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Recovery in Q1 with better margins…

About the stock: HCG operates one of the largest private cancer care networks in India with end-to-end solutions available under a single corporate entity. This consists of 22 comprehensive cancer centres that provide a single point destination for complete cancer care.

* Most centres are on a lease or rental basis with some in partnership with local doctors or hospitals

* Owing to exclusive agreement with vendors, HCG procures equipment on a deferred payment basis

Q1FY22 Results: HCG reported steady Q1FY22 results.

* Sales were up 8.4% QoQ to | 323.1 crore

* EBITDA in Q1FY22 was at | 51 crore, up 28% QoQ with margins at 16%

* Consequent adjusted loss for the quarter was at | 12.5 crore

What should investors do?

HCG’s share price grew mere 14% from its upper band of IPO came in March 2016.

* We maintain HOLD on the stock

Target Price and Valuation: We value HCG at | 238 (18x FY23E EV/EBITDA)

Key triggers for future price performance:

* HCG, with its integrated, one-stop-solution and focused model, is well poised to capture growing potential with pan-India focus on cancer therapy

* De-leveraging of balance sheet, reduction of losses across new centres have substantially eased legacy overhangs although weaker return ratio profile still remains a key concern for the stock

* It has recently appointed Raj Gore (ex-CEO – Southern region of Apollo Hospital) as CEO, which bodes well for the company

Alternate Stock Idea: Apart from HCG, 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 a target price of | 620

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