Healthcare

17 Aug

Infrastructure in place to compete in online pharmacy space – Apollo Hospitals

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.3% up at 16,615. Top gainers in NIFTY50 were TATACONSUM (+3.8%), WIPRO (+3.3%), and TECHM (+3.2%). The top losers were JSWSTEEL (-2.4%), ADANIPORTS (-2.3%), and TATAMOTORS (-2.2%). The top gaining sectors were IT (+2.6%), HEALTHCARE (+1.7%), and FMCG (+1.4%) while the top sectoral losers were METAL (-2.3%), PSU BANK (-1.8%), and PRIVATE BANK (-0.8%).

Infrastructure in place to compete in online pharmacy space – Apollo Hospitals

Excerpts of an interview with Ms Suneeta Reddy, MD of Apollo Hospitals (APOLLOHOSP), published on ET Now on 17th August 2021:

  • In 1QFY22, 26% of the total 30% revenue growth was because of Covid revenue. Surgical volumes have started picking up from July 2021.
  • In an attempt to have an omnichannel presence, Apollo’s 247 digital platform offers services, such as online pharmacy and teleconsultations, that are easier to access for the customer. 247 is helping Apollo to expand its reach and funnel patients into the system.
  • 247 is the fastest growing healthcare app in India. Apollo has earmarked Rs 1,500 mn in FY22E as spends for the digital platform, as customer acquisition and marketing are high for the business.
  • Apollo pharmacies have crossed 4,200 stores in India and the company is planning another 150 stores addition. Apollo has a distribution presence in 16,000 pin codes. Due to the wide reach, Apollo has the capability of 24×7 delivery within two hours which is a USP in the e-pharmacy space.
  • In addition to the distribution capabilities, Apollo has 5,500 doctors available for tele-consult within 15 minutes and testing infrastructure. All these factors will help Apollo to compete with other corporate houses entering the online pharmacy space.
  • Apollo plans to spend Rs 2,500 mn on capex in FY22E and Rs 4,500 mn on an acquisition. With a debt-to-equity ratio of 0.48 and cash and equivalents of Rs 8,800 mn, Apollo is fully funded to undertake the investments.

Asset Multiplier comments:

  • Online pharmacies have seen a big growth in revenues during the covid-19 second wave. Consumers are preferring the convenience and limited contact nature of online shopping of common medicines, household medical devices such as oximeters, thermometers, and certain FMCG products sold by these players.

 

Consensus Estimate: (Source: market screener)

 

  • The closing price of APOLLOHOSP was ₹ 4,921/- as of 17-August-2021.  It traded at 86x/ 66x/ 53x the consensus earnings estimate of ₹ 56.9/ 75.1/ 92.8 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 4,399/- which trades at 47x the earnings estimate for FY24E of ₹ 92.8/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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16 Feb

Non-COVID business recovered, saw 40% pick-up – Apollo Hospital

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 15,313 (-0.01%). Top gainers in NIFTY50 were Power Grid (+6.3%), ONGC (+4.9%), and Tata Steel (+3.8%). The top losers were ICICI Bank (-2.3%), Axis Bank (-2.2%), and Eicher Motors (-1.6%). The top sectoral gainers were METAL (+2.9%), PSU BANK (+1.6%), and PHARMA (+0.5%) and sectoral losers were MEDIA (-0.8%), FMCG (-0.7%) and BANK (-0.5%)

Excerpts of an interview with Ms. Sunita Reddy, MD, Apollo Hospital (APOLLOHOSP)  with CNBC -TV18 dated 15th February 2021

  • Total hospital occupancy is at 63 percent. Out of these, 17 percent of the revenue is coming from COVID.
  • The non-COVID business has recovered, they have seen 40 percent pick-up in non-COVID work. There has been a 36 percent improvement in elective surgical work.
  • This has reflected in the average revenue per occupied bed (ARPOB) which was at Rs 38,000 in 2QFY21 moving up to Rs 40,100 in 3QFY21.
  • In terms of international patient inflow, it was barely 2 percent. Most of the international patients were from countries like Bangladesh and Myanmar. Definite improvement is expected from March when travel opens up.
  • The digital business peaked during COVID. They had done about 250,000 teleconsults during the first two quarters and in Q3 they are doing about 2,000 a day.
  • Many of the doctors are now coming back to the offices, they are seeing growth again in the OP.
  • They have seen 21 percent growth in the pharmacy business, with both the front end and the back end. Margins have been good at ~6.5 percent and this is after they added 150 stores in 3QFY21 and about 400 stores for the full year.  They are currently at 4,000 stores in the pharmacy.
  • Pharmacy business revenues have picked up by 16.4 percent and continue to grow. Margins continue to improve.
  • Going forward they are expected to see healthy margins because in the mature stores they are seeing margins of 9 percent.
  • They are still seeing strong growth in the diagnostic business in spite of tapering off of COVID.

Asset Multiplier comments:

  • Rapid expansion and maturity of older hospitals have kept overall growth higher. Health care technology investment and deals continue to provide opportunities.
  • The health care industry’s response to COVID 19 has been one of persistence and commitment, especially by front-line caregivers. The pandemic has significantly shifted industry trends and accelerated the pace of change.
  • Digitalization has become a major component in a sustainable healthcare model. Virtual care and telemedicine enabled the continuity of care during the recent health crisis, and these solutions are expected to continue growing in importance as patients value efficiency and convenience.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of APOLLOHOSP was ₹ 3,205/- as of 16-February-2021.  It traded at 348x/ 65x/ 44x the consensus earnings estimate of ₹ 9.2/ 49.1/ 72.8 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 2,898/- which trades at 40x the earnings estimate for FY23E of ₹ 72.8/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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25 Jun

Capping test prices unviable for private labs – Metropolis Healthcare

Update on the Indian Equity Market:

On Wednesday, the indices ended lower after four straight sessions of gains amid fears of a rise in defaults due to the pandemic. The Nifty ended 1.6% lower at 10,305. Among the sectors, FMCG (+0.5%) was the only one that ended higher. PRIVATE BANK (-4.0%), BANK (-3.8%), and FINANCIAL SERVICES (-3.0%) led the losers. ASIANPAINT (+3.8%), ITC (+3.4%), and EICHERMOT (+3.1%) closed in the green while ICICIBANK (-7.1%), INDUSINDBK (-6.6%), and POWERGRID (-5.1%) dragged the index lower.

Edited excerpts of an interview with Ms Ameera Shah, Managing Director (MD), Metropolis Healthcare with Business Standard on 23rd June 2020:

  • There are three approved tests for conducting the confirmatory test for COVID 19: TruNAT, GeneXpert (CBNAAT), and RT PCR test. Both TruNAT and GeneXpert incur high costs and the price per test is expensive. Due to the high costs, many of the 195 private labs approved for RT PCR testing are conducting less than 100 tests per day. Increasing volumes can help reduce the analytical cost of an RT PCR test, the servicing cost will continue to be high and will increase as the test load goes up.
  • Those unable to afford testing are well-supported by the 723 approved government laboratories.
  • All private labs who have been at the forefront in the pandemic would be forced to incur losses, should the government cap the prices at a very low level. This will not only impact the capacity of Covid testing but also impact non-Covid tests because of the losses incurred.
  • Only large private lab chains have a high throughput in conducting the RT PCR tests. However, investments in infrastructure in terms of test kits, bio-safety cabinets, RT PCP machines, skilled manpower for conducting the test, trained phlebotomists for sample collection, and documentation for compliance all together tend to increase the cost. Metropolis is stretching its resources to ensure good quality testing is undertaken and also reducing the turnaround time to get the reports to the doctors and patients.
  • With the government intent on providing the services independently, rules are different for public labs as compared to private labs. The highly manual nature of tests and increased ancillary costs has led to private lab players conducting less than 100 tests per day because they lack the resources to scale up.
  • The business was down 90 percent in the last two weeks of March and all of April. In May, recovery of about 50 percent was seen and June has been slightly better. The second quarter of fiscal 2021 is expected to be better than the first one and the industry will see greater consolidation once normalcy returns in the next 2-3 quarters.
  • Metropolis has good cash reserves and does not foresee the need for working capital loans right now.
  • They request the government to provide forecast numbers to enable labs to provide best capacity and also to look at private healthcare providers as equal partners in the fight.
  • Labs are approved by ICMR but governing the function of labs has been left to the states. This has been a big hurdle as the guidelines keep changing. With ICMR governing all private and public labs with the same guidelines, it is possible to scale-up testing over the next few weeks, which could help flatten the curve.
  • Going forward, the focus will be to provide the highest quality services keeping safety and hygiene as the top priority.

Consensus Estimate: (Source: market screener website)

  • The closing price of Metropolis Healthcare was ₹ 1,401/- as of 24-June-2020. It traded at 58x/ 33x the consensus earnings estimate of ₹ 24/ 42.2 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 1,566/- implies a PE multiple of 37x on FY22E EPS of ₹ 42.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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08 Apr

Biosimilars will have a huge impact on global healthcare – Kiran Mazumdar Shaw, CMD, Biocon

Update on the Indian Equity Market:

On Tuesday, Nifty closed 8.8% higher at 8,792, taking cues from global markets.  All components of NIFTY50 ended with gains led by INDUSINDBK (+25.0%), AXISBANK (+20.1%) and GRASIM (+15.0%). All sectoral indices also ended with gains. NIFTY PVT BANK (+11.1%), NIFTY PHARMA (+10.4%) and NIFTY BANK (+10.4%) gained the most.

Biosimilars will have a huge impact on global healthcare – Kiran Mazumdar Shaw, CMD, Biocon

Edited excerpts of an interview with Kiran Mazumdar Shaw, Chairperson and Managing Director of Biocon Ltd.; dated 1st April 2020. The interview aired on CNBC-TV18.

  • Biocon received an Establishment Inspection Report (EIR) with Voluntary Action Indicated for it’s Malaysian unit in respect of production of glargine. Insulin glargine is a long-acting, manmade version of human insulin.
  • This is an important EIR for Biocon and with that, the management is confident that the approval will come in sooner than later. Inspection went well but in terms of launch, management needs to keep track of current crisis as US is going through a very bad phase.
  • Post the crisis, there will be a huge effort to bring down healthcare costs. Biosimilars will be extremely important in this effort. Insulin therapies are also going to play a very important role in cost cutting and biosimilar glargine, insulins and others are going to be extremely important.
  • In terms of opportunity, biosimilars business is a USD 7 bn business globally and USD 4 bn business in the US. With biosimilars, the access to insulin glargine is much larger. Biocon has a very important role to play in providing affordable access to glargine.
  • Including the private labs in testing for the current crisis has been a good move on part of the government. The issue regarding less number of approved kits is resolved and more kits are now being produced. The challenge now is that state governments are now restricting private labs from testing. Maharashtra, Telangana, Gujarat, West Bengal have put heavy restrictions on private labs. If private labs are restricted from conducting tests in large numbers, the purpose of including them in the testing arena is defeated.
  • Biocon has a turnover target of USD 1 bn in Biologics by FY22E. There is a lull created by the logistics issues currently. However, the target is still 2 years away and management hopes that the crisis will pass soon. This is a time when biosimilars will have a huge impact on global healthcare and that’s why Biocon will have a very big role to play.
  • The private sector is in close cooperation with government on various fronts including research, private testing, vaccine development, therapy developments and antibody based serological testing. This crisis has shown that we have to focus on these areas and our public health system has to be improved and there is a lot of opportunity for us to build a very robust healthcare ecosystem.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon was ₹ 319/- as of 7–April–2020. It traded at 42.5x/ 31.9x/ 24.5x the consensus EPS estimate of ₹ 7.5/ 10.0/ 13.0 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 311/- implies a PE multiple of 23.9x on FY22E EPS of ₹ 13.
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30 Jan

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Update on the Indian Equity Market:

On Wednesday, Nifty ended 0.6% higher at 12,130. Among the sectoral indices, Nifty FMCG (+1.3%), Nifty Metal (+0.9%) and Nifty Auto (+0.8%) were the top gainers. Nifty Pharma ended the day marginally in the red. Tata Motors (+6.8%), Bajaj Finance (+5.1%) and Infratel (+3.4%) were the top gaining stocks while Eicher Motors (-4.5%), Yes Bank (-1.4%) and Dr Reddy (-1.4%) were the top losers.

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Excerpts from an interview with Habil Khorakiwala, Founder, Chairman and Group CEO, Wockhardt:

  • The company is looking to raise some equity and cash through a restructuring of the organization. There are alternatives on which the company is working.
  • The restructuring process would likely be completed in the next month.
  • The Q3 financial results of the company were recently released, and sales are up 9-10 percent compared to the previous quarter. Expense management over the last 9-12 months has resulted in significant operating cost reduction.
  • The 3Q margins (17.7%) are among the highest in recent times and a result of product mix. Despite spending heavily on both R&D and capex, there is a significant increase in EBITDA without R&D.
  • Addressing the liquidity issue, he said that last year the company has repaid ₹ 780 crore of its debt. The net debt increase period has been supported by the promoter. The new cash is to sustain drug discovery research programme and go into growth momentum in 2021.
  • They have completed most of the remediation measures at their Waluj facility and are in communication with the US FDA and hopeful of being on track as far as the US business is concerned.
  • There are three components to their India business: branded, generic, and active pharmaceutical ingredient (API) business. The branded business is down by less than a single digit. Though mostly discontinued, the generic business is showing a decline. The API business in India is down but up in the international markets.
  • Globally, their focus is on three-four areas. Their pharma business is important worldwide, including India. The research programme with the new chemical entity (NCE) is very important for the therapy area antibiotics. Third, the biosimilars are very important since new FDA guidelines has them thinking about entering the US market biosimilars segment. Last, due to technology advantage in formulation, the worldwide diabetic portfolio is a favorite.
  • Strategy for the antibiotic drug is marketing themselves in the US and India and looking for partners in the rest of the world.
  • Two of their molecules (EMROK (IV) and EMROK 0 (Oral)) have been approved by the Drug Controller General of India, which will be in the Indian market in the next three-four months. Another molecule, 5222 is entering phase-III clinical trial in the next few months.

Consensus Estimate:

The closing price of Wockhardt was ₹ 349 as of 29-January-20. The consensus estimate for EPS of Wockhardt is not available. Wockhardt reported a loss of ₹ 10.6 per share for FY19 and ₹ 13.8 for 9 months ending December 19 respectively.

 

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21 Jan

Focus on medical value travel in the Union Budget- Suneeta Reddy, MD, Apollo Hospitals

Update on the Indian Equity Market:

After a volatile session, the Nifty closed 1 percent lower at 12231. This decline was the biggest in three months. The Nifty Realty (+0.4%) was the only sectoral index which ended the day in the positive. Nifty Media (-1.9%), Nifty PSU Bank (-1.6%), Nifty Pvt Bank (-1.6%) and Nifty Bank (-1.6%) were amongst those that ended in the red. Powergrid (+3.0%), Infratel (+1.6%) and Bharti Airtel (+1.4%) were the top gainers. Kotak Bank (-4.8%), Zee Entertainment Enterprises (-4.2%) and IOC (-4.1%) were the top stocks that ended in the negative.

Focus on medical value travel in the Union Budget- Suneeta Reddy, MD, Apollo Hospitals

Excerpts from an interview with Ms Suneeta Reddy, MD, Apollo Hospitals published in Livemint on 20th January 2020:

  • The utilization of proceeds from Apollo Munich transaction is definitely going to debt reduction. The stake sale proceeds received by the family after-tax is ₹ 980 crore and Apollo will get around ₹ 250 crore.
  • They will end the quarter in January with 28% promoter pledging and over the next two years, hope to bring it down to 10%. The cash flows from the education vertical will help bring down the pledge. The free cash flows from the education segment will help reduce the debt, so there won’t be a need for further promoter stake sale.
  • Gross debt will be around ₹ 2,900 crore and net debt will be around ₹ 2,500 crore this year.
  • The process of restructuring the pharmacy business is expected to happen in the next three months and it would generate ₹ 300 crore.
  • Although the focus is on debt reduction, the focus will also be on consolidating the assets and improving asset utilization. The replacement capex is about ₹ 250 crore.
  • They currently operate at 8.5% margin levels and are hoping to move to 14% over the next two quarters.
  • The new hospitals are operating at 21% EBITDA margin which is expected to move up 100 basis points (bps), through improvement in the quality of revenue. An 8% volume growth in this region is also expected.
  • There has been a growth of 22-24% in the pharmacy business. The EBITDA margin, currently at 5.4% are expected to improve on the back of new store additions and the old stores maturing.
  • Moving to the clinic segment which turned profitable for the first time in Q2, the 250 diagnostic centres will drive the growth in this segment, and will contribute to Apollo Hospital’s bottom-line.
  • The proton therapy segment, which is the first facility opened in South East Asia, will break even in the second year. Having finished 100 patents, there is a waiting list of patients and about 30 percent of the patients are overseas patients.
  • 12% of revenues of Apollo Hospitals comes from foreign patients. Since the budget is around the corner, she believes the focus will be to help hospitals and improve their margins. The focus will also be on infrastructure spending and there might be some incentives for hospitals to put up new infrastructure or add to the existing facilities.

Consensus Estimate (Source: market screener website)

  • The closing price of Apollo Hospitals as on 20-January-2020 was ₹ 1632/-. It traded at 61.6x / 45.3x / 32x the consensus EPS estimate for FY20E/21E/22E of ₹ 26.5/ 36.0 /51.1 respectively.
  • Consensus target price of ₹ 1667/- implies a PE multiple of 32.6x on FY22E EPS of ₹ 51.1.
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12 Dec

Thyrocare: There is a possibility of doing a Jio in the diagnostic industry

Update on the Indian Equity Market:

In a much volatile trading session, markets ended the three-day losing streak as Nifty closed 0.5% up at 11,910. The weekly F&O expiry likely fuelled the volatility in the market. Among the sectoral indices, 9 out of 11 indices traded higher with IT (1.2%), REALTY (0.9%) and FIN SERVICES (0.7%) leading the index while METAL (-0.3%) and PSU BANK (-0.1%) were the only losers. Within the index stocks, GAIL (5.3%), ZEEL (4.9%) and NTPC (2.9%) topped the chart whereas YESBANK (-13.9%), HEROMOTO (-1.9%) and VEDL (-1.3%) offset the gains.

Key takeaways from the interview of Dr A. Velumani, Chairman and MD-CEO, Thyrocare Technologies dated 11th December 2019 published in CNBC TV18:

  • In the last few days, reports indicate that Reliance Industries is set to enter the diagnostics business through its subsidiary Reliance Life Sciences. On this development, Dr Velumani commented that it was an expected move. He said that initially there was a monopoly of BSNL and MTNL, and then came Airtel. There is a possibility of doing a Jio in the diagnostic industry and he is confident that if it gets executed well, it will be very powerful.
  • The industry is already very competitive. The company was able to grow at a CAGR of 40-50% for the first 10 years. He mentioned that the growth was coming because the business model was new to industry at that time. In the current scenario, getting 20% YoY growth itself is very challenging for company. He added that this is happening because the market has understood what works and how it can be made to work.
  • He pointed out to the opportunities to disrupt the diagnostics market. He was tempted to disrupt the market in the past. But, in an investor-dependent company, in a listed company, every decision needs a discussion and after discussions there are no decisions.
  • He said that he is happy to experiment new things until EBITDA of company goes below that of others in the market.
  • About the growth estimates in the Pathology segment, he said that the company delivered growth of 13% in Q1 as well as Q2 of FY20.He expects the FY20E to end somewhere in the 13-14% range which he considered as a good growth in the current market situation.
  •  On being asked about possibility of consolidation in the industry, he said that this industry is brand-driven. Whether it’s a small, local or national brand. Acquiring and merging the brands result in the loss of one brand. Buying a costly brand by paying a premium and killing that brand is something that is not wise. There are some challenges in doing it. He made a case for big players. He is of the opinion that big players can do many things because this industry has a huge potential. It is large and highly unorganized.

Consensus Estimate (Source: market screener website)

  • The closing price of Thyrocare was ₹ 533/- as of 11-December-19. It traded at 23x/ 21x/ 18x the consensus estimate EPS of ₹ 23.1/ 25.4/ 29.8 for FY20E/21E/22E respectively.
  • Consensus target price of ₹ 636/- implies a PE multiple of 21x on FY22E EPS of ₹ 29.8.
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