Companies

Fortis cash-cow SRL Diagnostics hit hard by illness at parent level

Maitri Porecha New Delhi | Updated on November 27, 2019 Published on November 27, 2019

Arindam Haldar, CEO, SRL Diagnostics   -  PAUL NORONHA

But prognosis is good with improved financials, says CEO

Gurugram-based SRL Diagnostics is recognised as the cash-cow of parent company Fortis Healthcare Ltd. However, over the past four years, the number of brand collection centres of the lab chain has fallen, even as its rivals leap ahead.

SRL’s CEO Arindam Haldar told Businessline that internal challenges at Fortis led to the 24-year-old diagnostic chain, once a pioneer in cutting-edge lab techniques, lose focus. Most challenges have stemmed from alleged bungling of thousands of crores of rupees by its former promoters, brothers Malvinder and Shivinder Singh. The ripple effect rendered a heavy blow to SRL’s business, he said.

“We were bogged down by the internal challenges of the parent company, large-scale exit of the senior management, and rebuilding of the entire team at Fortis. There was a certain lack of direction and focus,” Haldar added.

SRL lost out on being more accessible to the patient, he observed. While competing brands have anywhere between 2,000 and 2,500 sample collection centres, SRL is operating at half the strength, at 1,026 centres.

Inadequate presence

“You may be a very good lab, but you need to be accessible at every street corner, which happens through the brand points or patient service points. Start-ups have come in; competition has heated up among peers. Our listed peers, especially in the last four years, have been extremely aggressive, and that is one place where we have fallen behind,” he said. “We got so busy with our internal stuff that we actually lost sight of what happens to the market and what happens to the patient. The gap is in the sales and marketing execution bit, and our retail presence has suffered,” said Haldar.

“Any franchise will stay because of the relationship building that the company does. Given that there was no market execution and our focus went away, they felt neglected. Apart from lending my brand, I need to give the franchise training on how to approach a doctor, what to say, give them leaflets and so on. There has been both aggressive poaching (from peers) and passive giving up (by SRL) which has led to the drop.”

Now that the gap has been identified, Haldar said, he is working towards correcting it. “We have added at least 100 new collection centres in the past eight months,” he said.

Haldar’s strategy is to focus on digitally savvy customers who book tests on the mobile app. SRL’s app downloads have touched 2 million, beating its rivals’, claimed Haldar.

In August, SRL revamped its website. But Haldar is quick to quip: “We are not a health-tech start-up and our business cannot be solely based on digitally savvy customers. Our street corners need to have an offline presence which is weaker compared to our listed peers, but we are improving it. I have sliced and diced my patients. There are digitally savvy patients and then there are offline patients who would like to go and talk to someone at the lab or the patient service centre.”

Always in the black

Despite internal headwinds, Haldar reiterates that SRL has always been in the black. While in FY18 its standalone profit after tax stood at ₹354.64 crore, it rose 37 per cent to ₹558.73 crore in FY19, according to the company’s annual reports.

“Profits are increasing and improving. The financials are extremely positive and we are a zero-debt company with no encumbrance and no long-term borrowing. We are marginally less profitable than our listed peers but quarter-on-quarter our profits are increasing,” he said.

Yet, SRL’s growth has been restricted to single digits while its listed peers (like Metropolis and Lal Pathlabs) have grown in double digits. In its FY19 annual report, SRL declared that the company will not offer any dividend, considering ‘the future fund requirement to be maintained through retained earnings’.

Private equity investors

While 56 per cent of SRL is owned by Fortis, private equity (PE) players own 31 per cent of the company. Haldar said challenges at the parent level led to delays in the exit of the PE players, who have been with SRL for five years now, well past their investment horizon. “Fortis and IHH Berhad (Malaysian healthcare company that acquired Fortis) are assisting the process of exit for the private equity players and scouting for new investors,” he confirmed.

Up to ₹3,300 crore of IHH’s money reserved for an open offer as part of the Fortis-IHH deal is stuck in the escrow account, after the Supreme Court refused to give its go-ahead to the deal. Haldar declined to comment on that, and on whether this affected IHH’s plan to invest in SRL after the PE players’ exit.

Counting the positives, Haldar said SRL is leveraged better than its peers in the North, East, West and South, with one reference lab in each region. “For other players, if they want to get into any region they have to set up a reference lab and build their brands ground up. For us, it’s about leveraging that investment. SRL has to now increase its depth as its width is better than all other peers in terms of lab presence across the four large metros. We are eyeing nine priority markets and 16 more markets for expansion now,” he said.

SRL has fallen far behind its listed peers as far as B2C is concerned. “The idea is how soon can you attempt to reclaim the leadership. But I don’t have a defined period for it right now. If wishes were horses you would want to do it the next quarter, but is it practical? It is not practical and it will take years,” said Haldar.

Published on November 27, 2019
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