Healthcare Global, part of the S&P BSE Smallcap index, is a comprehensive cancer care hospital chain in India with a scalable business model – 22 cancer care centres (highest among large hospitals); 30 radiation equipment (highest in India); and 1.6x footprints vs. the next largest player.The stock hit a 52-week high of Rs 320 on 21 November 2022.
Consistent margin improvement and efficient capital management will help Healthcare Global to inch towards Rs 350 levels in 2023, suggest experts.
Kaustubh Pawaskar, DVP Fundamental Research at Sharekhan by
highlights 5 factors why Healthcare Global Enterprises is a top buy in hospital space for 2023:
End-to-end cancer care services (diagnostics, treatment, and post care) under one roof, strong research capabilities leading to better outcome (Digital PET CT, Nuclear Medicine, and Genomics) of treatment providing results in 50%+ of cases, best equipment in each modality: Diagnostics – 17 PET CTs, Radiotherapy – 30 LINAC (vs.
have 17 LINAC), medical/surgical Oncology – 3 robotic machines and focus on the asset-light model are key differentiating factors compared to other large multi-specialty hospitals in the country.
Growth in revenues:
HCG’s revenue grew at a 13% CAGR over FY2019-FY2022 to Rs. 1,400 crore in FY2022. New registrations (20% of revenue) grew by 10% in Q2; chemo sessions (35% of revenue) – procedures are day care oriented with no capacity constraints and grew by 20% in Q2.
Radiation oncology (20% of revenue) – LINAC capacity utilisation improved by 600 bps to 68%; treated 5,000 patients in Q2 (treatment days 5 to 35 days); surgical oncology (25% of revenue) – in-patient bed occupancy improved by 700 bps to 61% in Q2.
With key drivers in place, HCG’s revenue will post a 16% CAGR over FY2022-FY2025.
EBIDTA margin improvement:
With scale-up in the operations of matured hospitals, EBIDTA margin improved from 13-14% in FY20218-FY2019 to 18% in H1FY2023.
Some of the matured centres such as Bangalore COE and Ahmedabad are achieving EBIDTA margin of 22-25%. In new hospitals, Mumbai centres have breakeven at EBIDTA level, while only Kolkata is yet to break even.
The management targets 20% EBIDTA margin in the next two to three years.
Consistent margin improvement and efficient capital management will help RoCE to steadily improve in the coming years (management targets to reach 20% over the next three years).
The top management is focusing on making the company a sustainable business model with efficient cash management to improve shareholders’ value in the medium to long run. “We expect HCG’s revenues and EBIDTA to grow at CAGR of 16% and 22% over FY2022-25,” said the Sharekhan note.
The company remains one of the preferred picks in the hospital space. The stock is currently trading at 13x/11x its FY2023/FY2024E EV/EBIDTA. “We have a positive view with a target price of Rs 350 in the next 12 months,” the note added.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)