markets today at 542.30 yen – a 2 percent premium on the issue price. It managed to make some profit from it, however, and at the time of writing it was trading at 620.50 yen – a premium of around 17 percent on the issue price. It is now trading at 39 times EV / EBITDA (34 times when it went public).

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While this may seem reasonable when compared to a 37x to 73x peer group range, it does not adequately reflect the geographic concentration risk that VDC is exposed to. We are sticking to our waiting and observation conversation with the VDC share.

The company has strong fundamentals in its core Hyderabad markets, but needs to have a presence in other markets to sustain long-term growth. The company’s geographic concentration risks and the typical full-service offering at company-owned locations can prevent the faster expansion offered by other franchisee-based models. More clarity is needed on how margins will perform as the company expands to other regions or as competitors increase stakes where VDC now has a strong presence.

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VDC offers integrated diagnostic services for pathology and radiology (65/35 percent share of sales) mainly for walk-in customers / individual customers (93 percent B2C vs. 40-60 percent for peers). VDC has 79 centers in the two southern states and one center each in NCR and Kolkata (81 in total).

Vijaya Diagnostics receives ₹ 566 cr from anchors

In FY21, VDC derived 96 percent of its revenue from Telangana and Andhra Pradesh, of which Hyderabad accounted for 80 percent of total revenue. VDC reported CAGR sales of 19 percent in the five years to FY20. It has narrowed to industry-level growth in the past three years, 13.5 percent CAGR in FY19-21. The industry-leading revenue of VDC per test or / per customer is driven by the radiology mix, higher tests per customer, and largely walk-in customers. This, along with its mature asset base, helped VDC’s reported EBITDA margins improve from 37 percent in FY19 to 44 percent in FY21 (42 percent adjusted for the Covid disruption). VDC is a cash surplus with negligible debt other than the lease liability.