Operator: As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prinesh Parikh from Thyrocare Technologies Limited. Thank you, and over to you, sir.
Prinesh Parikh: Yeah. Thank you, Dhawal. Good evening, everyone, and thanks for joining us today. I am Prinesh Parikh from the Strategy and IR team of Thyrocare. It is a pleasure to welcome you all to our Q2 FY 2027 Earnings Call. Joining me on the call today are Mr. Rahul Guha, our MD and CEO, Mr. Rajdeep Panwar, our Chief Commercial Officer, Mr. Ramesh Kinha, our Chief Operating Officer, and Mr. Vikram Gupta, our Chief Financial Officer. I hope you have gone through our results release and the quarterly earnings presentation and press release, which have now been uploaded on the stock exchange website. The transcripts of this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and must be viewed in relation to the risks pertaining to the businesses.
Prinesh Parikh: After the end of the call, in case you have any further questions, please feel free to reach out to us at the Investor Relation team. I now hand over the call to Mr. Rahul Guha to make the opening remarks.
Rahul Guha: Thank you, Prinesh. Good evening, everyone, and thank you for joining us today. As in all my calls, I will begin with a quote from Nelson Mandela in recognition of our foray into Africa. It is in your hands to make a better world for all who live in it. We believe Thyrocare has the opportunity to take its proven business model and make affordable, high-quality diagnostics accessible to many more patients. Diagnostics today has moved from a backend support function to the center of clinical decisions and preventive care, and that is exactly where our model of affordable, accessible, and dependable testing fits. Technology is a growing part of that story. We continue to invest in digital capabilities across booking, logistics, lab operations, and reporting, which improves efficiency today and prepares us for future innovations.
Rahul Guha: Continuing the growth momentum of over 20% achieved in each of the past two years, our pathology business grew even faster in Q2 FY 2027, delivering 27% growth. This performance reflects our sustained investment in service levels and quality, which continue to strengthen our franchisee network. During the quarter, we recorded our highest-ever franchisee additions, taking our active franchisee base to over 12,911, 4x the base we started with at the time of the acquisition. Our laboratory network has expanded 17 labs in FY 2021 to 49 labs today, of which five new laboratories were opened in Q2 FY 2027. Across most of India, a Thyrocare lab is now within 150 kilometers, so samples no longer travel to Mumbai except for specialized tests, thus enabling faster and more efficient turnaround times. Our test menu has grown nearly five-fold to more than 1,420 tests, and our quality backbone has grown with it.
Rahul Guha: More than 108 MD pathologists, and every lab we own is NABL accredited, in a country where only 2% of labs carry that accreditation tag. On the collection side, our 2,100+ phlebotomists, one of the largest home collection networks in the country, arrived on time for 99% of their visits. The most exciting part of this year is specialty. We took the Thyrocare playbook of scale, reach, and affordability into specialty diagnostics, starting with allergy and genomics, and the business is now live and gaining steady traction. We call this journey from routine to remarkable, the next frontier of diagnostics. Specialty diagnostics in India is under-penetrated, expensive, and fragmented, the same problems Thyrocare solved in routine and preventive testing. Our operating model, built on scale, automation, quality, and affordability, is why we believe we can win here.
Rahul Guha: Our investments in expanding in-house capacity and broadening our test portfolio have enabled us to progressively bring specialty testing in-house, reducing our reliance on reference labs. Building on our historically modest specialty testing portfolio, the recent additions in allergy and genomics are beginning to deliver encouraging results. While the specialty segments currently contribute only around 4% of our pathology revenue, the early traction reflects the benefits of our strategic investments, enhanced in-house capabilities and continued expansion of our test menu. This is not just a portfolio expansion. It is a proven execution engine pointed at a larger, fast-growing segment. Our ambition is to build one of India's most trusted, accessible, and scalable specialty diagnostics platform, and with it, the company's next long-term growth engine.
Rahul Guha: On NHL, Nueclear Healthcare Limited, as approved by our board in the Q1 meeting and as communicated during our previous investor call, we have initiated for the shareholders' approval for the divestment of NHL, a radiology business, for a consideration of INR 141 crores to Trovera, which is a mix of cash of INR 81.9 crores and equity of INR 59.5 crores. The decision is after considering the strategic rationale, including focus of the management on the pathology business, where growth, profitability, and return on capital are much higher. The return on capital employed, ROCE, of Thyrocare is 34.9%, and NHL ROCE is 6.95%. The limited growth prospects of NHL as a standalone PET/CT player in the competitive integrated radiology market, which is reflected via NHL's degrowth of -9% in the past five quarters, -9% versus +22% average growth of Thyrocare standalone.
Rahul Guha: NHL is pulling the consolidated revenue growth rates and EBITDA margin down by 2% and 1%, respectively. NHL also has low operating PAT, and the investments required to continue Nueclear, as many equipment are at end of life, is substantial. Hence, we took the decision to exit NHL. Trovera is a more scalable platform which will consolidate India's fragmented radiology market by acquiring established doctor-run centers and integrating them through centralized radiology reporting, shared procurement, and back-office efficiencies. Excluding NHL, Trovera has already executed definitive binding agreements for acquiring 39 radiology centers. We feel NHL will have found a good home in Trovera in the competitive radiology market. I am also pleased to announce the launch of our Thyrocare Pregnancy Test Kit, a rapid home testing solution that delivers results in just five minutes.
Rahul Guha: We have onboarded Yami Gautam as our brand ambassador to strengthen awareness and consumer outreach for this product. This launch marks the first of several products in our pipeline, and there will be more news to come in the coming quarters. With that, I will now hand over the call to Rajdeep to take you through our business and commercial performance.
Rajdeep Panwar: Thank you, Rahul, and good evening to everyone joining us. We continue to deliver strong growth numbers, with consolidated revenue delivering 25% year-on-year growth in Q2 FY 2027. Aarogyam, our flagship preventive brand, and Jaanch, our curative and chronic care range, continue its strong growth momentum. While Jaanch is still only 2.5% of pathology revenue, it grew by 8% and is fast becoming a strong pillar of our lifestyle portfolio. Let me now break this down into our three business segments. Our franchisee business grew 27% year-on-year. We added about 1,180 franchisees in the quarter, our highest quarterly addition in three years, taking the active base of franchisees to a record of 12,911. We also keep investing in our relationship with channel partners.
Rajdeep Panwar: During the quarter, we held two structured partner meets, three CME, and one roundtable conference with the doctors, giving partners a platform to have an open dialogue with our doctors. The feedback and knowledge sharing in these forums happen very consistently. These meets continue to shape our service levels and our next set of initiatives. Specialty, which Rahul spoke about, is now commercially live and building momentum. Our dedicated specialty team works directly with physicians, hospitals, and healthcare institutions through scientific discussions, one-to-one engagement, and visits to their clinics and labs, such that they can see our quality system firsthand. The goal is not more tests on a menu, it is sustained clinical adoption. Affordability, scientific engagement, and our national network together let us take advanced diagnostics to far more patients than the segment reaches today. Moving to our partnership business, the business grew 28% year-on-year.
Rajdeep Panwar: Growth was led by insurance and health tech, along with continued scaling of existing accounts. Our API-based integration let partners switch on diagnostics across multiple cities very quickly, which strengthens our position as a preferred B2B business partner. This growth has been led by strong momentum in insurance and health tech segments, along with controlled scaling of existing accounts. Our API-based integration are also enabling partners to expand diagnostics offering across multiple cities seamlessly, which is strengthening our positioning as a preferred B2B partner. As Rahul mentioned, this quarter we also stepped into the consumer product business with the launch of Thyrocare Pregnancy Test Kit. It is a rapid home test that gives a result in five minutes with 99% accuracy when used as directed at an MRP of just INR 60. What makes it distinctly Thyrocare is the second assurance that comes with it.
Rajdeep Panwar: Every kit carries a coupon of a Beta hCG blood test at half price, INR 399 instead of INR 800, which can be booked for home collection or at Thyrocare outlet. One kit with two assurances, a quick answer at home and lab confirmation one step away. It also brings a new customer into our network at the moment what matters. To drive wider adoption, we are leveraging the API Holdings Group's distribution network through PharmEasy and Ascent, respectively, to make the kit accessible to consumers. Today, we are already present in 10,000+ pharmacies. Across channels, our focus remains depth, improving partner productivity, and widening the value we deliver through a product portfolio, stronger service, and now our own products. With that, I will hand it over to Dr. Kinha to walk you through the operation and lab initiatives.
Ramesh Kinha: Thank you, Rathi. Good evening and a warm welcome to everyone joining us today. I will focus on three areas today. First, our lab network. Second, our operational capabilities and research. Third, how we are improving the experience of patients and doctors. Starting with the lab network, we now operate 48 labs in India and one in Tanzania. This quarter, we added five new labs, four regional processing labs at Asansol, Nashik, Madurai, and Jabalpur, and one hybrid lab partnership at Jamshedpur. Each of them brings processing capacity closer to the fast-growing tier two and tier three markets, where demand for quality diagnostics is rising fastest. Now, to the second area, our operational capabilities and research. We continue to widen the specialty portfolio, building on the foundation we laid earlier this year with genomics, specifically non-invasive prenatal testing and allergy testing during the start of this year.
Ramesh Kinha: Our approach remains measured, introduce clinically relevant offerings, invest in physician education and scientific engagement, and then scale adoption over time. In specialty, credibility comes before volume. Now, the third area, patient experience, which is something I care deeply about. Diagnostics is fundamentally a trust business. Every improvement we make is driven by a simple question: Does this make the patient and doctor feel more confident in us? We answer it through four pillars that underpin trust in medical diagnostics. First, accuracy and quality, which remains non-negotiable. With our NABL-accredited labs and continuous investments in the state-of-the-art equipment and upgrades, 96% of samples were processed in NABL-accredited labs this quarter. Second, faster resolution when things go wrong. We strengthened our complaint channels, shortened resolution times, and communicated more proactively with patients.
Ramesh Kinha: Complaints fell to 2.9 per million tests in Q2, comfortably within Six Sigma levels and our lowest we have ever recorded. Third, faster reports. Better logistics, tighter lab processes, and opening of new labs have brought our average turnaround time to 3.5 hours in the quarter. Fourth, we continue to strengthen trust with doctors who are often the patient's first point of contact. We host doctor meets at our own laboratories, giving physician first-hand exposure to our quality systems, equipment, and processes. This quarter, we conducted 45 such meets, engaging over 100+ doctors. In addition, our CMEs and RTM meetings helped us connect with nearly 300 specialist doctors. These relationships are increasingly important as we expand our specialty portfolio, where doctor-led adoption plays a very critical role. Overall, we are building an operational path that can support without compromising on quality or experience.
Ramesh Kinha: With that, I will now hand it over to Mr. Vikram Gupta for the financial performance.
Vikram Gupta: Good evening, everyone, and thank you for joining us today. I am pleased to report that we delivered another quarter of strong financial performance driven by consistent revenue growth. Thyrocare has consistently delivered 20% growth rate over the last nine quarters, with the last two quarters growing faster at 25%+. This sustained performance reflects the strength of our business model. Now, let me take you through the key financial highlights for the current quarter. Starting with revenue, our standalone revenue came in at INR 256 crores, which is 26.7% up year-on-year. This is driven by strong growth across both our franchisee and partnership businesses. On a consolidated basis, revenue stood at INR 271 crores, reflecting a robust 25% year-on-year growth. Moving to margins and profitability, our consolidated gross margin at 74.2%, reflecting an improvement of more than 190 basis points year-on-year.
Vikram Gupta: This was largely driven by a strong 27% growth in test volume, which helped us improving operating efficiency. Employees and other overheads increased year-on-year, primarily due to inflation, higher volumes, lab expansion, and investment in new growth areas like specialty and pregnancy kits. Our EBITDA margin for the quarter was at 33%, with year-on-year growth of 25%. Profit after tax before exception stood at INR 60 crores year-on-year, with a PAT margin of 22%. Earnings per share before exception for the quarter was INR 3.78 compared to INR 3.01 last year, representing a year-on-year growth of 26%. For the half year ended 30 September, consolidated revenue is up versus last year by 25%, and EBITDA and PAT are growing year-on-year by 29% and 30%, respectively. Now coming to the accounting and exception items pertaining to the NHL operations.
Vikram Gupta: As covered by Rahul, the board of directors of the company has approved the proposed sale of company's entire shareholding in Nueclear Healthcare Limited for an aggregate consideration comprising cash and equity amounting to approximately INR 141 crores. Since the requisite shareholder approval and execution of the SPA remains pending, no held-for-sale or discontinued operation classification under Ind AS 105 has been taken in this quarter results. Nueclear Healthcare Limited continues to be consolidated as a wholly owned subsidiary in H1 and the quarter financials. Separately, based on the latest valuation and term sheet, we have reassessed NHL's carrying value and taken an impairment of INR 9 crores in Thyrocare's standalone books and of INR 45 crores in the consolidated financials against the goodwill arising from the acquisition of NHL.
Vikram Gupta: Please note this is a non-recurring and non-cash charge and does not have any impact on the operational performance of the company. Just to summarize how the impairment has been taken in standalone financial books and the consolidated financial books of Thyrocare. In FY 2020, NHL book value was written down to about INR 150 crores in both standalone and consolidated books. For this, company provided an INR 44 crores impairment in the standalone and INR 6 crores impairment in the consolidated books as per Ind AS accounting. Since then, the standalone value has stayed at INR 150 crores, while in consolidated books, the net worth has grown with the NHL office from FY 2022 to FY 2026. This gap in carrying value in both standalone and consolidated books explains the different impairment charge in both the books in this year.
Vikram Gupta: However, as covered earlier, this charge is one-time, non-cash, with no impact on the operations or cash flow. Our balance sheet continues to be strong and resilient, with net cash and equivalents of over INR 211 crores and zero debt as on 30 September 2026. In cash flow, during H1 FY 2027, we generated INR 133 crores from operating activities. During H1 2000, a CapEx of INR 30 crores has been invested on account of new lab expansion, five in this quarter and three in Q1, and capacity CapEx to support 27% volume growth. In balance part of the financial year, we are expecting a similar CapEx investment for the growth of the business. Overall, our steady performance reflects disciplined execution and focus on profitable growth. We remain committed to delivering consistent financial performance while continuing to invest in strategic initiatives that will support our long-term growth agenda.
Vikram Gupta: With that, I hand it over back to Rahul for the strategic update. Thank you.
Rahul Guha: Thank you, Vikram. Briefly, I would like to take a few minutes to recap our strategic direction, and then I will open it up for Q&A. First, our value proposition to the customer. We will remain an affordable option for every patient with good quality and on-time reports. Everything we do on this front is about low cost to the patient, assurance on quality through our certification and engagement with doctors. You can see the progress in this quarter's numbers, 3.5-hour turnaround time, 2.9 complaints per million tests, and our NABL accreditation footprint. This will remain at our core and will continue to guide all that we will do. Second, our strategy.
Rahul Guha: We remain the B2B partner of choice for every front-end diagnostics business in India, whether it is a small diagnostic center in a semi-urban area, a pharmacy in a metro, a small nursing home, an individual doctor, or a leading online diagnostics platform or health tech marketplace. We give them low-cost, robust testing so that they can serve their patients well. If they need phlebotomy, we mobilize our network of over 2,100 phlebotomists, including our network partners. The numbers bear this out. This strategy has been working well for us, with both our franchise and partnerships business posting strong growth. Two natural extensions of this strategy are now live. Specialty, where an on-ground technical sales team is driving doctor-led adoption of allergy and genomics testing at the same quality and affordable prices as our routine and preventive tests, and marks our real entry into curative diagnostics.
Rahul Guha: Our own products, starting with the pregnancy kit, which connect a quick answer at home to confirmation in our labs. More of both are in the pipeline, and we look forward to sharing them over the coming quarters. That, in brief, is our mandate as management. Thank you for giving us a patient hearing. I will once again end with a quote from the Mahatma, Find purpose, the means will follow. Our purpose remains to provide affordable, high-quality testing to the masses. With that, we will open up for Q&A.
Operator: Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. We also request that you please restrict yourselves to two questions only per participant. If you have any further questions, you may rejoin the queue. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Surya Patra with PhillipCapital. Please go ahead.
Surya Patra: Yeah. Thanks for the opportunity, sir. Congratulations for the great set of numbers. My first question is on the franchisee addition growth, what we have seen, highest ever franchisee addition in a quarter. Particularly the industry which is growing or struggling to have kind of 15% or 18% volume growth. In such a scenario, we are delivering franchisee addition growth at more than 25%. How should one think whether this is a kind of elevated norm now or this is a quarter-specific surprise that we are seeing?
Rahul Guha: Thank you for the question, Surya. As you know, I am a glass half empty kind of person. I definitely am very pleased with the franchisee additions in this quarter. But if you look at it historically between Q2 and Q3, we have never added franchisees, except for when we acquired Polo and Vimta. Otherwise, if you go historically, Q3 is a tough quarter to add franchisees. So, I think to that extent, we put in all our efforts in Q2 to ensure that we could maximize the opportunity in Q2. That worked out very well for us. But I don't anticipate a significant addition in Q3. I'm hopeful we will go back to our normal pace in Q4.
Surya Patra: Okay.
Rahul Guha: I guess a long answer to your question, but I would say that we are positively surprised by the number of franchisee additions in Q2 versus our plan. It's too early to commit that this will be the normalized run rate of franchisee addition. I'll need to see one or two more quarters of this kind of execution from Rajdeep and his team, and I think then we'll be more confident on the guidance.
Surya Patra: Sure, sir. But it is fair to believe that, okay, we are surpassing the annual guidance of 1,500 for sure.
Rahul Guha: That we have already, I cannot. Difficult to say. Difficult to counter that statement. Yes.
Surya Patra: Sure, sir. My second question about the pregnancy kit with the lab test combination that we have introduced. Obviously, this is a unique offering from our side in the industry. Here, I just wanted to understand something about the kind of economics of this revenue stream, sir. Because the device is a kind of Thyrocare-branded product.
Rahul Guha: Yes.
Surya Patra: What's the role of API here in this revenue stream? Ultimately, what margin stream that one should think about it?
Rahul Guha: Yeah. Okay. Thank you for that question, and thank you for studying it in detail and seeing that it is definitely a differentiated offering from the current products out there, right?
Surya Patra: Sure.
Rahul Guha: From an economic standpoint, I would say gross margin of this business is more or less comparable to our diagnostics business. The EBITDA margin of this business is also, at a normalized level, comparable to our pathology business. Of course, in the next few quarters, we will invest heavily to market and promote the product. I do not anticipate this being EPS accretive, at least for the next three quarters, because we will do a lot of out-of-home media. We have invested in Yami Gautam as our brand ambassador. All of those are at a cost that is already baked into Q2, but we anticipate to continue those investments at least for three more quarters.
Rahul Guha: I think from a bottom line point of view, we should not expect anything from this initiative because we are investing to establish the brand and the presence and all of that. With regard to the supply chain, we have two vendors who assemble and manufacture the kits for us under stringent Thyrocare quality standards. We have our own QC and validation that validates the kits and all of that, but we are using outsourced vendors. We have not yet taken it in-house because we have not seen the volumes as yet. That is on the backend supply chain. When it comes to the role of the group, as you probably know, Ascent is one of the largest distributors to chemists in the country. Of course, being a sister concern in the API Group, Ascent is distributing these pregnancy kits across the country.
Rahul Guha: So far, they have managed to place the pregnancy kits in 10,000 chemists as of today. We have got the retail distribution from Ascent, and PharmEasy also has listed it on its own platform. More importantly, a lot of the quick commerce partners that we work with have also listed the pregnancy kit on their respective platforms. The kit is available online, it is available in quick commerce, as well as in offline chemists. As of now, in 10,000 offline chemists.
Operator: Thank you, Mr. Patra. Can we come back for a follow-up question? Next question is from Mohit Saini from Jayram Wealth Managers. Please go ahead.
Mohit Saini: Good evening, sir. Thank you for the opportunity, and congratulations on a great set of numbers. My first question is in regards to the partnership. Can you throw some light on what exactly has led to this 32% increase in volume? Because insurance, if we see, they usually do it in the beginning or at the end of the year. I am unable to calibrate this. Is it majorly through online aggregators?
Rahul Guha: I will let Rajdeep take this question. Rajdeep, you want to answer?
Rajdeep Panwar: Yeah. It is a mix of, if I would say, I would bifurcate it into the bigger pie of business who contributes in the partnership side of this. The topmost player is definitely PharmEasy, who contributes to around 11% of it. Then followed by likewise same kind of platforms which are separate, which are very quiet business. I would say it will be difficult for me to actually communicate you the names, but the fact is that those are definitely the online players who actually do a lot of SEOs online, and they are, in most of the cases, are regionally very strong players. First kind of partners are those, and second, in the same line, would be the ones who do a lot of, I would say, onboarding with corporates in the partnership pie of the business.
Rajdeep Panwar: The ones who handles corporate side of the business, who has lots of corporates onboarded with them. Then comes the insurance piece of it, which you rightly mentioned, since the numbers are only at the starting or maybe at the end of the insurance, so those numbers are not really very big, I would say.
Mohit Saini: All right, got it. One more question is there some news on API Thyrocare merger or reverse merger? Can you just be clear on that?
Rahul Guha: Would you repeat the question?
Mohit Saini: There is some news about API and Thyrocare's merger or reverse merger. Can you throw some light on that?
Rahul Guha: Yeah. I have come and very publicly spoken about this as well. At this point in time, there is no evaluation of any type of corporate action, whether it be reverse merger, IPO, or any of that. I have given two milestones before any of this conversation starts. First is API Group should be debt-free. That milestone was achieved earlier, just a few months ago. More importantly, the second milestone, which is API Group ex-Thyrocare turns profitable, right? We are still about two or three quarters away from that milestone. I have guided to API Group ex-Thyrocare turning profitable by Q4 FY 2027, right?
Rahul Guha: It is only by then that I think even any kind of corporate action would be in the realm of discussion also, because I think with one company doing so well on the profitability side and the other company being loss-making, I think it will be difficult to convince the majority of the minority to support that kind of corporate action at this point in time. I think this discussion is too premature. It will be taken up once API Group can stand proudly and say that ex Thyrocare, they are profitable. After that, all options are open, whether API Group would like to do an IPO on its own or explore the reverse merger, and that will be a subject of discussion once we cross this milestone.
Mohit Saini: All right, makes sense. Can I just squeeze in a more question?
Rahul Guha: We have one more question.
Mohit Saini: Yeah. Sir, just I wanted to understand also on the franchisee, we already have added 2,000. Are we being too aggressive or is a churn later expected something?
Rahul Guha: First, this is a net addition number, so it always accounts for churn, right? As I said, Q3, if you go back, except for last year when we acquired Polo and Vimta, we saw a jump in franchise addition. But if you go back in history, it is a very rare event that you are able to add franchises between Q2 and Q3. On a lighter note, Rajdeep is confident that he will do it this year. But maybe you can give more context, Rajdeep, on the franchise addition. Have we been too aggressive in H1? Over to you.
Rajdeep Panwar: Yeah. I think if you would have heard previous discussions on the same topic, you will find that the seeding happens much earlier in form of the sales organization. The seeding has happened last year when we actually have built up a field sales organization for hunting and looking for the franchisee. What you are seeing is actually the growth because of the, a lot of attempts has been made in the last quarter of last financial year, and definitely the Q1 of this financial year is what is resulting in what you see today in terms of numbers. The expectation remains same, and as Rahul also mentioned, I am confident we will keep on adding franchisees to this.
Rajdeep Panwar: I don't foresee any reason for us not to actually keep on adding, but definitely the seasonality in business works, and definitely the launches and all that muhurat which happens across the year also works, is one of the component which fluctuates people getting into a new business. Keeping all that in mind, I am still thinking that we will continue to maintain the momentum.
Operator: Thank you. Mohit, kindly come back for a follow-up question. Participants, you may press star and one to ask the question. Next question is from Manav Sarang from Tamohara Investment Managers. Please go ahead.
[Analyst] (Tamohara Investment Managers): Yes. I thank you for the opportunity, and congratulations for a good set of numbers. My question would be in line with the earlier question of reverse merging the PharmEasy business. It is just, fundamentally, the two businesses are different. I mean, I get that we will be considering it after the two conditions meet up in the future. But just on the line, even if we consider then, we sold Nueclear because it did not align with the capital efficiency and growth of pathology business. Just wanted to understand the logic of merging a completely different business into this, even if we consider in future. This is my first question.
Rahul Guha: It is too premature to answer that question. As I said, we are right now focused on execution and ensuring we achieve the milestones that we have committed, right? Both in Thyrocare as well as API Group, right? Therefore, I have not even spent too much time thinking about all of this. My suggestion is let us hold off on these questions till I have achieved the milestone.
[Analyst] (Tamohara Investment Managers): Okay. Fair enough. Okay, thank you. My second question would be, are we open to acquire any assets in the genetic testing space?
Rahul Guha: Absolutely. We are open to all sorts of acquisitions, whether it is geographical expansion. I have been very vocal about it. Gujarat, Rajasthan, Northeast, parts of South India where we are historically been weak. We have been evaluating almost any kind of asset in these geographies, as well as specialty. We genomics, any differentiated testing we think would be a huge value add to our portfolio. So we are always on the lookout.
[Analyst] (Tamohara Investment Managers): Okay. Thank you so much for that.
Operator: Thank you. Next question is from the line of Aditya Chheda from InCred Asset Management. Please go ahead.
Aditya Chheda: Hi. My question is on the franchisee productivity. Franchisee revenue per active franchisee appears to be in the range of INR 1.2 lakh per quarter for the last four to five quarters. So, would growth largely be driven by the franchisee count, or we should directionally also see higher productivity per franchisee?
Rahul Guha: Look, when you are adding 20% of the base every year, new franchisees, as I have always said, come at a lower average revenue per franchisee. Of course, the mature franchisees, I have always been sharing how they grow, right? But these two, at a 20% franchisee addition, neutralize each other. So, if you look at it, I think for the last possibly 12 quarters, the average revenue per franchisee has more or less remained range-bound in that INR 120,000 range. That is the effect of older franchisees going up, but newer franchisees starting on a lower base. I do not expect that mix to slow down, at least for some time. So, I would bet more on franchisee addition than revenue per franchisee driving the growth.
Aditya Chheda: Got it. If I have to break the test volume, which was 7% with patients being up 13%, what is the strategy around higher tests per patient, which is up 12%? Is it bundling? Directionally, how would be the qualitative nature of the test growth going forward?
Rahul Guha: Yeah, that I had shared last time. Our strategic intent is to increase the revenue per patient. That, as you rightly pointed out, is through bundling. You have to remember, at a patient level, all our costs are fixed. Whether I send a phlebotomist to your house, whether I transport in the mid-mile, whether I process the vial in the lab, all of those are linked at a patient level. So, every additional test that we sell at a patient level actually only comes at gross margin, because all the other fixed costs are already linked to the patient collection. So, our focus has been to increase the revenue per patient, and we have been quite successful at that by ensuring bundling and improving the test-per-patient mix. I think that is overall, commercially, definitely it makes sense.
Rahul Guha: More importantly for the patient also, it allows them access to a broader set of tests, and a larger bouquet of tests to help manage their health better. So, keeping aside the commercial side of it, I think it is really part of our mission to ensure affordable, good-quality testing, and we should make it easy for a patient to comprehensively test, and ensure that their health is in good shape. It makes commercial sense. We are more patient-centric on that front, and therefore, when you think about being broader in our test menu and test bouquet through bundling, it is to help the patient manage his health better or her health better, and that commercially yields a better revenue per patient as well as much better profitability. But the anchoring is the patient.
Operator: Thank you. Aditya requests to come back for a follow-up. Next question is from line of Ashutosh from Mirabilis. Please go ahead.
[Analyst] (Mirabilis): Hi, Rahul and team, and congrats to all the team for continuing great execution. A couple of questions. First, on the specialized diagnostic side, we have announced this for a couple of quarters back, and this will be a longer journey where we build this. Just to understand where we are in this journey and what kind of portfolio we will try to build here. Just if you could throw some light on that. Second question would be on the new D2C foray that we have done with this kit launch. Again, would we try to build more D2C-centric focus here with new products plan that you highlighted for next coming quarters? Given the context of investment in both these areas, how should we look at the margins over the next one to two years?
Rahul Guha: Sure. I will answer the second question and then hand over to Rajdeep to answer the specialty question. On the second question, definitely we think of point of care as a large opportunity for Thyrocare, where we have a point-of-care device backed by a lab test. We feel that is an excellent value proposition to the patient or customer. So we will definitely look at launching more devices along the same theme. But I would not like at this point in time to divulge the exact products that we will launch, because that is a matter of strategy. But definitely we will continue down the same path. On the subject of specialty, Rajdeep, you can take that.
Rajdeep Panwar: Yeah. On the specialty side, what actually we have picked up as a menu to start with is reproductive genomics, out of which the testing which we are picking up is, and what we are building is around that only. If you look at the test menu we are considering is mostly related to maternal screening, and definitely then further moving towards further detailed diagnosis of that only. Around that, we have built up the team. This team which we have is actually from the industry only, and these people have a very good scientific know-how on the test and the way they usually meet with the clients, which include doctors, which includes nursing homes or other practitioners who are practicing this kind of clinical practices in the market. What was the other query you have on the specialty, sir? I am sorry, I cannot get you clear.
Rajdeep Panwar: I think there is a network issue.
[Analyst] (Mirabilis): Test here. Hello?
Rajdeep Panwar: Yes.
[Analyst] (Mirabilis): Yeah. On the specialty side, have we started launching tests or we are in the process of launching here?
Rajdeep Panwar: We have started these testing. We have actually invested in the CapEx for this thing last financial year only. We have launched specialty as a segment in May, and we have started actually marketing these tests, and we have started testing also.
Operator: Thank you, Ashutosh. I'll request to come back for a follow-up. Next question is from line of Mohit Saini from Jayram Wealth Managers. Please go ahead.
Mohit Saini: Yes, sir. I just have a small question that if we see on Twitter, we have seen a lot of complaints regarding the delivery of the report or the phlebotomist not coming on time. Because if we see the presentation and as per your guidance, the issues that VPS is no longer there, like 99% of the complaints are 24% it is reducing. Could you guide something on that?
Rahul Guha: Yeah. See, we serve daily 1 lakh patients, okay? Even at 99%, it is 1,000 patients where we show up late, right? All 1,000 of them, of course, get very upset, right, and take to social media. That has become the norm. But the footprint is 99% on-time arrival. We measure it, we track it daily in the organization. But as I said, at our scale, right, 99% means still 1,000 late arrivals a day, right? Over a month, 30,000, over a year, 3.5 lakh, right? That is bound to make its way into social media. But you want to share, Rajdeep, how we track it and, you know.
Rajdeep Panwar: Yeah. I think few more facts around it is across 4,500 PIN codes where we manage this, which also includes a remote location in a particular city, which also includes a cumbersome travel of an individual from one location to another, which may extend to maybe 15, 20 kilometer, may have its own way of hindrances on the way, like traffic and all. But all these excuses, I would say that we have a very, very stringent live tracking mechanism where this phlebotomist uses an application. This application gives him direction. We also have a timestamp on every aspect of individual thing he do, like starting his journey, reaching at customer's place, doing the billing of the patient, collecting the samples, and then actually putting up all the things which are required and then giving the picture of all of that what he do to the server.
Rajdeep Panwar: With these timestamps is how we are able to communicate to you that this is 99%. So, we have all these tracking mechanisms with us with which we control all of this. As Rahul mentioned that this 1% is around 1,000.
Mohit Saini: All right. Okay. That's it from my side. All the best.
Rajdeep Panwar: Thank you.
Operator: Thank you. Next question is from Chintan Sheth from Girik Capital. Please go ahead.
Chintan Sheth: Hi. Thank you for taking my question. Hope I'm audible.
Rahul Guha: Yes.
Chintan Sheth: Yeah. Okay. So, two set of questions. One is on the write-off, right? So, in the initial announcement which we have put up in the exchange at the time of announcement of the Nueclear deal, we mentioned over there was some net worth of around INR 80 odd crores. We sold it at INR 140 odd crores. So, I am trying to understand the write-offs which we have accounted this quarter. That is one. You tried to explain it in the initial comment, giving out the details about the goodwill and everything. But I am just trying to, if the book value of the business was INR 80 odd crores at the end of March, we sold it at INR 140, ideally there should be gain on the sale of asset. That is what I hope for. But happy to hear out the reason for the write-off. That is one. Second is two-part question.
Chintan Sheth: One, largely on the margin front. Given the new initiatives which we are planning on, right, the devices part, the specialty division side, how should one look at as this business or initiative scales up, right? Initial heavy lifting will be done by the existing cash cow business, right? Will that affect, if you could provide some color on how the margin trajectory will play out, while we invest a lot on awareness, invest a lot on people, the process, and everything, would the margin be differentiated versus what we have been able to achieve over the last three years? The impact of that will be higher. Second, on subpart two, it was the employee cost which was elevated this quarter. You highlighted in the initial remark as well. Does this run rate will be the one we should go for in the subsequent quarter?
Chintan Sheth: These are the set of questions I have. Thanks.
Rahul Guha: Well, I will take the second question first, and then you can take, Vikram, the question on the impairment, right? As I have been guiding in the past, we will reinvest the operating leverage in growth, right? I have been saying that broadly 32% EBITDA was what we closed last year at, and I have been saying that we will maintain that range of EBITDA. When you are growing at 25%, your cost never grows at 25%. So, you get a significant operating leverage into the business. I have been using that operating leverage to fund all these investments, right? Be it genomics, the field force team, the investments in launching the Thyrocare Pregnancy Test Kit, both brand ambassadors, Madhuri Dixit and Yami Gautam, working with that. All of that has come from operating leverage. Even though I have been saying 31.5% to 32% margin, in H1, we delivered 32.6% margin.
Rahul Guha: Some of the operating leverage still came through. I have always maintained that we will be measured in our investments, and it will be up to the operating leverage that we get out of the business. I would say a long-term guidance of about 31%, 31.5%, where we are funding all these investments for growth is what I would anchor on, not above that. Coming to your question on employee cost, as you rightly countered, all this field force, new labs, new technologies, all of that require people, and that is what you see in the people cost. That is a simple enough explanation. I will ask Vikram to take the point around the net worth versus the write-off.
Vikram Gupta: Yes. So, INR 83.5 crores, the number which you referred, is the net worth of the NHL entity. The impairment which comes in the books of the Thyrocare standalone, let us say, and the consolidated, is the difference in between the carrying value of that investment in the books of the Thyrocare and the consideration which we have received. So, the net worth of the NHL cannot be compared with the share value to arrive at any upside or downside. It is a difference in between the carrying value of the investment in the Thyrocare books vis-à-vis the consideration which we have received.
Vikram Gupta: The carrying value of the books is around INR 83 crores, what net worth, plus the goodwill, what is sitting in the financial at the time of consolidations, altogether is coming around INR 180 crores, approximately. Now the valuation report has come, which is INR 141 crores approximately, which is the term sheet which we have signed, and the shareholder approval are in progress. Resulting, we have to take the financial hit of impairment in Q2, to bring back both the books, SFS as well as CFS, at same level. Resulting as in SFS, we have taken impairment in 2020. The remaining impairment of INR 9 crores has come in SFS, whereas in the consult financials, the impairment has come around INR 35 crores on account of the profitability has increased over a period of six years, plus the INR 9 crores.
Vikram Gupta: Altogether, it is coming around INR 44 crores, INR 45 crores comes in the consult financials. That is the impairment has taken in consult. I hope we are able to answer your query.
Operator: Thank you very much. Chintan, I request you can come back for a follow-up. Next question is from the line of Aditya Chheda from InCred Asset Management. Please go ahead.
Aditya Chheda: Can you quantify the ESOP cost for Q1 and Q2 independently? Also about the, if it was meaningful, the one-off cost towards the launch expenses in Q2?
Operator: Aditya, sorry, your voice is breaking. Can you please come in a better reception area and repeat your question?
Rahul Guha: I heard the question. Can you quantify the ESOP cost for Q1 and Q2? Vikram, you want to take that?
Vikram Gupta: The ESOP cost is around INR 4 crores in both Q1 and Q2.
Aditya Chheda: Lastly, if the launch expenses and material in Q2, if you can quantify that.
Rahul Guha: Roughly about INR 1.5 crores has been incurred in Q2, and I expect to incur another INR 3 crores in Q3.
Aditya Chheda: Okay, thanks. That is it.
Operator: Thank you. Next question is from the line of Nishant, Individual Investor. Please go ahead.
[Shareholder] (Private Investor): Yeah, hi. Can you explain how you are going to be positioned on the kit launch? Because it would be competing against a much larger or wider portfolio of other products who are all coming from the RX side, or prescription side or OTC side, whereas you will be coming in as a standalone product here. So how do you achieve distribution? How do you achieve offtake?
Rahul Guha: Very good question. Firstly, I want to re-anchor on the differentiation. With the INR 60 test, we are giving a INR 400 benefit on the confirmation test. And that confirmation test is backed by Thyrocare. So that is the overall value proposition to the customer, which is, you can buy an equally competitive, almost at the same price as all the competition pregnancy kit. But should you have a positive good news, you can confirm it immediately with a INR 400 benefit on the Beta hCG. So that is the first part. The second, if you look at API Group, we have India's third-largest distribution of medicines in the country, both medicine and OTC, which is Ascent. Ascent roughly distributes about INR 4,500 crores of medicine across the country to 50,000 retailers every day. And we are leveraging that distribution footprint.
Rahul Guha: to position this product. Similar to an OTC company, we have an in-house sister company that has distribution capability. And more importantly, Ascent has already placed the pregnancy kit in 10,000 outlets. So to that extent, we have achieved quite a bit of distribution on that part. So that is on the sell-in side. On the sell-out, as I indicated in my initial comments, we have a large out-of-home budget that will launch post-Diwali, and hopefully you will see the advertisements with Yami Gautam promoting our kit, similar to the other OTC players that you outlined.
[Shareholder] (Private Investor): Got it. Just strategically, why would this product business fit within Thyrocare? I mean, if I take the group as a full example, why would it fit within Thyrocare and not part of the other set of API Holdings companies?
Rahul Guha: See, it is a fantastic lead gen funnel for Thyrocare, right? Just imagine someone turning positive for pregnancy after the Beta hCG does a lot of testing during her pregnancy, right? That is a fantastic lead gen for Thyrocare. Thyrocare is well-known as a brand for testing. Both of these, when you launch in the market, if I had launched under, let us say, PharmEasy or any of the other group entities, Ascent is a distributor, so it would be a relatively unknown brand in that category, right? When it comes to pregnancy kit testing or testing in general, Thyrocare is really known as a brand and a testing expert, right? So it obviously had a natural fit with the Thyrocare brand, and it is a wonderful lead gen funnel for Thyrocare.
Operator: Thank you. Participants, we will take the next question from the line of Yogesh from Haitong Securities. Please go ahead.
[Analyst] (Haitong Securities): Yeah. Thank you for the opportunity. My first question is on the franchise addition. Now that we have reached a base of 12,900 active franchise, where should we look at this franchise base stabilizing, let us say, over the next period of next two to three years? Whether 18,000 to 20,000, or what kind of figure do we aspire to achieve? Second is, with regards to our coverage, in your 2026 annual report, you have mentioned that there is around 5,500 PIN codes that you cover in India. I believe that is a roughly sizable coverage in India for any diagnostic franchise or any diagnostic player to have.
[Analyst] (Haitong Securities): So the newer additions that we are seeing of franchise, whether it is deeper penetration that we are having in the already covered area, or whether we are reaching out to other PIN codes, newer PIN codes, newer geographies, that is what is driving the growth for us.
Rahul Guha: Understood. Let me try to answer the question quickly. We expect to maintain the 1,500 to 2,000 additions every year. If you take a five-year outlook view, it is simple mathematics, we will be between 20,000 and 25,000 franchisees in five years. It is an ocean. I mean, in our estimates, there are roughly between 3 lakh to 4 lakh diagnostic centers in the country. We service, at this point, 12,000, and five years later, maybe 20,000 to 25,000. So it is still a long way to go before we say we have tapped out in terms of our ability to expand. On the other part, is it more in the where you are already present, or is it going to be more virgin territories? I can ask Rajdeep Panwar to expand on that strategy.
Rajdeep Panwar: Yeah, I think it will be mix of both, because deep penetration in the existing market is also one of the key, and definitely broadening the geographies is also another lever where we are working. So, definitely the existing manpower which has been deployed into the individual cities are also, they will keep on adding. This spread is not, I cannot say this will continue to specifically come from existing territories, but it will be blend of both. Your wish to answer you.
Operator: Thank you. Next question is from the line of Suji, Individual Investor. Please go ahead.
[Shareholder] (Private Investor): Hello. Am I audible?
Rahul Guha: Yes, Suji.
[Shareholder] (Private Investor): Yes. Good evening, Rahul, and everyone. Rahul, all the questions, sorry, all the questions I got the answer, but I have only three questions that is not related with the numbers. It is related with the shareholding pattern, API Holdings, and the interim dividend. I am interested in that, okay? I want to, please let me know the shareholding pattern. I am seeing a drastic difference from earlier when API Holding was 70, it was 71, between 70% to 75%, and now it has come down to somewhere 50. Will that shareholding, I mean, percentage will go down further? Second, whether this merger has happened or, as I am not aware of the news, that is what I am trying to know, whether API Holding has merged with Thyrocare? And the third question, last year, the interim dividend was paid.
[Shareholder] (Private Investor): Was it a one-off special dividend or, again, based on cash requirements, whether it will be going back to yearly dividend?
Rahul Guha: Yeah. Let me quickly answer all three questions. Firstly, there is no intent to go below 51%. Unless, yeah, there is no intent to go below 51%, and I do not see any reason that the group would need to go below 51%. That is the first answer. On the merger, there has been no merger until now. As I said earlier, we will discuss any of these options only when API Group turns profitable. On the dividend, yes, we had done an interim dividend. We will look at the cash flow position and then decide what is the final dividend that we will move forward, and this will be as per policy.
Operator: Thank you. Next question is from Manav Manisha from BSP. Please go ahead.
[Analyst] (BSP): Hi, thank you for this opportunity. I just wanted a clarification. In the franchisee additions for the H1, how many would have been branded and how many would have been unbranded?
Rahul Guha: I will ask Rajdeep to answer that.
Rajdeep Panwar: Out of this, 800 are pure branded centers. Rest all are unbranded.
[Analyst] (BSP): Fair enough. Just one more question. If we were to understand that for a mature franchisee, what kind of growth can one expect going forward, and how long does it take for a franchisee once it is entering our system to actually achieve maturity? I am sorry if you have answered this earlier.
Rahul Guha: Rajdeep, you can take this question.
Rajdeep Panwar: So see, as Rahul also has mentioned, the opportunity is immense. It also depends upon the kind of franchisee it is. So a franchisee can be as big as doing a revenue of INR 5 to 10 lakh a month and can also be a franchisee who is managing a revenue of INR 60,000 a month. To answer the first thing, the maturity for somebody to start making money is somewhere around INR 60,000 to INR 70,000 a month. When it comes to somebody managing a franchisee in a tier two or three city, there are lots of components which includes the real estate cost of that particular area, and definitely the people management cost also comes into play. When it comes to the opportunity size for an individual franchisee, it is huge. It can also depend upon the market this franchisee is serving or kind of network this franchisee has.
Rajdeep Panwar: So it is very difficult for me to actually let you understand how this model works, and the best option can be if you can take one franchisee, then I think you will learn a lot.
Operator: Thank you very much. We take the last question from [Nayana Sharon] from Unifi Capital. Please go ahead.
[Analyst] (Unifi Capital): Hello. Yeah. Is there any change in the revenue guidance for the near term, and what is the aspirational mix of the specialty and the consumer segment which we are entering, maybe in the near term or in the long term?
Rahul Guha: Okay. I will give the specialty mix. As I said, in a three to five-year horizon, specialty should be at least around 10% to 15% of our revenue, and we will hold to that. When it comes to the pregnancy kits and point-of-care devices, I mean, it has been 20 days since launch, so I think it is too early for me to commit anything. Let me see how the launch goes, how the sellout goes. I think I will give you guidance next year, next financial year on where we think the point-of-care category will go. I think give us these next two quarters to figure it out and execute. I think that is it. With regards to revenue guidance, I had said mid-teens to high teens. I think now, I think early 20s is a good estimate of where we think we will end the year.
Operator: Thank you. Ladies and gentlemen, we will take that as a last question. I will now hand the conference over to Rahul Guha for closing comments.
Rahul Guha: Okay. Thank you, everyone, for joining us and spending time with us this evening. As always, we continue to remain focused on our strategy, which is to be the most affordable, good-quality diagnostic testing partner for anyone in the healthcare business, and we continue to execute on that strategy. We have been investing in improving our quality, improving our reach, and ensuring our turnaround time is as close to best in class. We have made substantial progress on all of this, and that is what is driving the results that you see. I thank you all for your support in this journey, and I wish you all a good evening and happy Karva Chauth. Thank you.
Operator: Thank you very much. On behalf of Thyrocare Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
