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Healthcare Global Enterprises Ltd>
  • CMP : 357.1 Chg : -10.10 (-2.75%)
  • Target : 385.0 (34.62%)
  • Target Period : 12 Month

10 Feb 2023

Steady quarter amid seasonality; outlook bullish…

About The Stock

HCG operates one of the largest private cancer care networks in India with end-to-end solutions available under a single corporate entity. Owing to exclusive agreement with vendors, HCG procures equipment on a deferred payment basis. Milann offers seven fertility centres in India.

  • HCG network has 22 comprehensive cancer centres (one in Kenya), four multi-specialty hospitals. HCG India, capacity beds: 1944; 1702 operational
  • Revenue mix Q3FY23: HCG:96%, Milann:3.6%; occupancy Q3FY23: 65.7%; ARPOBD Q3FY23: 37,014
Q3FY23 Results

HCG reported continued momentum at HCG centres this quarter.

  • Revenues grew 1.1% QoQ to ₹ 424.7 crore
  • EBITDA grew 1.1% YoY to ₹ 75.5 crore. EBITDA margins remained flat QoQ to 17.8%
  • Adjusted net profit increased 2.2% QoQ to ₹ 7.5 crore
What should Investors do?

HCG’s share price has grown at a CAGR of 34.14% over the past three years.

Maintain BUY as 1) improvement in occupancies looks sustainable, 2) newer assets to turn profitable and complement existing centres 3) calibrated expansion of moving in metros and non-metros now coming to the fore

Target Price and Valuation

We value HCG at ₹ 385 (HCG existing centres and new centres at 12x & 10x, respectively, at FY25E EV/EBITDA and Milan centres at 1x FY25E EV/sales)

Key Triggers for future price performance
  • HCG, with its integrated, one-stop-solution and focused model, is well poised to capture growing potential with pan-India focus on cancer therapy
  • Focused on consolidating existing network through cost optimisation measures to improve margin and ramping up patient’s footfall by engaging in direct-to patient promotion strategies
  • Oncology cases are expected to increase by 100,000 to 350,000 cases a year which bodes well for HCG with hybrid presence (Metros/Tier-2,3 towns)
  • De-leveraging of balance sheet, reduction of losses across new centres have substantially eased legacy overhangs, improvement in consolidated return ratio profile still remains a key
Alternate Stock Idea

Apart from HCG, in our hospital coverage we like Narayana.

  • Narayana operates a duel model, which perfectly blends established ‘’Assetright’’ India business with a hospital in Cayman Islands
  • BUY with a target price of ₹ 855

Key Financial Summary

Particulars FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E FY25E 2 Year CAGR (FY23E-FY25E)
Revenues 1,095.6 1,013.4 1,397.8 14.8 1,684.7 1,919.0 2,102.1 11.7
EBITDA 159.9 126.2 236.5 17.6 300.7 371.2 410.8 16.9
EBITDA margins (%) 14.6 12.5 16.9 - 17.8 19.3 19.5 -
Net Profit -125.4 -193.5 53.7 19.4 31.0 82.7 116.6 93.9
EPS (|) -7.7 -7.2 -2.9 - 2.2 6.0 8.4 -
M.Cap/ Revenues (x) 3.6 3.9 2.8 - 2.4 2.1 1.9 -
EV to EBITDA (x) 33.0 38.8 19.8 - 15.3 12.0 10.3 -
RoCE (%) 1.0 -0.9 5.0 - 8.7 12.7 14.7 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q3FY23 Results: Revenues in line but slight miss on the margin front 

  • Revenues grew 1.1% QoQ to | 424.7 crore, driven by growth in volumes and patient count across modalities. Revenues from matured centres came in at | 306.5 crore (-0.81% QoQ) whereas | 101.5 crore from Emerging centres (up 7.41% QoQ). EBITDA grew 1.1% QoQ to | 75.5 crore. EBITDA margins stayed flat QoQ to 17.8% amid good operational leverage. Adjusted net profit increased 2.2% QoQ to | 7.5 crore. Overall ARPOBD was at | 37,014 up 0.27% QoQ. Overall AOR remained stable QoQ at 65.7%
  • Numbers continued to improve on the revenues front. Several regions delivered high double-digit revenue growth on a QoQ basis. During the quarter, its international operations grew at a decent pace. HCG remains a compelling play on the oncology treatment theme in India. HCG is now focused on digital transformation, cost optimisation and efficiency enhancement, growth of medical value travel and inorganic acquisitions, which should augur well in the near future

Q3FY23 Earnings Conference Call highlights:

Regional mix: 

  • Tamil Nadu showed highest growth with 15.13% QoQ jump
  • Maharashtra contribution was up 9.03%
  • Among its larger markets both Karnataka and Gujarat de-grew 2.11% and 2.63% QoQ, respectively
  • Eastern region performed well (up 4.51% QoQ) whereas North India region disappointed, which was down 3.19% QoQ
  • International operations grew at a robust rate of 76.97% QoQ

Other highlights: 

  • Milann – The company is looking to focus on market leadership in Bangalore and scaling up its North India centres in the near term
  • Most of its emerging centres are inching towards maturity
  • Emerging markets reflected in ARPOB during the quarter was largely supported by Rajkot, Jaipur region
  • During the quarter it successfully commissioned more beds in Jaipur
  • It plans to increase its clinical bandwidth
  • Focus remains on new exploration especially in radiology space
  • The management has guided that it is scaling up volumes and that remains the agenda on a priority basis. This would be followed by focus on ARPOB through improved payer mix
  • Bangalore excellence centre achieved 27-28% EBITDA in Q3FY23
  • Capex for 9MFY23 was at | 96 crore
  • Bed capacity is not a constraint. Hence, it does not intend to add further capex on this front
  • In Q3FY23, there was 56% occupancy on installed bed basis (total capacity)
  • The management remains confident on the Mumbai region as its strategy is to go for better payer mix compared to other cities, which will yield better ARPOB and margins, going ahead
  • In intends to deploy all non-operational capacities in coming quarters
  • Adoption of new technology would be the growth driver
  • Its efforts to drive international patients through all modes remains intact. This is doing well and accounts for 5% of total revenue in Q3FY23



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