Thyrocare Technologies Ltd – A shift to organised sector to increase in the next 20 years.

Dated: 30th August 2019

Update on Indian market: The week ended on a positive note. The Nifty gained 0.68% on Friday to close at 11,023. Indian equity benchmarks ended higher in anticipation of another set of measures from the government to support a slowing economy. Finance Minister Nirmala Sitharaman announced a mega public sector bank merger where 10 banks will be amalgamated into 4 entities. India’s growth rate for April-June 2019 slipped to 5% compared to 8% a year ago, as per the latest data from the Central Statistics Office (CSO) released on Friday. The growth slowest in 25 quarters is being attributed to a sharp deceleration in the manufacturing sector and sluggish agriculture output.

Among the sectoral indices, Pharma was an outlier with the index rising 2.02%. Within the stocks, Yes Bank (+5.23%), Sun Pharma (+4.03%) and Zeel (+3.69%) were the best performers while Bharti Infratel (-3.23%), Coal India (-2.28%) and Eicher Motors (-1.68%) were the worst performers.

Thyrocare Technologies Ltd – A shift to organised sector to increase in the next 20 years.

Key highlights of the interview given by Mr A. Velumani, Promoter, Chairman, MD & CEO of Thyrocare Technologies Ltd on Economic Times:

1.      Shift from the unorganised sector to organised sector in healthcare space is happening for the last 10 years. This shift is happening with people becoming aware of brands. According to him, the brands are communicating and hence they are visible. So, the move from unorganised to organised has been happening. But the move is very slow. He sees the contribution of the organised sector to reach 20% in the time horizon of 20 years. Currently, the organised market contributes around 5-7% of the total market.

2.      He has seen unorganised players operating recklessly having no control on quality. There are instances where they pay no tax at all. So, the entry of such players is much faster than the growth of the industry.

3.      The preventive care segment is the key reason for the shift in organised space which contributes 10% of the total turnover of the industry. The preventive care segment is growing because of the increased awareness amongst the people. Increase in the per capita income and also the rates of the preventive care which is competitive are supporting the balance sheet of all organised listed players. 

4.      According to him, B2C (Business-to-Consumer) players are comfortable as they do not have true competition on a large scale. The price competition is not sensed in the B2C segment because common man does not know what test costs how much. This is not the case with the B2B (Business-to-Business) players. B2B players like Thyrocare has to deal with another businessman who knows what is the cost and what is the pricing. 80% of the business of Thyrocare is B2B. 

5.      Thyrocare has been facing some challenges in growth but is confident of gaining the growth back on track and believe that the current EBITDA level is sustainable for five more years.

Consensus estimates (Marketscreener website):

·        The stock price was Rs 463/- as of close price of 30th August 2019 and trades at P/E multiple of 25x / 22x / 19x the consensus EPS of Rs 18.6/ 20.8/23.8 for FY20E /21E / 22E respectively. 

·        Consensus target price is Rs 530.4/- implying P/E of 22x for FY22E EPS of Rs 23.8/-