Dear Shareholders,

I hope that all of you with your families are safe and keeping well. It gives me immense pleasure to present to you our Annual Report for the financial year 2022-23.

During 2022-23, the geopolitical crisis triggered by the war in Ukraine impacted the global supply chain and subsequently led to a rise in inflation. Although persistent inflation had a negative impact on the global growth prospects, India’s economy demonstrated relative resilience. This is primarily due to the country’s prudent fiscal and monetary policies, proactive vaccination efforts, and consistent government capital expenditure. Despite facing global challenges, India continues to be one of the world’s fastest-growing economies.

Growth amidst intense competition

The financial year 2022-23 was perceived to be the most disruptive period for the diagnostic sector in the last two decades. Covid brought with it certain consumer changes like increasing health awareness among people and the adoption of digital technologies. At the same time, many new competitors entered the industry backed with large capital believing that industry dynamics were ripe for change. Some of these competitors have developed digital apps and positioned themselves as asset light players capable of providing home services for wellness health checks as an alternative to the traditional brick and mortar industry primarily focused on illness. By deploying low prices and big marketing budgets to acquire customers, the assumption was that once consumers are acquired for wellness testing, they would get so hooked to the experience, that they would then migrate for illness testing services as well. With volumes, would come economies of scale. They also positioned that the next wave of healthcare would be an integrated platform for e-pharmacy, e-diagnostics and tele consultation, and consumers would then be totally captive primarily taking market share from traditional hospitals, diagnostic centers, and retail pharmacies. While a few of these companies have survived and have acquired some consumers for wellness testing services, we have neither seen them be able to build significant scale in wellness, neither have they been able to convert consumers from wellness to illness testing as they don’t enjoy the trust of doctors and the integrated platform has not been successful for any firm so far as the engagement with consumers is primarily transactional and the conversions between e-pharmacy to e- diagnostics etc., have been quite low. The digital channel has primarily become an additional channel that brands can use to provide a different engagement preferred by some customers. However, this has not proven to be a large channel for new consumer acquisition. The business built by the digital competitors and new brick and mortar competitors have largely been in the tail of healthcare where brand and service matter less and price and discounts matter more. Therefore, leading incumbent players in the hospital space, diagnostics space and pharmacy space have only grown as their original businesses were not built on price and discount but quality and service.

At Metropolis, we have always built our business on the back of generating demand for B2C via specialist doctors who care about quality and large test menu and service, and B2B from the best quality customers who care for quality of report and consistency of service, and through this period of chaos, we stayed focused on providing excellent customer experience, and offering premium wellness packages with utmost quality, accurate results and faster turnaround times and continuously bringing out new innovative tests that keeps us relevant and differentiated in the doctors mind. While others played on low prices, we were able to keep our routine test prices constant and increase our specialized testing prices by strengthening the brand and product of the company.

Reported revenues declined for the industry due to the pandemic ending and Indian customers moving to Rapid testing rather than PCR. This impact profitability as well due to an increase in labour costs and overheads. But since this happened at the same time as new competitors entering the market, there was confusion over the cause of revenues and profits dropping. Over the past 18 to 24 months, the industry trends point to a decline in growth for unorganized players and the organized industry, including new players, growing faster. This shift can be attributed to consumers gravitating towards larger brands that offer enhanced customer experience including digital experience. As a result, unorganized players in the market have faced challenges and have not been able to either increase prices or volume compared to pre covid. Furthermore, due to the absence of a regulatory environment that benchmarks or validates labs, there is an assumption among consumers that the 2000 labs government approved for Covid PCR tests are the more advanced ones compared to the 300,000 labs in the unorganized sector. Consequently, they are migrating to these 2,000 labs which will propel the organized sector on the path of growth in the long run.

As new brick and mortar players came in, some from hospital, pharmacy, and pharma backgrounds and some from non-health care, the industry experienced some pricing pressure, specifically for companies relying heavily on franchise pushed semi-specialized tests selling more on price. This is an easy entry point into the industry which requires little expertise and focuses on price as the main USP. Without any structural cost advantage, this model is only a race to the bottom and is resulting in losses or single digit margins for new competitors even at high volumes. At Metropolis, we have built our business the harder way, using scientific expertise as the main moat and going doctor to doctor and winning their trust on the most complex and advanced tests for critical patients where quality is the most important factor to the doctor to make a decision for the patients’ treatment. This moat is hard to replicate for all the above players including hospital chains as their expertise is in treatment and not in diagnostics, in the doctors’ mind.

The year under review

Despite concerns due to pricing pressure and competitive intensity, we, at Metropolis, have grown 15% in our core business (keeping aside acquisition, PPP and covid testing) and even maintained strong growth and performance in our core markets like Mumbai and Pune. Pricing has not been a major concern for us as customers come to us when they are unwell and in need for critical testing when pricing is not their key concern. This is an outcome of the trust and quality offered by us. Our focus on scientific expertise, brand reputation, and building trust among doctors and consumers has positioned us as the diagnostic service provider of choice. With the rise in diseases and normalization of non-covid testing, organized players like us are expected to benefit and experience faster growth compared to those focusing primarily on discounts. Our strong relationships with doctors and customers will contribute to a more sustainable and gain recurring business.

It was a challenging year for Metropolis due to concerns around the industry dynamics, change in CEO position, a tax search, and the innumerable rumours around investment into Metropolis and the promoters’ intent to sell the business, and it was also a critical year for Metropolis 3.0. We clarified to the stock exchange and investors that the rumours were just that and as the main promoter, I had no intent to sell the business for cash. We also clarified that we cooperated fully with tax authorities, and nothing was seized from our offices, and we will keep updating the market if any concerns are felt regarding the impact on the financial results due to the tax search.

While challenges like steep drop in Covid PCR testing, entry of new competitors in the market during the pandemic, increased market intensity, and digital adoption by consumers impacted the momentum of business in 2022-23; in FY 24 and beyond, the structural opportunity for Metropolis continues to be robust. Furthermore, we remain steadfast in our commitment to excellence in execution and have prioritized enhancing the quality of our business over the past year. We have successfully retained and expanded our talented workforce, significantly grown our network, and developed substantial new capabilities that will contribute to our future success. We are also working towards deepening our capabilities in Molecular Diagnostics, Oncology, Cytogenetics, and other areas. During the year, we successfully launched some complex tests using Next Generation Sequencing (NGS) Technology for Pre-natal screening, Breast Cancer, Bone Marrow Transplant and Allergy Component Testing powered by Artificial Intelligence.

During the financial year, our achievements in few business areas were recognized by reputed organizations and industry bodies. It gives me immense pride to inform you that we became the first company in the Indian Diagnostics chain industry to receive the ‘Great Place to Work For’ certification for building a commendable organization culture. We also got multiple accolades for excellence in high-end diagnostics, Innovation in Patient Centricity and Advocacy, Cancer Care, Child Health, Customer Experience and Supply Chain.

Operational and financial highlights

Our B2C revenue has grown 20% for the period 2022-23, indicating our strong doctor and consumer connect across markets. This is more so in our focus cities like Mumbai and Pune where we are already leaders, but we still have only 15% market share and still have a long runway to growth. Our growth of 18% in Mumbai and 23% in Pune depicts our strong brand presence in our core geographies and the large opportunity that lies ahead.

Our specialized and premium wellness segments are the fastest growing. The revenue contribution from specialized tests, excluding COVID and allied tests, stood at 16% on a Y-o-Y basis. Revenue from the wellness offerings increased by 43% on a Y-o-Y basis. The segment recorded growth of 45% in the financial year 2022-23.

In terms of financial highlights, the total revenue stood at Rs. 1,148 Crs. Non-COVID revenue for the financial year 2022-23 stood at Rs. 1,104 Crs, growing at 18% on a Y-o-Y basis (including Hitech) while the non-COVID EBITDA stood at Rs. 276 Crs. EBITDA before CSR and ESOP stood at Rs. 304.4 Crs in the year and the EBITDA margin before CSR and ESOP stood at 26.5% for the same period. While Profit after tax dropped in FY 23 compared to the previous year, this was primarily due to covid testing drop. In FY 24, we envizage the PAT margin to grow on the back of low interest cost on account of debt repayment by H1 of the financial year 2023-24.

PPP contract and Hitech

Excluding Covid testing, Hitech, and the PPP contract, which is not our primary focus, our core business revenue exhibited a 15% year-on-year growth in the fourth quarter, effectively bringing it back to pre-pandemic levels. This same growth rate of 15% was also maintained throughout the entire year FY23. On the PPP front, we secured a small new contract in Delhi, which is a growing market for us, making deeper in-roads in our non-core geographies. We have partnered with Mohalla clinics in Delhi to deliver good quality test reports to those patients who cannot afford it. I would also like to inform that one of the PPP contracts which had a 5-year term ended in Q4. The impact of the end of this 5-year PPP contract was an outcome of the government’s decision to internalize the testing. While this has influenced our fourth-quarter figures, we have always maintained that PPP is not part of our growth strategy, and we will only do PPP in very specific cases. The very positive news is that our core business revenue at 15% is outpacing the market and our competitors, driven by a 13% increase in volume and a 2% rise in RPP for the entirety of 2023.

Hitech was strategically aligned with Metropolis to broaden our brand presence among middle-income consumers in Tamil Nadu. We faced revenue growth challenges for approximately nine months due to the unethical actions of a competitor in the southern region of using our brand in violation of our trademark. However, we successfully protected our trademark, stabilized our operations and brand, and continued to achieve positive growth. In FY 23, we added 14 centers, built a new management team to run the business, integrated the technology offering with Metropolis and executed some cost synergies. We strongly believe in the growth potential of the Hitech business. Moving forward, our strategy will involve adding 50 additional centres within the next year, with the aim of capitalizing on the accelerated industry growth in the full year of 2024. While Hitech margins are already marginally higher in FY 23 compared to when we purchased it, our focus will also be on expanding margins through enhanced efficiency and productivity in FY 24, by leveraging our operations effectively.

Technology

We recognize the importance of technology in meeting the evolving needs of businesses, and during Covid, we witnessed digital platforms play a leading role in all industries, including healthcare. However, this trend has not continued at the same level post-Covid, and the use of technology is now primarily around servicing consumers and enhancing their overall experience. There is a preference for digital booking and home visits among many health-conscious and tech-savvy consumers. However, we also acknowledge that a significant portion of middle-class customers, particularly those dealing with illnesses, still prefer to physically visit a diagnostic centre or request a home visit via phone. Therefore, we have been maintaining an equal emphasis on both our digital platform and network expansion strategy to cater to the diverse preferences of our customer base.

Altogether, we are increasing our digital presence by developing and integrating a fully scaled applications programming interface and a full- fledged customer relationship management stack for service, sales, and marketing with customer data platforms. We are also enhancing our B2C applications which will offer a 360-degree approach to consumers for better life management.

Evolution to Metropolis 3.0

In India, if you see on average, approximately 6% of people in the country gets sick at any given time. Our Businesses was solely dedicated to this market (with acute diseases). We are now focusing not only on the 6%, but also on the 94% of India, which includes healthy and chronically ill people. And moreover, the phase of Covid has encouraged consumers to be health conscious and proactive, and for us to additionally focus on D2C (Direct-to-Consumer) which was never the market before. As a result, Metropolis embarked on a 3.0 journey to serve the large consumer base in the chronic and wellness segment.

To give you a historical background, Metropolis 1.0 was all about building the brand amongst top labs and hospitals and setting up strong operations, primarily in the quality b2b space. Metropolis 2.0 from 2015 onwards was a pivot to growing the b2c business and making it the largest contributor to the overall revenues. The added lever of the B2C business via prescriptions from top specialists’ doctors and servicing the patients through large number of collection centres across the country, helped us move from 34% B2C in 2016 to 50% B2C contribution in FY 23. In one line, Metropolis 3.0 is about additionally speaking directly to consumers, who could be well or unwell and creating an engagement with them to make decisions for their wellness and chronic testing needs. This will allow us to increase our routine business on the back of our brand, which has the highest margins amongst all test categories.

With adequate resources available and with a strong plan in place, we went on to utilize this opportunity to better understand consumer needs and meeting them through technology and superior customer experience. This enabled us to focus on the untapped market of affordable and wellness and chronic testing which have not been a focus for Metropolis before. And as we have always done, we have been doing it in a profitable, sustainable, organic manner rather than through the cash burn model. We have strengthened our density of centres in focus cities for consumer convenience through targeted network expansion and home visits. This has led to an increased B2C ratio, as we have seen in the past. We are also building operational excellence to enhance stickiness with customers. As we increase our scientific engagement with top doctors and hospitals of India, this will result in the increase in specialty business and differentiating our brand. We believe the Metropolis 3.0 journey, which is our digital footprint coupled with lab and network expansion will create a long runway of growth giving us the confidence to achieve the growth seen in pre-covid levels.

New CEO on board

One of the most important strategic decisions we made last year was to hire a new CEO, Mr. Surendran Chemmenkottil, who would work alongside me to drive the Metropolis 3.0 journey. Surendran is a veteran in the consumer facing industry with over three decades of experience across the sector. Surendran holds an exceptional track record of building strong teams and consumer services businesses which will be critical in establishing Metropolis as a strong and preferred consumer brand. With his vast expertise, we will be cementing our leadership position across our core markets as well as increasing market share and brand positioning across geographies for Metropolis. He joined in January 2023, settled in and took the reins to deliver the Annual operating plan for FY 23-24. While he will focus on the execution and operations, I will continue to spearhead strategy, culture, talent and people and governance.

Integrating sustainability for good health

At Metropolis, we strongly believe in promoting wellness as a comprehensive approach to individual health and lifestyle. To achieve this, we have implemented various Environment, Social, and Governance (ESG) initiatives. Our focus is primarily on energy conservation, water, and waste management, as well as enhancing diversity and inclusion within our organization. We are committed to improving our diversity and new hire ratio and have launched a dedicated programme for women’s leadership. Furthermore, we prioritize diverse and accountable governance by partnering with external consultants, upholding high ethical standards, and ensuring the security of data infrastructure and identity. From the governance standpoint, we are also considering patient privacy and electronic health records. To monitor our progress consistently, we have established targets for each of these initiatives and track our advancements accordingly.

Note of Gratitude

We are bolstered by togetherness and the strength of our relationships with our valued customers and shareholders.

I would like to extend my gratitude to our employees, doctors, partners, and teams, for ensuring continued business success. I would also like to use the opportunity to thank all the members of the Board of Directors for their invaluable leadership and deep insights through their wide-ranging experiences.

We have built a strong foundation upon which we can achieve the remarkable, strategically and sustainably in the years to come. I also wish to thank to all local, state, and national governments where we operate for their continued support and collaboration.

Sincerely,

Ameera Shah

Managing Director