Buy Vijaya Diagnostic Centre Ltd Target Rs.5250 - Yes Securities
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Growth thesis intact
Result Synopsis
Vijaya reported a marginal miss on margin as Covid revenues jumped YoY – about 35- 40 days in the quarter were impacted particularly on radiology along with change in mix in pathology. Expect pickup from March to drive a better QoQ performance exCovid with support from launch of additional centres.
Vijaya was impacted by Covid tests for nearly half of 4Q leading to 2% YoY decline in non Covid revenues. This makes comparison difficult on the underlying dynamics in realization and volume growth in core business. Albeit, management did point out to pick up in March in radiology as such tests cannot be sampled at home unlike pathology. Vijaya, like other diagnostic companies, has been a beneficiary in terms of margin ramping up from pre Covid level; as Covid testing subsides, expect margin to settle at a level below that of FY21/22 but better than previous years as operating leverage continues for centres opened in the past. Addition of 15 centres would support volume growth while realization could be flat over next 2 years. Current fiscal would see growth moderation as Covid revenue declines followed by a pickup in FY24. Largely retain our estimates and TP Rs520 based on unchanged 38x FY24 EPS, at a discount to larger peers like Dr Lal and Metropolis – we note that scale benefits are offset by a retail-focused model of Vijaya.
Result Highlights
* Revenues up 4% YoY on back of 8% patient footfall growth; realization declines 4% YoY to Rs1,212 per patient
* Non Covid revenue down 2% YoY while Covid revenue up 54% YoY; patient footfall up 8% YoY
* Decline in non Covid business and rise in low margin Covid revenues led to margin decline of ~750bps YoY
* Higher depreciation & interest costs coupled with marginally lower other income lead to 25% YoY decline in PAT
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