medinova diagnostic services ltd Management discussions

Industry structure and developments

On the surface, the global economy appears to be recovering gradually from the adverse impact of the pandemic and the Russia-Ukraine conflict. Following the reopening of its economy, China is witnessing a strong resurgence. Supply-chain constraints are easing and the wars repercussions on energy and food markets are receding. Simultaneously, central banks synchronized tightening of monetary policy is expected to curb stubborn inflation. According to the IMF, global growth will peak at 2.8% this year before gradually climbing to 3.0% in 2024. Global inflation will decline, but considerably slower than anticipated, from 8.7% in 2022 to 7.0% this year and 4.9% in 2024.

The healthcare delivery market in India is posed to record strong growth in the medium term. According to CRISIL Research, the industry is projected to surpass pre-Covid levels in FY22 and achieve a compound annual growth rate (CAGR) of 10-12% between FY22 and FY27. This growth can be attributed to long-term structural factors, robust fundamentals and improving affordability. The expansion of the Ayushman Bharat scheme for the sector is also expected to drive growth. Additionally, the resurgence of high-revenue medical tourism may lead to positive prospects due to the relaxation of international travel restrictions.

When compared to other sectors, the healthcare sector in India has been lagging primarily due to a lack of innovation. The pandemic has revealed the significance of remote medical services, backed by digitisation and automation. As a densely populated nation, India needs technologically advanced, high- quality medical services available at affordable price points across the country.

The fundamental growth drivers of Indias healthcare market include rapid urbanisation, an ageing population and increasing incidences of chronic diseases. The healthcare sector, comprising hospitals, diagnostic centres, pharmaceutical companies and health insurance organizations, is growing at a swift pace owing to a higher number of health complications affecting people of all age groups.

Opportunities and Threats

As the diagnostic market continues to evolve, companies that can adapt to changing trends and provide valuable solutions will be well-positioned to capitalise on these opportunities. Due to the increased reliance of medical experts and professionals on the diagnostics segment to validate, accurately diagnose the illnesses, and provide the necessary treatment protocols, as well as the shift in consumer psyche and preference who are now extra cautious about their health and well-being, have also helped the diagnostic industry solidify its position as a key component of the healthcare segment.

With new competitors entering the diagnostic market, such as health tech companies, large conglomerates, reputable pharmaceutical companies, and startups, there has been a significant level of disruption in both the B2C and B2B market segments. These competitors tried to increase their revenue share in the diagnostic industry by using ‘price as a crucial differentiator.

The introduction of newer wearables and self-monitoring tools such as glucometers, oximeters, and technologically advanced devices pose strong challenges to the diagnostics sector.

Outlook

With a strategic regulation to provide standardized quality of service at affordable price for the majority of Indian citizens, the diagnostic market in India is expected to witness steady growth. This will create opportunities for local players and new businesses planning to enter the market. Additionally, greater focus on preventive healthcare and rising prevalence of chronic diseases will further drive the demand for diagnostic services in the country.

Risks and concerns

Pricing Risk: The Company is subject to government restrictions in terms of price ceilings on the services provided. This may adversely impact its revenue and profitability.

Intense competition: Apart from renowned multi-regional and regional diagnostic chains/centres, the diagnostics industry is highly fragmented. Since this sector has negligible-to-few entry barriers and is largely unregulated, small laboratories have proliferated. The diagnostic chains face competition in terms of patient sample volumes and aggressive pricing of tests, causing the profitability of major chains to remain bound in the near future. However, it has seen consolidation by diagnostic chains via acquisitions of laboratories across India, as well as the establishment of regional reference laboratories to enhance penetration.

Geographical concentration: Many small diagnostic chains that operate three to four centres and are concentrated in a particular place or region are liable to the demand-supply dynamics of that particular location.

Internal control systems and their adequacy

The Company has an efficient internal control system in place. The policies and procedures, covering financial and operating functions, are also documented. The system controls are designed to provide reasonable assurance for maintaining proper accounting records. This reinforces reliability of financial reporting, monitoring of operations, protection of assets from unauthorized use or losses and compliance of regulations.

The scope and coverage of audits include:

• Reviewing and reporting of key process risks

• Adhering to operating guidelines and statutory compliances

• Recommending improvements for monitoring and enhancing efficiency of operations

• Ensuring reliability of financial and operational information

The Audit Committee periodically monitors and reviews the significant internal audit observations. It also reviews compliance with accounting standards, risk management and control systems.

Human Resource

‘Human Resources are recognized as a key pillar of any successful organization and so is for Medinova. The company puts constant efforts in recruiting and training the employees and ensures to bring out the best of them. The company adopts a HR policy and ensures that all the employees are aware of personnel policies. The needs of the employees are addressed with high importance and efforts are made to provide a highly challenging and healthy environment. Besides all these, the company places high emphasis on professional etiquette required of every employee. As on 31.03.2023 numbers of employees employed are 64.

Financial Performance of the Company

During the year under review, on standalone basis, the Company generated an income of Rs. 775.83 lakhs as compared to Rs. 1151.38 lakhs in the previous year from the business operations. The operations resulted in a net profit after tax of Rs. 63.00 Lakhs as against net profit after tax of Rs. 207.40 lakhs in the previous year.

The Company achieved consolidated revenue of Rs. 999.30 Lakhs as against Rs. 1320.19 Lakhs in the previous year. The Company has earned a consolidated net profit after tax of Rs. 166.52 Lakhs as against net profit after tax of Rs. 238.06 Lakhs in the previous year.

Key Financial Ratios

In accordance with the SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015, the Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key financial ratios. The company has identified the following ratios as key financial Ratios:

Particulars	FY 2023	FY 2022
Inventory Turnover Ratio	10	15
Trade Receivable turnover ratio	2	3.26
Trade Payable turnover ratio	0.46	0.76
Current ratio	0.47	0.5
Debt equity ratio*	--	--
Revenue growth (%)	(32.62)	1.75
EBIDTA margin (%)	18.67	26.12
Net Profit margin (%)	8.12	18.01
Price/Earnings ratio (times)	27.86	15.19
Basic EPS (Rs)	0.63	2.08
Return on net worth (%)**	--	--
Return on capital employed (%)	0.45	1.14

*Since the total equity is negative, ratio is not given.

**Net worth of the company is negative.

Cautionary statement

Statements in this report on Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations or predictions may be ‘forward-looking statements within the meaning of applicable laws and regulations. Such statements represent the intention of the Management and the efforts being put into place by them to achieve certain goals. These assertions are predicated on a number of assumptions and future activities. Since the Companys operations are impacted by several internal and external factors outside of its control, actual results could significantly differ from those stated or inferred. Any forward-looking statement published here only speaks as of the date it was made and only reflects the Companys current intentions, beliefs, or assumptions. The Company disclaims any obligation to update or modify any forward-looking statements, whether as a result of new data, unexpected developments, or other factors. Readers are urged to use their best judgement when determining the risks connected to the Company.

	By the Order of the Board
	For Medinova Diagnostic Services Limited
	Dr. Sura Surendranath Reddy
Date: May 17, 2023	Chairman
Place: Hyderabad	DIN: 00108599