Add HealthCare Global Enterprises Ltd For Target Rs.292 - ICICI Securities
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Management meet highlights:
* According to management, oncology will remain a key focus area for the company.
* Role of top management is focusing on improving performance and efficiency
* Mr Raj Gor, with his extensive experience, is focusing on improving the company’s operational and financial efficiency.
* Dr Ajai Kumar is working on research and technical parameters like tumors and genomics on recurrence, improving the processes, and working on AI technology to improve the quality and accuracy.
.* Ms Anjali is with the company since last 13 years and is looking after strategy along with Dr Ajai Kumar to improve quality and centers’ efficiency.
* Management expects healthy performance excluding COVID-19 business to continue with recovering demand.
* Excluding Kolkata, all other centers have achieved breakeven and are improving profitability further. The company monitors more than 180 indicators on a monthly basis to track the performance of each center.
* Growth over the next 3-5 years is expected to remain strong; average margins of existing centers would gradually move towards ~25% as they mature.
* Bangalore COE is expected to grow in double digits. The center is running at 50- 55% occupancy level with ~28% margins but still has enough room for improvement.
* Milann Fertility has started to turnaround with demand reverting to pre-COVID level. Management expects strong growth under new CEO Mr Shailesh Guntu.
* HCG has one of the lowest doctor-related expenses (~15% of revenues) and the attrition rate is just ~5%.
* According to management, there is enough talent within the country.
Valuations and risks: We believe that the business has almost normalised and this growth trend will continue. Recent capital infusion has removed the key overhang of high leverage with repayment of debt from the fund raising exercise. We remain positive on the stock as the company appears well poised to grow hereon and strengthen its balance sheet with no major capex plan in the near term. Retain ADD with a TP of Rs292/share based on 16x FY23E EV/EBITDA. Key downside risks: Higher competition in oncology, and delay in operational turnaround of new centres.
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