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Krsnaa Diagnostics – Player focused on PPP model

Updated: Sep 29, 2023

Company Name – Krsnaa Diagnostics Ltd (Krsnaa)

Current Share Price – INR 466 (August 11, 2022)

Market Cap – INR 1,463 cr


1. What is interesting about the stock?

COVID-19 led to a windfall for the diagnostics players and their profits jumped. One such diagnostic player, Krsnaa Diagnostics, came for IPO and got the valuation that assumed the pandemic profit would continue. Company IPO came in August 2021. What happened in a year?

COVID-19 is on the path to becoming endemic and the lucrative testing revenue has vanished. Company EBITDA and PAT have fallen in Q1FY23 on a YoY basis. Krsnaa’s share price has fallen more than 50% vs its IPO price of INR 1,025. Retail investors got impacted both directly and indirectly through the MFs which bought shares in the IPO.

Let’s pause and learn more about the Company:

Krsnaa is a pan-India diagnostic service provider. It provides a range of technology-enabled diagnostic services such as imaging (including radiology), pathology/clinical laboratory, and teleradiology services to public and private hospitals, medical colleges, and community health centers across India. Krsnaa provides quality diagnostic services at affordable rates with a focus on the Public-Private-Partnership (PPP) model. Since its inception, the company has served more than 23 million patients.

PPP agreements are typically long-term in nature (5-10 years) and ensure predictability of revenues from operations. It has emerged as a preferred partner for public health agencies resulting in a ~78% success ratio for tenders since inception. The company has recently won 4 new PPP and private projects across Maharashtra, Delhi, Rajasthan, and Tripura which offer strong near-term growth visibility. In addition to the PPP segment, the company has been growing its collaboration with private healthcare providers to operate diagnostic centers within their facilities with 26 such centers being operational.

Krsnaa Diagnostics offers tests at disruptive rates - radiology tests are priced at 45% – 60% lower than market rates while pathology tests are 45-60% lower than market rates. It has a cost-efficient business model as it operates under a hospital partnership model (public & private) wherein it benefits from a captive customer base, lower marketing spending, no doctor referrals & commissions, and incurs limited rental expenses. All these cost savings help the company to offer services at affordable rates compared to its peers which support higher volume.

The company operates a teleradiology hub in Pune, Maharashtra, with a team of more than 190 radiologists. This addresses the shortage of full-time doctors and staff in the diagnostic industry and considerably increases the turnaround time for diagnostic test reports. In addition, it also allows Krsnaa to serve patients in remote locations where diagnostic facilities are limited.

Company has an extensive footprint:

  • Radiology – 113 centers with MRI and CT Scan machines and ~1,450 tele-reporting centers

  • Pathology - 52 processing labs and 561 collection centers

Revenue split in Q1FY23 is:

  • Radiology – 52%

  • Pathology – 38%

  • Tele-reporting – 10%

On July 29, 2022, the Income Tax (IT) Department conducted search proceedings at the corporate office and other premises of Krsnaa. Further, on August 2, 2022, the company stated the stock exchange in response to a media article related to allegations of undisclosed income during the IT Department search. Krsnaa has denied the allegation and stated it is not backed by any regulatory documents. As per the management, further analysis is continuing, on which the company is cooperating with the IT Department.

Why invest in Krsnaa?

  • Unique business model (PPP) – providing revenue visibility and a captive customer base

  • Focus on unpenetrated geographies (Rural and Tier 2 towns)

  • Disruptive pricing vs competition

2. Key Historical Financials

  • Krsnaa delivered 15% revenue growth in FY22 on a YoY basis but the revenue fell 15% in Q1FY23 as the COVID-19 testing revenue crashed to zero

  • EBITDA margin has been around 30% in FY22

  • Cash flow convertibility (CFO/EBITDA) is 96% in FY22 which is quite healthy

  • ROCE/ROE is 18%/15% in FY22

3. What is my view on company valuation?

Company share price has crashed by more than 50% since the IPO. Multiple factors seem to have played a role – weak results, corporate governance challenges (focus on PPP model and IT raid, etc), and very high P/E multiple at the time of IPO.

Krsnaa currently trades at a P/E (TTM) multiple of 22x vs Dr. Lal at 75x and Metropolis at 44x. Company looks attractive on a comparable basis as I would expect long-term revenue growth of ~15%.

However, investors should wait for clarity to emerge on the ongoing issues before entering the stock.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Corporate governance challenges that come with PPP business

  • Annual report for FY22 has not been released

  • Company will have high working capital vs peers who are retail focused


About the Author

I have over 15 years of experience in venture capital, private equity, and investment banking in India and the Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.

I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).

I am an Insignificant Investor in the public market and co-founder of SocInvest.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.



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