Do not have reason to worry about competition till 2025: A Velumani

In an interview with ET Now, A Velumani, Thyrocare, shares his business views. Edited excerpts:

ET Now: Who would have thought that you would get such a stunning and a breathtaking response?

A Velumani: I think I got much-much than beyond whatever I dreamt.

ET Now: I have been told that you started off with renting a machine, from there you have built a company like this and your growth rate has been astounding in the past few years. Maybe you cannot talk numbers right now but can you share your vision about what Thyrocare, a company could be like over the course of the next few years?

A Velumani: I started this business with no great expectation. I probably wanted to become a decent, well, self-employed scientist. I think that was the dream. I had invested two lakh rupees in this business and I remained very focussed. In Hindi people tell 'lage raho' and I think the market had appreciated the way in which I did things.

My aim was not to do a frontend, my aim was to do a backend. Thyroid desperately needed someone who will run a backend kitchen and exactly I understood the need and I think that has been an opportunity.

ET Now: While it is great going for you in terms of the IPO subscription but there is lot of competition as well that you have in related space. How do you plan to beat competition?

A Velumani: I believe there is truly no competition in Indian health care industry. It is only minuscule, that too presumed, assumed competition. The market is so big in a billion population, 10 such Thryrocares can comfortable smile and do business.

I have a reason to believe that the competition today is not between four or five organised players. It is between the organised and unorganised. Organised is hardly 15% of the industry, 85% is unorganised. I do not have a reason to worry about a competition till 2025.

ET Now: How many tests per day are you conducting right now and by 2020 how much are you targeting?

A Velumani: CAGR for a number of samples, number of tests, turnover and number of employees, PAT, EBITDA all have been 25% year-over-year for the last five years.

ET Now: So a CAGR 25%, rule of 72, divide 72 by 25 which means in two and a half years you will double?

A Velumani: Absolutely.

ET Now: On a large base?

A Velumani: I must tell you the doubling could be an understatement, but let me agree with you right now.

ET Now: How much innovation can you do in this business?

A Velumani: I do not think in this business I did any innovation, nor anyone in these last 30 years have done any innovation. It is nothing but consolidation, focus, build up and create a good balance sheet.

ET Now: Are you saying that growth will not necessarily come at the cost of EBITDA, but you will consciously reduce your EBITDA in order to get growth?

A Velumani: There are few growth drivers; number one India is a young country so in youth there is no health care need so currently the industry is highly dwarfed so by year 2025 you would have a three times, four times bigger market size because of the age factor.

The next one is that Indian per capita income is growing and first people buy a car, then they buy a house and then they are wondering how long will I live to enjoy my life and they have to go for a preventive testing.

So that business is yet to come to size and with competition for the last 10 years the prices of diagnostic tests have been going down and down so the affordability is improving. So if you look at it there are many factors will add 2%-2% to the growth other than the normal growth which is because of the population and the business.

ET Now: So why would EBITDA margins go down?

A Velumani: EBITDA margins will go down because, yes, you also said in the long run everyone would copy successful models and all models will come under some pricing pressure so if it is challenged you have some comfort to sacrifice.

And let me tell you last two and a half years back I tried to reduce my EBITDA but I have got an increased profit.

ET Now: You do not have any debt on your books, do you?

A Velumani: Company for the last 20 years has never borrowed.

ET Now: So what will you do eventually with all the money that you raise?

A Velumani: Oh, this money is raised not into the company it is raised for the outgoing investors.

ET Now: What you are doing is not rocket science?

A Velumani: Absolute, simple, straightforward philosophy.

ET Now: If a corporate house decides that, look, I want to copy what Thyrocare is doing and here is my Rs 500 crore, are you not worried about that?

A Velumani: Rs 500 crore will not do anything here, a billion is needed. And if he does a billion he will be one among the four, he will be the fifth.

ET Now: But you started with two lakhs?

A Velumani: I think today you cannot do what was done 20 years back. I had the comfort of pricing, market was open, no one understood in health care industry what is a balance sheet, so I did a journey.

I think today without a billion a man cannot imagine to be in the top four. Without this volume this rate is not possible. So in fact there is a checkmate.

ET Now: Are we to assume that your profit growth will lag your sales growth ever so slightly because your EBITDA margins will come off?

A Velumani: I think we have maintained a 42% plus or minus 2% EBITDA margin for 10 long years, I do not think there could be truly a concern there.

ET Now: No, no concern there but you yourself said that you will reduce your EBITDA margin?

A Velumani: If growth is there why will I reduce, it will be only when growth is challenged that should be sacrificed.

ET Now: So the focus is on increasing the volumes?

A Velumani: I think the industry grows 15%, plus or minus 2%. The organised players grow 205 plus or minus 3% and the top 25 guys grow 30% plus or minus 5%. And if I am not around that zone that means something is wrong with me, I need to then look at the strategy and pricing.

ET Now: So then till 2020 do you believe your EBITDA margins could well stay in this healthy trend of northwards of 35%?

A Velumani: I would say last years were supposed to be continued for at least next five years.

ET Now: But you will not change your business model, you are committed to that, you will not be tempted to set up a frontend, Thyrocare is the backend kitchen and it will remain like that irrespective of your size?

A Velumani: I have been telling in the entrepreneurial motivation lectures there are only two kinds of people; one who has succeeded, other could not focus.

ET Now: So your focus is to remain the backend?

A Velumani: So mine is very much as a backend and run this business for the 1,00,000 laboratories in the country I want to be their kitchen.

ET Now: What about the wage cost, as you grow higher...

A Velumani: In my balance sheet my employee cost is single digit.

ET Now: Can that go higher?

A Velumani: It has not gone higher for ten years but I should allow it to go high. I should intelligently increase it so that the growth is not compromised.

ET Now: We know the subscription levels which means demand is more supply is less, a lot of people who want to genuinely buy your stock not for the IPO pop, they have not got because the size was small, what should they do now?

A Velumani: It is very difficult for me to tell because the company is not needing funds, so I do not have any ideas to go for any-- once again an opportunity. I think if I love you I can give you my share but that also I have to do it on the exchange, I cannot do it offline.

ET Now: You do not foresee Thyrocare coming to the equity markets after this listing for the next two, three years at least?

A Velumani: I think for the last 10 years the balance sheet had at least Rs 50 to Rs 80 crores of cash, I think this trend also will not change. Once I exhaust all my cash I am entitled for at least a RS 500-Rs 1,000 crore debt and I do not think knocking on the second back the capital market is anywhere planned, it should be well managed with internal accruals.