Published on 6/12/2017 1:18:26 PM | Source: SPA Securities Ltd

Subscribe On Shalby Hospitals Ltd - SPA Sec

Shalby Hospitals is one of the leading multi-specialty chain of hospitals in India. The hospitals are tertiary care hospitals, few of which also offer quaternary healthcare services to patients in various areas of specialization such as orthopedics, complex joint replacements, cardiology, neurology, oncology, and renal transplantations. The company provides inpatient and outpatient healthcare services through eight fully operational hospitals, having an aggregate operational bed count of 781 beds, as on March 31, 2017. This apart, it currently provides outpatient consultative healthcare services through three hospitals which were recently set up. Its 11 hospitals, inclusive of eight fully operational and three hospitals which were recently set up, have an aggregate bed capacity of 2,012 beds, as on March 31, 2017.


Investment Rationale

Leadership in orthopedics and strong capabilities in other specialties

The company's reputation and clinical capabilities in the field of orthopedics, along with continuing expansion across other healthcare specialties positions it favorably to benefit from the increasing demand in India for quality healthcare services. Having performed approximately 50,175 joint replacements since 2007, it has been a market leader in the area of joint replacement surgeries. Through 68 Outpatient Clinics, the company offers orthopedic consultation services to patients spread across 16 states in India, and through its chain of eight fully operational hospitals and eight SACE, it undertakes orthopedic surgeries and procedures.

Integrated and scalable business model

Multi-specialty Hospitals: The company's 11 hospitals, inclusive of eight fully operational and three hospitals which were recently set up have an aggregate bed capacity of 2,012 beds, as on FY17. The expansion has been achieved through a combination of greenfield or brownfield projects, strategic acquisitions, and O&M arrangements on an asset-light, revenue sharing basis with third party service providers to ensure efficient capital deployment.

Outpatient Clinics and SACE: Through Outpatient Clinics that are operated by the company either independently, or within third party premises, it offers orthopedic consultation services. Apart from Outpatient Clinics, it has five domestic SACE and three overseas SACE. Through its SACE, it offers orthopedic consultation services and undertake orthopedic and spine surgeries.

Shalby Homecare: Since FY15, Shalby Homecare has been able to extend expert healthcare services at a patient's doorstep, so as to facilitate a speedy and comfortable recovery from diseases and other medical conditions from home. Shalby Homecare services are offered through the hospitals located in Ahmedabad, Indore, Jabalpur, Mohali, and Vapi. As on December 31, 2016, it had 11 dedicated staff for Shalby Homecare. During FY16 and 9MFY17, it serviced a total of 2,566 and 4,413 patients, respectively, through Shalby Homecare.

Experienced player with longstanding presence and brand recall

The Company's strong brand equity is evident from the consistent growth in its inpatient and outpatient base from 9,758 and 55,143, respectively, during FY12 to 20,528 and 152,921 during FY16, with a CAGR of 20.43% and 29.05%, respectively. The Company has an established presence and strong brand recall in Gujarat, and an emerging presence in western and central India. Its brand equity and operational experience in core markets provides it with the platform to further expand its presence and operations in select locations across the country.

Outlook and Valuation

Since FY12, the company has experienced a steady growth in providing orthopedic and non-orthopedic healthcare services, maintaining higher margins and RoE than its peers because of several costefficiency measures, such as procurement of medical consumables, lower capital expenditure per bed, higher beds to operation theatre, and better space utilization. This helps the company achieve EBITDA positive levels for new hospitals in less than two years. The company's revenues, EBITDA and PAT have grown at a CAGR of 7.9%, 5.1% and 16.8% respectively, between FY14-17. The company has showcased healthy EBITDA margins in the range of 20-25% consistently. At the upper price band of INR 248/share, the issue is valued at a PE of 35x with FY17 Adj.EPS of INR 7.0. We recommend to SUBSCRIBE to the issue as a good long term investment.


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