IGI Logo

B2C-focused dominant Southern player

Vijaya Diagnostic (Vijaya) is one of the largest integrated diagnostic chains in southern India and is primarily based in Andhra Pradesh and Telangana. Other factors that differentiate Vijaya from other diagnostic chains are: 1) ~92% of business is its B2C (provides stickiness) and 2) it offers a comprehensive basket of diagnostic services in both pathology and radiology. Owing to its B2C focus and higher radiology contribution, Vijaya commands the highest margin (~44% in FY21) within the industry. The company’s focus on deeper expansion in its dominant regions, along with supportive macro factors and expectation of a faster shift of market to organised players will help it to maintain its growth momentum. Further expansion in East, especially in Kolkata, may drive medium to long term growth. We initiate coverage on the stock with BUY rating and target price of Rs700/share.

One of the largest South Indian chain with B2C focus:

South Indian diagnostic industry is estimated to grow at 13-14% CAGR over FY21-FY23E, a bit higher than industry growth of 12-13% led by higher than average non-communicable diseases and higher population above 15 years of age. Vijaya is one of the largest and a renowned integrated diagnostic chain in the southern India, particularly, Andhra Pradesh and Telangana (~96% of revenue). The company puts a lot of emphasis on its brand recall, customer service and superior quality which helps in pushing individual consumer business as well as brand strengthening. This is the key strategy to focus on the B2C business which contributed ~92% to Vijaya’s revenue in FY21. B2C business is not only more profitable than B2B but also provides high level of customer stickiness.

Integrated offering:

Unlike other large chains, Vijaya not only focuses on pathology services but also radiology services. In pathology, it offers 1,610 tests including 740 routines and 870 specialised tests. In radiology, its test menu has 220 basic and 320 advanced radiology tests including MRI, HRCT, SPECT, PET CT etc. Due to its focused approach, wide test menu, strong brand recall, B2C focus and continuous deepening of presence in key geographies, we expect the company to provide continuous industry-leading growth.

Strong margins with consistent free cashflow generation:

With higher radiology contribution and B2C focus, Vijaya commands best-in-industry EBITDA margin which we expect to continue and remain at ~41-42% in near to medium term. We expect revenues to grow at 15.3% CAGR with EBITDA/PAT CAGR of 13.0%/12.7% over FY21-FY24E. Despite continuous expansion, the company is likely to generate free cashflow of ~Rs3bn over FY21-24E. RoIC would improve to 42.5% by FY24E from 35% in FY21.

Initiate coverage with BUY:

We initiate coverage on Vijaya with BUY rating and DCFbased TP of Rs700(59.0x of FY24 P/E and 28.2x of FY24 EV/EBITDA). Key downside risks: Slowdown in growth in Southern region and regulatory hurdles.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer