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29 Sep

Hospitals seeing a 20% plus Return on Capital Employed – Max Healthcare

 

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.2% lower at 17,711. Top gainers in NIFTY50 were NTPC (+6.4%), COALINDIA (+6.2%), and POWERGRID (+6.7%). The top losers were HDFC (-2.1%), KOTAKBANK (-1.8%), and ASIANPAINT (-1.8%). The top gaining sectors were PSU (+2.7%), METAL (+2.3%), and PHARMA (+1.7%) while the top sectoral losers were PRIVATEBANK (-1.1%), FINANCIAL SERVICES (-0.9%), and FMCG (-0.6%).

Hospitals seeing a 20% plus Return on Capital Employed – Max Healthcare

Excerpts of an interview with Mr. Abhay Soi, chairman and managing director at Max Healthcare, aired on CNBC TV18 on 28th September 2021:

  • Hospitals are making 20 percent plus ROCE while receiving less than 1% of their income from COVID patients. At the current operating rate, the firm is generating free cash flows of around Rs 1,1000 million.
  • The chairman indicated that a x% rise in revenue would improve free cash flows by roughly 2x%. He also stated that the firm will generate Rs 50 -60 mn in internal accruals alone over the next four to five years.
  • The business’s present debt levels are lower than its EBITDA from the 2QFY22, and the company hopes to be debt-free by the 3QFY22. Over the following four to five years, the business intends to leverage its balance sheet to two times debt to EBITDA.
  • The Company plans to expand its capacity in Gurugram, by building a 500-bed hospital in the next three to four years, at a budget of Rs. 35bn. At the moment, their hospitals are roughly 78% full. The deployment of funds would be limited to brownfields and greenfield, as well as some light asset models. The business has no plans to do Mergers & Acquisitions in the hospital space.
  • The company intends to do acquisitions in the diagnostic space. In the Delhi NCR region, which has a population of 40 mn people it is currently the third biggest diagnostic chain.
  • When speaking about retail business in terms of economic value and volume the company ranks 3rd or 4th in the country.

Asset Multiplier comments:

  • We believe Max is entering a high growth phase led by expansion at Saket (Delhi) and Nanavati (Mumbai). It’s solid balance sheet and production of operational cash flow are anticipated to support organic and inorganic efforts.
  • With a robust development strategy and a positive outlook for the retail sector, we believe Max Healthcare is well-positioned to capitalize on the opportunity in the Indian hospital market for offering quality healthcare services across the country.

 

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

 

  • The closing price of Max Healthcare was ₹ 356/- as of 29-September-2021.  It traded at 47x/37x/34x the consensus earnings estimate of ₹ 7.0/9.6/10.5 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 385/- which trades at 35x the earnings estimate for FY24E of ₹ 10.9/-

 

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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06 Aug

Covid19 Tests will become a part of company’s portfolio – Dr Lal Path Labs

Update on the Indian Equity Market:

On Wednesday, Nifty closed 0.06% higher at 11,102. Among the sectoral indices Metal (+4.0%), Auto (+1.8%) and Media (+1.1%) closed higher. Pharma (-0.5%), Fin services (-0.2%) and PSU Banks (-0.2%) closed on a negative side. Hindalco (+9.1%), Tata Steel (+6.7%) and Eicher Motor (+4.4%) closed on a positive note. UPL (-1.5%), HDF Life (-1.5%), and Wipro (-1.0%) were among the top losers.

Excerpts from an interview of Mr. Om Manchanda, MD, Dr Lal Path Labs with ET Now on 3rd August 2020:

  • The business was impacted in the months of April and May due to lockdown restrictions. It restricted the movement of samples to various cities.
  • The movement of patients was also impacted due to lockdown. There was a steep fall in walk-in customers.
  • The company also witness a sharp fall in OPD.
  • Recovery started in late part of May as lockdown restrictions started to get lifted.
  • They witnessed a sharp recovery in June but the trends are early as there may be pent up demand coming up.
  • The company witnessed some gains as competitors were not able to serve some markets.
  • On impact of covid on diagnostic space, Mr. Manchanda said the government has built capacity in the recent past and 60% of business is coming from the government side. The company will be working in a supporting role to the governments.
  • Tests for Covid-19 will become a part of company’s portfolio, but the trend line is not yet clear.
  • Q1 was a bad quarter for the company, non covid business had shown recovery in June. Company expects that the growth will come back in later part of the year by Q3FY21E.
  • Business related to covid is a new business for the company.
  • Historically the company had grown organically. The model is urban based.
  • The company picks up a geography and tries to cater all diagnostic needs in that area.
  • Mr Manchanda said the company is neither a wellness company nor a diagnostic company but a full-service model.
  • There are close to 215 labs as of now.

Consensus Estimate: (Source: market screener website)

  • The closing price of Dr Lal Path Labs was ₹ 1,850/- as of 5-August-2020.  It traded at 71x/50x/44X the consensus earnings per share estimate of ₹ 25.9/37/42 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price for Dr Lal Path Labs is ₹ 1,769/- which implies a PE multiple of 42x on FY23E EPS of ₹ 42/-.

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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22 Jun

Hospital industry will see normalisation by the end of 2QFY21: Fortis Healthcare

Update on the Indian Equity Market:

On Friday, Nifty ended 1.5% higher at 10,244. The top gainers for Nifty 50 were Bajaj Finserv (+9.2%), Bajaj Finance (+6.6%) and Reliance Ind (+6.5%) while the losing stocks for the IndusInd bank (-2.2%), M&M (-1.3%) and Vedanta (-1.3%). Sectoral gainers for the day were Realty (+6.4%), PSU Bank (+2.2%) and Media (2.0%) while the losers were IT (-0.4%) and Metal (-0.1%).

Edited excerpts of an interview with Dr Ashutosh Raghuvanshi, CEO, Fortis Healthcare Ltd; dated 18th June 2020 from Economic Times:

  • The pandemic has affected the routine work of the hospitals and surgeries in a big way. The impact started somewhere in the month of February 20. Thus, the impact can be seen in 4QFY20 as well as 1QFY21E.
  • Volumes got reduced to the emergency work but a gradual resumption of activities on the side of chronic illnesses. Fortis believes that this is a short term blip but there is going to be a sustained and pent up demand of elective work especially for chronic ailments which are going to last for at least 6 months following the normal resumption of activities.
  • Industry sees an upward swing in COVID cases in cities other than Delhi and Mumbai.
  • Fundamentals for the healthcare industry continue to remain strong in the medium term.
  • In April-20 the occupancy levels were 25% which went up to 35% in May-20. In this month the recovery in the average occupancy levels stands at 48%. With this kind of recovery, 60% occupancy expected in July and then normalcy by the end of 2QFY21.
  • Fortis expects FY21 earnings to take a slight hit but expects 3Q and 4Q FY21 to be at normal levels in terms of both revenues and profits.
  • Initiatives in terms of cost and restructuring for Fortis are on-going. Lockdown gave them the opportunity to focus more on these elements. They are in a comfortable position in terms of cash flows even after the fall in revenues in 4QFY20.
  • Fortis is continuously evaluating its portfolio to see which units need to shape up or not performing well to rationalise the portfolio.
  • Staff cost is being relooked at, especially the senior staff members in order to be aligned with the Company’s interest. So conversations are going on. Establishment cost and advertisement cost are been rationalised. Expenses are needed to be prioritised.
  • Some of the CAPEX are been deferred in FY21, for example, land up-gradation of clinical infrastructure.
  • When asked about the price capping that is happening in this industry which will hurt the private players, he said that the margins are expected to be lower as compared to the current ones but the price capping will boost the volumes for the private players. So going forward, volumes are expected to compensate for the lower margins

Consensus Estimate: (Source: market screener website)

  • The closing price of Fortis Healthcare Ltd was ₹ 122/- as of 19-June-2020. It traded at 27.5x the consensus EPS estimate of ₹ 4.4 for FY22E.
  • The consensus target price of ₹ 165/- implies a PE multiple of 37x on FY22E EPS of ₹ 4.4/-.

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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