- Thyrocare's cost is Rs 3,500 and reinvests the Rs 1,000 profit to ramp up capacity
- Volumes hold the key - every time volumes double, raw material costs fall 10 per cent
- Has gone up from 100 tests a day to 500 tests a day in 10 days
- Intends to get to 1,000 tests a day by April 30
- USP in operational efficiency and business model that banks on volumes
Contrary to private testing laboratories' argument that the government-fixed price of Rs 4,500 for a coronavirus test is a no-profit operation, hence, a CSR activity, Mumbai-based private testing lab Thyrocare says it makes a profit of Rs 1000 per test.
Dr A Velumani, chairman, CEO and MD of Thyrocare Technologies says, it is profitable at this price. Thyrocare's cost per test stands at Rs 3,500 per test - a net profit of Rs 1,000 per test.
Thyrocare has 10 laboratories in 10 largest cities, including one accredited to National Accreditation Board for Testing and Calibration Laboratories (NABL) in Mumbai, where it has already expanded the testing infrastructure and is working on adding more capacity elsewhere.
Velumani had two options, either to keep the profit or to reduce the price per test to Rs 3,500. "I chose to do neither. I do not account this as profit and have instead been investing whatever additional amount I make per test into building my infrastructure to conduct more tests. I have invested in mobile vans, hired drivers and got more technicians to collect the samples. This has helped me get more samples and because my technicians sit inside the van and the patient comes to the van to give the sample, they do not need to change the PPE (personal protective equipment) after every sample collection." This helps save costs further.
He says, the mantra to his ability to turn the Rs 4,500 a test into a viable and profitable exercise was his dependence on volumes. He has ramped up testing from 100 tests a day to about 500 a day in a matter of 10 days. By April 30, Thyrocare will be able to raise this to 1,000 tests per day in the same premises. He uses Siemens kits and says has enough stock inventory to last for another 15 days. As a mathematician, he has his math clear: "every time volumes double, you reduce the raw material costs by 10 per cent." He today has a dedicated team whose only job is not testing but to help him draw up the roadmap of getting to 10,000 tests a day. "It is possible and you have to keep investing in adding capacity and that is what I am working on simultaneously so that when volumes increase I have my capacity ready." He has 5,000 sq ft capacity today and if there are 10 facility across 2 lakh sq ft space then it is possible to do 10,000 samples, he says.
So, why do private laboratories complain that it is an operation at cost and is more of a corporate social responsibility (CSR) activity for them at Rs 4,500 a test? Velumani says, it all boils down to "what makes Air India and Indigo airlines different. It is all operational efficiency. I was a research scientist when I got into this business. I am not a pathologist, I am a mathematician and I approached the business from a different angle and established this business in the last 25 years." He says, "if we spend 10 per cent on HR cost, my competition spends 24 per cent. Volumes give you power, efficiency, get you to invest in automation. Volumes also give you purchase power, people power, pricing power." He sees himself as a man from a village who did not go to a business school and yet has been able to build a team of 1,800 people and become a listed entity on the National Stock Exchange (NSE).
He says, he has a different business model than others in the industry. "I am a national player and present in every nook and corner of the country while most of my competitors are in high networth areas in major cities. While they operate on a 'own and operate model' , I have a 'lease and operate model', says Velumani.