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Our Take:

Thyrocare Technologies Ltd (TTL) is the fourth-largest diagnostics chain in India, specialising in cost-effective pathological biochemical testing. It works on a low-cost business model to make wellness and preventive care affordable and accessible to all the citizens, for promoting healthy living. It focuses on strong technologies, strong brands and strong systems that enable all its laboratories to remain at par with global standards in quality service at cost-effective prices. Being a low cost operator with a disruptive business model, we believe it has abundant market opportunity to grow and expand its business. TTL have established a robust B2B model by servicing laboratories, hospitals, and doctors as well as catering to individual patients’ need.

Thyrocare has a differentiated business model with clinical biochemistry at its core. It has a strong focus on limited menu of preventive and wellness tests (under the Aarogyam brand). It operates an asset-light, scalable, franchisee-led model with centralized IT enabled laboratory that ensures cost-efficient testing at a quick turnaround. Given the fact that it is the leader in preventive care diagnostic test offerings with ‘Aarogyam’ brand and recognizes the growth opportunity in this segment, it is well-positioned to leverage its expertise and brand. In the new post-COVID normal, we believe that people's demand for assessing self-immunity and frequency of preventive checkups will increase, which will further add to the topline as TTL offers these tests at affordable costs.

View & Recommendation :

Thyrocare Technologies has an asset light model with a comfortable business risk profile because of its focus on increasing its volumes at affordable costs. The management is focused to broadening its B2B network and strengthening its branded franchise centers across India. The company’s model of low pricing/high volume strategy will aid quick recovery in non-COVID tests as we expect the economy to normalize in the coming months with pick-up in the preventive care segment. Faster shift of unorganized business to organized players, potential consolidation, likely increase in preventive check-ups and sizeable scale would benefit large organized players like TTL. Considering the strong historic growth profile, well-established brand image and robust return ratios, we believe that there is a scope for re-rating of this stock. We think the base case fair value of the stock is Rs. 966 (32x FY23E EPS) and the bull case fair value is Rs. 1026 (34x FY32E EPS) over the next two quarters. Investors can buy the stock at LTP and add on dips to Rs.770-772 band (25.5x FY23E EPS). At the LTP of Rs. 866.6 it quotes at 28.7x FY23E EPS.

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