BL Research Bureau

Krsnaa Diagnostics Ltd (Krsnaa) listed on the bourses at a price of ₹1,025, a gain of 7.4 per cent, compared to its IPO price of ₹954 per share. At the time of writing this, the stock had given up some of the gains and was trading at ₹1,002 or 5 per cent premium to IPO price. We maintain our earlier buy recommendation on the stock, given the differentiated diagnostics model of Krsnaa. The stock trades at an EV/EBITDA of around 33 times FY21 EBITDA at its current trading price.

Krsnaa’s business model which focuses on Public-Private Partnerships (PPP) in non-metro locations with a higher share of revenues from Radiology, stands differentiated from pathology based peers operating in largely metro locations. Its centralized hub in Pune with 190 radiologists to process the radiology scans and long-standing relationship with equipment vendors, provides cost differentiation and better pricing. The underserved radiology markets in non-metro locations can be leveraged for sustained growth by Krsnaa, operating from public institutions like government hospitals with a ready client base. Close to half of the asset base has been established in the last three years, offering scope for ramp up in existing assets utilisation. Krsnaa has also won significant contracts from the governments of Punjab, Karnataka, Himachal Pradesh and Maharashtra.

As the contracts are executed over the next 6-12 months, Krsnaa’s installed capacity of MRI and CT scans will increase by 30-40 per cent aiding radiology revenue growth. Covid testing which added close to 37 per cent to revenues in FY21 and will likely not sustain in future might make its current year growth appear optically weaker due to base effect. However, the expansion in locations and higher utilisation in existing capacity can sustain good revenue growth.

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