it is the end of 2020 and we are highlighting stocks which have done well on a year-to-date basis one of them is thyroid care from the entire diagnostic space in 1995. a Visionary with a doctorate in Biochemistry dreamed of contributing to the healthcare sector by making Clinical Laboratory Testing a reliable reachable and affordable process for the masses India's first and largest fully automated state-of-the-art Diagnostics adopted Technologies Innovations automations and digital Evolutions much ahead of the curve we as an organization focused on biochemistry so well that this test from the floor can serve to entire countries hi everybody diabetes and thyroid have been two of the fastest growing diseases in the country according to the international diabetes Federation India had 77 million adults living with diabetes in 2019 and about 42 million people in India have thyroid related issues in fact India is known as the diabetes capital of the world and back in 1995 if you had to get your thyroid test done it would have cost you 500 rupees which is equivalent to 2 800 rupees in today's money now for a country where 90 percent of the people still earn less than 30 000 rupees in 2023 500 rupees in 1995 was a big big deal but you know what guys one man named Dr whalumani did something so revolutionary that he brought down the cost of thyroid test by 80 to just 100 rupees and with just 1.1 lakhs in savings this man built such a legendary company that today this company is worth more than 3 000 crores this company that I'm talking about is none other than thyro care Technologies and Dr whalmani turned thyrocare into such a legend that it went on to compete with a 6000 crore company like SRA Diagnostics and an 18 000 crore company like Dr lalpath labs and if you look at this chart when thyrocare went IPO Dr lalpath Labs ebitda margin stood at 28 srl Diagnostics stood at 18 whereas thyrocare stood at an ebitda margin of 47 now for any company with a revenue of 1000 crores 47 ebitda is a spectacular number the question is how did Dr wilmani manage to build a 3000 crore company with just 1.1 lakhs in savings how was he able to bring down the cost of thyroid test by 80 and still make a profit how did he manage to challenge the big boys like Dr Lal and srl and what are the business lessons that we need to learn from the iconic rise of thyroid Technologies people this case study is very complicated and at the end of this case today I'm going to give you a case study challenge so stay with me take notes and let's see who wins this challenge but before we move on let me quickly thank our knowledge partners of this episode and that is policy Bazaar people as we know unfortunately India holds the title of being the diabetes capital of the world and besides the increasing prevalence of lifestyle diseases medical inflation is also very high in India but even then many celebrated individuals still rely on corporate health insurance but in the event of a layoff or retirement people are left without personal health insurance and for businessmen corporate health insurance is not even an option so it is very crucial to have a health insurance plan that provides personalized coverage that is unaffected by employment status and the best time to obtain health insurance is when you're in good health because it has low premiums comprehensive coverage and no medical tests and even with pre-existing conditions like diabetes or hypertension tailored health insurance plans are available in policymbizaire.com policy Bazaar has a host of curated health insurance plans with up to 25 percent discount and you can get a health insurance plan of one crore rupees starting at just 390 rupees per month on top of that you can get tax benefits up to 75 000 rupees under Section 80 D and one of the best features I found is their 30 minute claim support service so if you encounter any challenge during the claim process at the hospital policy Bazaar Representatives will personally get in touch with you to resolve those challenges within 30 minutes they've sold around 2.64 crore policies and you have 51 Insurance Partners to choose from so don't compromise on your health and financial well-being and use the link in the description to get an exclusive health insurance plan with up to 25 discount offered by policympazaar.com and now on with the episode [Music] so as usual let's understand the diagnostic Market of India first 537 million adults today are living with diabetes diabetes kills one and a half million people every year India is the diabetes capital of the world we want every diabetic person's blood hba1c to be below seven percent is these pirate patients are actually chronic patients who keep coming for repeated rechecks of their thyroid function tests the diagnostic Market of India is majorly divided into two parts pathology tests and Radiology tests pathology tests include urine analysis molecular diagnosis and microbiology in simple words they are mostly tests using bodily fluids like blood urine Etc and in Radiology you have screenings like CT scan MRI X-ray ultrasound Etc and out of both these types doctor will money when cleverly chose to build his business only in the pathology test Market the question is why well if you look at the capital requirement and operation of pathology tests versus Radiology tests there is a big big difference in the Radiology business The Operators have to install dynastic equipments very close to the patient so if you want to get a test done for a patient in Pune you can't have the MRI machine in Mumbai but if you look at pathology tests you just need sample collection centers and from there onwards these samples can be sent to a central testing unit for analysis so Radiology tests cannot be centralized or be scaled up whereas pathology tests can be scaled up this is the reason why thyrocare focused specifically on pathology tests and in pathology also there are four sub segments but out of these four sub segments also Dr whalmani specifically chose biochemistry tests only again the question is why well this is because of two reasons firstly the blood samples for biochemistry testing remain stable over different temperatures and for long durations this made these samples very conducive for long distance transportation secondly biochemistry testing processes require the least human intervention and they had a huge scope of automation whereas other pathology tests required extensive human involvement that decrease the profit margins so firstly Dr velamini chose to build his business in the pathology test because of the scalability factor and the scope of automation this is the first Gap that he found in the market the second Gap that we found in the market was the gap of preventive test care services for those who don't know there are three approaches to healthcare the first approach is disease treatment in this approach we do the tests and buy medicines after we fall sick the second approach is preventive care approach in this approach you do your tests before you get the disease or when the disease is at an early stage this is where you get regular Health checkups thyroid tests and diabetic test done and the third approach is wellness and here's where you build such a healthy lifestyle that you minimize the chance of falling ill in the first place so to keep yourself healthy you will eat organic vegetables you will go to the gym and you will have supplements to live a healthy lifestyle now in the diagnostic Market Dr whalumani could have either built a business called disease tests or for preventive care tests but again he specifically chose to build his business in the preventive care segment why because Dr William knew that in the disease test Market people come to the lab only when they get the disease and even after coming once the patient recurs they will never come back again so the transaction is a one-time thing but when it comes to preventive care tests like diabetes or thyroid the patient visits the test center very very regularly for example if there is Mr Patel who's a diabetic and Mr Raj who has malaria Mr Raj would get a one-time malaria test done which would cost him 870 rupees and after that Mr Raj would not get any further test done so the order value of Mr Raj is just 870 rupees and that too non-recurring but a diabetic like Mr Patel would undergo comprehensive diabetes test once in every three months and this would cost him an average of 1000 rupees per visit and what we have noticed is that diabetic patients are more likely to get regular test done for their family also for example Mr Patel would arrange an annual routine Health test for his wife and his adult child also which will again cost him another 1000 rupees each so this adds another 2000 Rupees to the order value so the total expenditure from Mr Patel's family at thyrocare is 6 000 rupees now if you look at it from the business perspective by tapping on to people like Mr Patel thyrocare achieves three incredible advantages so while for Mr Raj it was just 870 rupees that to non-recurring for Mr Patel it was 4000 rupees per year number two with diabetic patients once you establish trust you do not have to spend money on customer acquisition so after the first time the customer will by default not switch his Testing Lab this means if the customer lives for 20 years thyrocare gets a customer lifetime value of 80 000 rupees and lastly it gives the company predictability of steady cash so in case of malaria the lab might get 20 000 patients this year and next year they might get only 10 000 patients but with diabetes and thyroid if they get 20 000 patients this year they can safely assume that they'll get another 10 000 patients next year this way they can buy chemicals in bulk they can have strong cash flow on the balance sheet and eventually expand their business very very calculatively so this is how thyrocare chose its target market as preventive test care Market in the pathology space and Define the company's service offering as biochemistry test for disorders now the question over here is if Dr William could understand this so did other competitors in the market right then what did thyrocal do special to beat its competition well the first thing he did was build a hub and spoke model so as we saw biochemistry test samples could remain stable for a long time and could be transported over a long distance so what Dr wilmani did was that he established a network such that he had multiple test collection centers but a single test lab for example let's say there are five hospitals in Mumbai a b c d and e so what a conventional Tesla would do is they would have their Lab close to one hospital and collect the samples in that particular lab and conduct the test in the same lab itself but with thyrocare they had one lab near Hospital e and alongside other hospitals they had only collection centers so while the conventional lab collected 100 samples from just Center a thyrocare centers collected 100 samples from Center a b c and d and all these samples got transported to e which again had its own 100 samples here's where the test was conducted and the report was sent to the patients to be collected at their respective centers so the center near Hospital e acted as a hub for the samples collected from a b c and d centers this way they could receive and process way more samples than the normal Center and they made a lot more money this is how Dr William established the foundation for thyrocare using the Hub and spoke model and this gave thyrocare three advantages number one since e was the Hub only Center e needed to have advanced equipments for testing and all other centers that is a b c and d they were just collection centers with just basic pieces of equipments like refrigerators and centrifuge secondly because they could collect way more samples as compared to a conventional lab they could buy the chemicals in bulk which further increase their margins and you know what guys after a certain point hurricane achieved such economies of skill and lowered the cost of tests so much that While others were offering thyroid tests at 500 rupees thyrocare was able to offer it at just 100 rupees and lastly because they made a lot of money thyrocare became a cash rich company that could get better and better recruitment that could process samples faster and at a cheaper rate so this helped the company become technologically Superior as compared to other labs this is how Dr willamini was able to get way ahead of the unorganized and conventional diagnostic Centers now the question is it's not like only Dr William knew about the Hub and spoke model right there were other computers like Dr lalpa labs in srl2 and today while Dr lalpa Labs is valued at 18 000 crores srl today is valid at 6 000 crores but like we saw in this chart as of 2016 while Dr lalbagh Labs achieved an ebitda of 28 Metropolis stood at 29 and srl stood at just 18 whereas thyrocare stood at an incredible ebitda margin of 47 the question is in spite of being in the same business how on Earth did thyrocher achieve such an extraordinary profit margin well firstly the market of diagnostic testing was very very large and it still has place for many other players to coexist so thyrocare lalpath labs and srl could co-exist without hindering each other secondly thyrocare was very very selective about its test services so the industry Norm was to carry out all kinds of tests and offer the customers anything and everything so while srl and Dr Lal offered almost 3500 tests thyrocare only offered 200 tests and for the rest of the test they simply outsourced it to other companies and all other centers that is a b c and d they were just collection centers with just basic piece of equipments like refrigerators and centrifuge so now the question over here is why did thyroid offer only 200 tests while its competitors were offering 3500 tests well that is because again Dr willmani only wanted those tests that had high customer lifetime value scalability and most importantly the tests needed to have a scope of automation so by choosing the skill scalable and high profit tests thyrocare could always enjoy High profit margins on the balance sheet and at the same time they could save a ton of money by not investing money to the equipments for 3500 tests and thirdly if you look at the Hub and spoke model of thyrocare versus its competitors you will very clearly see a big big difference so here's what thyrocad's competitors model looked like they had collection centers just like thyrocare these collection centers then sent samples to two types of hubs which were satellite Labs or Regional Labs each of these Labs had Advanced Equipment and capabilities so depending on the complexity of the test the collection centers could choose the Hub so if you look at Dr lalpa Labs as of 2017-18 because they offered 3500 tests they had 1074 collection centers and had to have 189 Regional Labs whereas srl had 1100 collection centers and had to have 350 Regional Labs both these companies did not have a National Lab at all and this means what both Dr lalba labs and srl had to have 189 and 350 heavily equipped labs and this also means heavy investment into both equipment and the stuff but if you look at thyro gear they had six Regional processing Labs 1200 collection centers and one very very massive central processing lab so although Dr lalpath labs and srl were bigger companies thyrocare stuck with water did best and achieved very high ebitda margins and this is why ladies and gentlemen thyrocare hit a home run against its competitors the central processing laboratory of Hyrule care in Navi Mumbai is India's first fully automated clinical chemistry laboratory we had a laboratory single laboratory today we have a five more Regional Laboratories India's first largest fully automated state-of-the-art diagnostic slack the Pioneer in bringing several world-class Technologies to the Diagnostics industry in India husted by doctors across the country we continue to make Healthcare affordable and accessible for India turns out this Central lab is a super lab that is completely automated it can perform tests 24 hours a day and 7 days a week and more importantly it has a massive capacity of conducting 1.2 lakh tests a day 3.6 million tests every month and more than 40 million tests every year and the samples collected from all across the country flew all the way to Navi Mumbai to get the test done this is how complicated the logistics of thyrocare was and they optimize their Logistics so well that their air transportation cost was just 5 rupees per sample Yes you heard that right their air transportation cost for the same day was just 5 rupees per sample and you know what I actually tried finding every resource that I could read but I have no idea how they managed to crack this kind of logistics cost so again because of this focused offering central processing model and the logistics model thyrocare again got three major superpower over its competitors number one thyrocare achieved such economies of scale that according to the CFA Institute paper of 2016 hierarchair was able to procure its consumables at 20 cheaper cost than that of Dr lalpa Labs now if you look at this table the cost of consumables alone accounts for 26 percent of the total revenue so a 20 discount on this expense is a big big deal secondly since thyrocare only had collection centers and very few Labs their capital expenditure and employee cost decreased by a large extent and thirdly due to both reduced capex as well as increased margins while other players gave 25 to 30 commission to their franchise owners thyrocare was able to give us 60 commission to its franchise owners as a result their franchise had a better incentive to do a great job these are some of the most important reasons why taraker was able to make a healthy ebitda margin as compared to its competitors this is how by finding the right Gap in the market by using the Hub and spoke model and then the central processing model thyrocare went out to become a legendary company under Dr Whaler manisa's leadership till 2016 and 17 and this brings us to the last part of the episode and that are the business lessons that we need to learn from the iconic rise of thyrocare Technologies lesson number one always choose your Gap in the market very very carefully in this case although there were several gaps both in pathology and Radiology markets Dr wilmani specifically chose pathology and although pathology had multiple segments he specifically chose biochemistry why because he had the foresight of both scalability and viability of these gaps lesson number two guy Kawasaki once said that Innovation always happens in the next curve in this case while all of the labs were operating as a standalone Lab Dr wellmani built the Hub and spoke model while all his competitors followed the Hub and spoke model he took it one step ahead and built the central processing model and this is what gave him the Delta to stand out and lastly always remember people more products do not always mean more profits so learn to choose your offerings very very carefully in this case Wireless competitors offered 3 000 tests and 3500 tests Dr velimony just stuck with 200 tests this is the reason why he was able to keep the prices though his operations lean and most importantly he was able to maintain a very healthy profit margin and this meant more money for the employees more money for the shareholders and better pricing for the customers this is the story of thyrocare and Before We Say Goodbye here's a small challenge for you guys now that you've understood the entire history of thyrocare I want you to summarize the learnings of this case study into an Instagram reel so all you have to do is encapsulate whatever you've learned from this case study put it into 90 seconds and tag think school in the real the best reel that I find I will share it both from my YouTube handle and from my Instagram handle so let's see what you guys have got that's all from my side for today guys if you learned something I will please make sure to the like button in order to make YouTube ever happy and for more such insightful business and political case studies please subscribe to our Channel thank you so much for watching I will see you in the next one bye bye and don't forget to check out policybazer.com from the link in the description [Music] ha ha [Music] ha ha ha [Music]