Hello, We read 100s of reports (annual reports, credit rating reports, presentations, concalls) in a year and make notes for our reference. We post such notes for the benefit of the readers of our website. The purpose of reading and analyzing so many stocks is to have a bigger watch-list and come out with few good stock recommendations for our premium members. However, do keep in mind, such notes are mostly cut, copy and paste and are in no way a research report or a recommendation on the stock. Here are some interesting details about the company from the con-calls: Vimta Q2 FY 22 concall
  1. We have multiple business verticals. We are into food testing, we are into pharmaceutical testing right from preclinical research to clinical research, and we support testing services for small molecules and large molecules so we are into biopharmaceutical analytical services as well. We do environmental impact assessments, we do clinical diagnostics and now we are on the verge of starting electrical and electronics product testing
  2. Market positioning - On the pharma side analytical especially we are the leader in the market, all the U.S. Oriented business we work with practically everybody who is in that market. Market share wise we have honestly not done any specific estimation, but if I were to take a good guess then I will say that US oriented Services we probably have the lion’s share. We have good number of competition in Hyderabad, in Mumbai and Ahmedabad, but I think we take the lion’s share there
  3. Coming to clinical research and preclinical again preclinical we are one of the premier research centers, one of the preferred ones in the country because of our strong regulatory track record. We have strong competition from one multinational and then half a dozen local players. Pharma side we could be enjoying the share of maybe 10% to 15% so that would be my guess
  4. Clinical research, bioavailability, bioequivalent market is a big one with many players. I think there must be at least around 100 or 150 service providers so market share there might not be very big for us but we are one of the premium laboratories. We work with highly quality conscious organizations and most of our business comes from overseas for these services
  5. Coming to food, it is highly fragmented. There are hundreds of NABL accredited labs, small mom-and-pop type of setups as well, so given the number of players I think if you just divide among the top maybe 8 to 10 players then I think we have a good share there may be 10%
  6. Environment - we are a leader, there also you have good number of laboratories, but the revenues are pretty small.
  7. Coming to diagnostics we are not big at all there, there are very big companies there, so our market share might not even be worth mentioning at this point of time.
  8. The second quarter’s consolidated revenue from operations grew by 9.6% over the corresponding quarter of last year at Rs.650 million.
  9. here was a notification issued by the government reducing the eligible rate of export incentive by 2%. We have been accruing export incentive under service export incentive scheme as and when they accrue. The company had accrued export incentive on its net foreign earnings for the previous financial years and therefore there was a need for us to reverse an amount of Rs.12.2 million for the quarter ended September 2021 to the extent we accrued at higher rates than the current notification
  10. Margins - Margins did improve because, whenever there is incremental revenue there is better economies of scale
  11. We want to maintain it and in fact try and better it.
  12. FSSAI PPP - we have entered into a public private partnership with Food Safety and Standards Authority of India to set up and operate the National Food Laboratory at JNPT Navi Mumbai. It is a 25-year contract; the purpose of the laboratory is to test all the food imports into the country through that region, that is for basically the quality and safety of the imported items. We have finished the infrastructure work. The lab will start commercial operations early Q4 after we obtain NABL accreditation
  13. The site was provided by them, of course it was an old hostel building that we got so hawse had to do a lot of modification, we put our equipment, our people and then at the end of 25 years if we not able to renew the contract then we transfer it on an as is basis
  14. During the half year ended September 2021 the company entered into 25-year PPP agreement with Food Safety and Standards Authority of India to set up, operate and transport National Food Lab. As a result, the company has received the right to charge the customer for the services to be rendered during the contractual period of 25 years on commencement of operations. Accordingly, an amount of Rs.104 million has been recognized as revenue from operations relating to lab set up services and a corresponding cost of Rs.104 million incurred to set up the lab has been recognized as cost of lab setup for the quarter and half year ended September 2021. The aforesaid treatment is very much in line with the Indian accounting standards
  15. We have spent about close to Rs.10 Crores in the setup of this lab. What we have done is, to speed up the project we have internally mobilized some excess capacity that we had at all our different locations so actual asset cost if you put new stuff would have gone up to maybe Rs.20 Crores but because this was an internal mobilization the investment stands at Rs.10 Crores
  16. The revenue is entirely dependent on the number of samples that we test in the National Food Laboratory. Like I was saying earlier this is to mainly cater to the imports, the imports although they are not growing at any double-digit number but still they are quite stable
  17. We can use this facility for other clients
  18. Pharma - The animal imports problem has been resolved. We have been able to actually double our kennel capacity; we have one of the biggest large animal capacities in the country now, so that is resolved.
  19. We are actually at present not doing any clinical trial. What we do is bioavailability and bioequivalent studies so right now we do not have any trials going on for us
  20. Current bed number is around 180 to 200. Number of beds we might be in the top 10 definitely and yes we do have thoughts about expanding it not necessarily in the state of Telangana, but maybe we look towards the North, then we do that
  21. The capex in these studies there are two half’s of the service; one is clinical part and other is bioanalytical. Clinical part does not need a lot of investment, bioanalytical - it depends on how many mass specs you wish to deploy
  22. Just on the bioanalytical side if we have to build equal number of instruments then it might cost about Rs.10 Crores to Rs.13 Crores
  23. Diagnostic -It is very similar to the peer group you mentioned Thyrocare so it is quite similar to that
  24. It is predominantly B2B business., What we have in Hyderabad is the main reference laboratory. Ones that we set up in Delhi and Kolkata are mini versions of this but they are having a good size of menu at these two locations. They have biochemistry, microbiology and molecular biology, everything. Now our collection centers are 40, but we have a lot of franchisee network so we get samples from clinicians who work with our franchisees so the number of franchisees that work with us is in higher numbers close to 500-600 plus
  25. During Q2 we also inaugurated our diagnostic regional lab in Delhi. In Q1 we had inaugurated a regional diagnostic lab in Kolkata.
  26. This is the first time actually we significantly expanded footprint in a B2C market because in addition to putting up two regional labs we have also set up a few customer collection centers - company operated collection centers, so for us again this is a water testing year
  27. In Q2 there are no COVID cases, in fact the numbers are really low across the country. There is no impact of COVID in Q2
  28. Electronics and electrical products testing division - we have finally received all the equipment’s and essential accessories. We are performing trial testing and also preparing for NABL accreditation, which we expect to receive in Q4.
  29. Manpower - For us the total strength is about 1300 and our scientific population is 70% of that number
  30. CAPEX - We plan capex on an annual basis, this year we have spent about 12 Crores and we might spend an equal amount in the second half
  31. typically we tend to use up all the depreciation amount
  32. CWIP - This largely represents our E&E vertical what we call as electronics and electrical division, which is yet to get commercialized. We are expecting this to be commercialized in the fag end of the quarter or early Q4. We are in the last leg of getting accreditations, qualifying assets. The entire amount of 25 Crores belongs to E&E vertical
  33. Target - I keep mentioning in these calls that we have a target for 2025 to be at least Rs.550 Crores to Rs.600 Crores company
  34. 100 crore threshold for business segments - Food. I think food should go first, followed by Diagnostics
Vimta Labs Q4 FY 21 concall
  1. Management - The Company’s founder is Dr. S.P. Vasireddi. He was running the organization up to 2018 since its inception later he took on a Non-Executive role so he is our Non-Executive Chairman now. The Co-Founder Mr. Harriman who started the company is still part of the management. I have been with the company for now almost 23 years and I have been the director since 2002 so mine is also a long tenure here. We do have a young person joining the board recently, Mr. Sreenivas Neerukonda. He has been with the company for 12 years now and he leads our Business Development efforts across the globe for all the divisions
  2. Business units heads - Typically for all our business units, the head is a technocommercial expert more technical and less commercial if we have to choose between both of them. So yes, we have recruited the right people at the top and the team is also getting built up now and traditionally this is a scientific organization and we have mostly scientists on board. We do have some engineers but they are called environmental engineers who do those kind of projects, so here for the first time company is hiring electronic engineers so that is the kind of expertise that is needed for managing our E&E business and we do have plans to build the team as we go forward.
  3. Segments - 60% ballpark is business that we do with the Pharma industry. The rest is within Diagnostics, Food and our environmental business as of now
  4. Pharma has been steadily growing and that will continue. Food and Diagnostics, we have put some extra thrust. Food from the last four, five years we are doing that and now Diagnostics, we have decided to step up and expand our operations so that is where we think the growth will come in the future from and then we have electronics and electrical
  5. On the operations side, all our service verticals have been performing steadily, which lays a good path forward to meet our short-term and long-term growth objectives of the company.
  6. We are continuing to invest in manpower and with the new capabilities to strengthen our service portfolio to our customers.
  7. Diagnostics - we have taken up Hyderabad as the first city where we will consider expanding into a B2C business model so to continue with that strategy we have established three patient service centers two more are coming up in the next four weeks we also have regional labs that are in the process of being set up Kolkata and Delhi. These will be set up and be operational before end of Q1
  8. we also have plans of setting up another five patient service centers in other cities and one branch laboratory in Telangana state
  9. we have also already significantly invested in expanding our sales team so we have strengthened the number of people in and around the areas where we are expanding which are mostly Delhi, Kolkata and the southern states of Telangana and Andhra Pradesh
  10. These are regional reference laboratories that means they will be slightly bigger in scope when compared to branch laboratories which do just the basic tests but we have a central reference laboratory which is Hyderabad, where we have a full scope of tests so this is something in between. It is main lab for that region.
  11. We do have franchisee centers already across the nation. Now we have started with company owned centers so we will be slowly adding those
  12. In the diagnostic business, the organised sector is very small, maybe about 15% only and the major players have only about 4% of the business even in this organized sector. There is huge potential for companies like Vimta to actually gain from that trend
  13. Avg. no of tests per day in diagnostics - We do about 3000 to 3500 samples every day. 
  14. Electronics and Electrical testing - our new services for electronics and electrical products have been running a little behind schedule because most of the equipment were imported and coming from Europe so there were delays in receipt of the equipment but now most of the equipment was received; however, qualification delays are there from vendors’ side which is pushing the commercialization of operations by another month. Before end of Q1 we should be able to start accepting samples from customers.
  15. we are thinking maybe by June mid or end June we will be able to start commercialization and we do have aggressive targets for a maiden year
  16. we expect that in the future years the industry could significantly grow not only because of the make in India push, but also because the huge influx of R&D setups that are being put up in India by MNCs in other countries. You see the possibility of a good growth in the E&E testing segment
  17. you have lot of these MNCs that have come to India to setup their R&D operations, so when they are developing new prototypes of products, they typically have to put their products through electronic EMIEMC testing. So that is the capability that we have built now at Vimta.
  18. So all these companies are big ones, they may have some sort of EMI-EMC capability within their organization but there are many who do not have this kind of capability, so they typically tend to outsource and you also have a lot of components that go into your defense items, military items, aerospace, many items, you have telecom products, you have Internet of things, products related to IoTs, there are Wi-Fi products so practically everything is digital and electronic these days and there are medical devices which are now under DCGI, so all these products during the development and also if they are regulated, they will need testing for safety, for their environmental stability and also their EMI-EMC so we are offering these services now with the setup of the EMI-EMC chamber at Vimta
  19. We are making an investment of about Rs.70 Crores to 80 Crores in electronics, the first phase of investment will complete in Q1 which is around Rs. 20 Crores – Rs. 25 Crores. Rs. 75 Crores is a plan for the next five years.
  20. We expect revenue potential of 1:1 after three years 
  21. Clinical trials - We do have a few projects on hand but the customers have currently withheld in moving ahead with the projects so that is where the status is. 
  22. Clinical trials globally is a multibillion dollar industry and India also has a decent portion of that business, most of the business is in the hands of directly the Pharma companies otherwise it is in the hands of some of those multinational CROs so the potential is very, very huge
  23. We are just beginning. So I think our maiden projects are yet to take off so we will know more as we execute them then we will understand what is our appetite for that business
  24. Food testing - Food, you are right I did mention that it has huge potential and just the testing revenue wise for a laboratory, Food definitely has more potential than Pharma even today but it is a highly fragmented market. There are hundreds of Food testing labs and most of this business is regulator driven and because of the pandemic the regulator has allowed people to skip the biannual tests that are normally required on each and every product so that concession is still continuing in this year as well. So we are expecting that FSSAI might lift the concession and from there on we expect the revenues to again flow in
  25. The Food processing industry is growing quite healthily. The exports and imports market although there is not growth in double-digit numbers it still is a very huge component of the Food industry like for example the shrimp business, the exports from India and you have many other agri products that gets exported so a lot of testing is done to meet the importing countries regulations, so the imports and exports will always continuously drive this business and this is not just by volumes. Maybe year on year, the countries are finding better technologies to detect contaminants at the lower levels, so as and when those specifications change then that also creates more opportunities for labs that are high tech 
  26. Food testing could be in the ballpark range of Rs.5000 Crores to Rs.6000 Crores
  27. Some of the biggest players and of course we are one of them, you have SGS, you have TUV SUD, you have Eurofins, you have locally in Hyderabad… we have competitors like FirstSource, there is Reliable LaB, Envirocare these are all second tiers but the big ones are all mostly multinationals and we are the only Indian origin company that is in that league
  28. Margins - we expect that our EBITDAs will get better
  29. CAPEX - The major portion goes to our Pharma vertical that being the major chunk. We have added about Rs.19 Crores of capex during the full year. Almost 60% to 70% of our capex addition goes to analytical and Pharma
  30. Diagnostics is not very capex intensive and the Food we have already made our investments during the past few years, so there will be minor investments proportionately to our business mix
  31. Current infra capabilities (as mentioned by analyst) - with the current infrastructure, the company can achieve revenue of Rs.300 Crores plus and an EBITDA margin of 30% plus
  32. Long term growth guidance - We have made plans to grow at least an average of 15% to 20% level year-on-year during the next five to six years so some years could be high, some years could be less than that number so that is a ballpark number
  Disclosure: This is neither a research report or a recommendation on the stock. I don’t have any investment in the stock.
  Best Regards, Ekansh Mittal Research Analyst  

Research Analyst Details

Name: Ekansh Mittal     Email Id: [email protected]    Ph: +91 727 5050062

Analyst ownership of the stock: No

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