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Our view:

Q1 FY22 was yet another disrupted quarter due to a severe COVID wave with COVID revenues at ~20% of revenues. We remove ~Rs900mn of HiTech revenues from FY22 sales as deal seems off the table – a direct fallout of the disruptive forces buffeting the sector. Uncertainty on the extent of rebound in non COVID patient footfalls would keep Q2 earnings (even as COVID recedes) under check; albeit, over the course of FY22/23, expect resumption of normalized 14‐15% footfall growth. Expect volumes to get a boost as company undertakes an expansion of patient service centres. At the same time, cost optimization efforts at the back end would keep margins from being diluted and through next 2‐3 years reckon ~30% OPM would be within sight. We introduce and roll over to FY24 estimates resulting in revised TP Rs3,030 (earlier Rs2,800) based on an unchanged 55x PE. Given that Metropolis has been a busy acquirer, expect some form of M&A to take shape after the unsuccessful Hitech deal.

Result Highlights

* Revenue per test and per patient distorted by COVID; underlying trends to remerge and stabilize post Q2   

* Expect gradual rebound in non COVID growth as patient footfalls revive; digital initiatives and expansion in patient service network on the cards

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