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Q2 numbers reflect non-Covid momentum…

About the stock: Started by renowned orthopaedic surgeon Dr Vikram Shah, Shalby is a multi-specialty hospitals chain with specific expertise in joint replacement. The total bed capacity was at 2112 (FY21).

* Therapy-wise breakup Q2FY22: anthroplasty:37%, critical care & general medicine: 13%, orthopaedic: 11%, oncology:8%, cardiac science:8%, neurology 5%, nephrology:3%, others:16%

* Shalby registered a blended ARPOB of | 33,977 and ALOS of 4.02 days (without day care procedures) in Q2FY22

* Acquisition of US based Consensus to diversify into related implant business besides supporting arthroplasty and orthopaedic segments

Q2FY22 Results: Shalby reported steady Q2FY22 results ex-Covid.

* Sales were down 5.6% QoQ to | 181.6 crore  EBITDA was at | 29.4 crore, down 23% QoQ with margins at 16.2%

* Consequent adjusted PAT was at | 10.8 crore (down 46.6% QoQ)

What should investors do?

Shalby’s share price has grown by ~1.02x over the past three years (from ~| 148 in July 2018 to ~| 151 levels in Oct 2021).

* Maintain HOLD with a tab on RoCE improvement, consensus performance and progress on the franchisee model front

Target Price and Valuation: We value Shalby at | 170 based on SOTP valuation

Key triggers for future price performance:

* Shalby is a market leader in arthroplasty procedure (source: F&S Report). It has ~15% market share of all joint replacement surgeries conducted by organised private corporate hospitals in India

* Ongoing diversification of arthroplasty and orthopaedics with cardiac science, oncology and neuro-science

* Shalby has a debt free balance sheet, a unique feature among hospital chains, which are on expansion mode

* The management has set an inspirational target to achieve 2.5x sales in the next three to five years on the back of introduction of franchise model, better occupancies and new service offerings (home care & Shalby Care cards)

Alternate Stock Idea: Apart from Shalby, in our hospital coverage we like Narayana

* It has 21 hospitals, five heart centres, 19 primary care facilities and a multispeciality hospital in Cayman Islands with in total 5992 operational beds

* BUY with target price of | 620

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