* Beats revenue estimates for 4QFY17: Thyrocare’s sales, EBITDA and PAT grew 35%, 35% and 37% YoY respectively in Q4FY17 despite partial demand disruption in the industry due to demonetisation. While Sales and EBITDA of Rs877mn and Rs332m were higher than estimates, PAT at Rs190m, was lower than our estimates of Rs207m due to lower other income.
* Pathology business grows at 36%: With seasonal benefits in, Thyrocare’s pathology business grew 36% and 27% in Q4FY17 and FY17 on the back of healthcare camps across India and expanded network of DSA and franchisee. While lingering impact of demonetisation remained till mid‐February, the company however improved its pathology business by 36% and 28% YoY growth in Q4FY17 and FY17 respectively. Its realisation also improved: Rev/sample increased to Rs191 in FY17 respectively vs. Rs177 in FY16; Rev/test increased to Rs36 in FY17 vs. Rs33 in FY16.
* Imaging marks presence with lower loss: The performance of Imaging business increased to 10 scans per‐day per‐machine (7 machines) in FY17 vs 8 scans in FY16 (5 machines) as two new centres were commissioned in Surat and Vadodara in October 2016 and February 2017. Delhi and Hyderabad centres grew to 16 and 9 scans per‐day per‐machine in FY17 vs. 14 and 7 scans per‐day per‐machine respectively in FY16. The new centre in Surat achieved 3 scans perday per‐machine post its two full quarter operations in H2FY17.
* Valuation‐Maintain ‘Buy’, retain TP at Rs1,067: The stock trades at PER of 38x and 28x FY18E and FY19E respectively. We expect FY18E to achieve 31% growth in revenue and 40% EBITDA margins. With a) strong free cash flow and b) guidance of 25% (+/‐2%) sustainable annual growth with ~40% EBITDA margin, we expect valuations of diagnostic companies to remain at a premium. We maintain our earnings estimate and ‘BUY’ recommendation with a TP of Rs1,067.
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