IGI Logo

COVID tests contribution reduces sharply

Thyrocare Technologies (Thyrocare) reported slower recovery in non-COVID business in Q3FY21 and contribution from COVID-19 has also declined considerably. Revenue grew 30.7% YoY to Rs1.4bn (I-Sec: Rs1.5bn). EBITDA margin dropped 550bps YoY (-450bps QoQ) to 35.9% (I-Sec: 39.3%). The company conducted 0.45mn COVID-19 tests which contributed ~24% to total sales in Q3FY21. Regular pathology business witnessed a volume decline of 5.6% in the number of samples but improved sequentially with easing of lockdown. The performance had been below estimates, though base business is gradually recovering. Considering recent correction in the stock which has made valuations reasonable, we upgrade it to HOLD from Reduce with a revised target price of Rs874/share (earlier: Rs925/share).

* Base business recovering; though revenue COVID tests reduces sharply: The company witnessed overall revenue growth of 30.7% YoY (-9.8% QoQ) driven recovery in non-COVID business. Volumes for regular pathology (non-COVID tests) declined 5.6% YoY (+6.1% QoQ) while its realisations grew 7.1% YoY (+7.4% QoQ), resulting in regular business growing 1.1% YoY (+13.9% QoQ). COVID-19 related tests witnessed a sequential decline of 24.3% in volumes. Coupled with sharp decline in realisations caused a QoQ fall of 45.6% in revenue. Contribution from COVID-19 tests during the quarter stood at ~24% of total sales, starkly lower than ~41% in Q2FY21. Imaging business also witnessed healthy recovery with 32.1% QoQ growth to Rs62mn (-25.0% YoY).

* Higher expenses drag EBITDA: Thyrocare reported EBITDA margin drop of 550bps YoY and 450bps QoQ to 35.9%, lower than our estimate of 39.3%. Sequential improvement in gross margin of 230bps was driven by lower contribution of COVID related revenue. However, rise of 31.5% in personnel costs and 4.9% S,G&A expenses dragged the EBITDA margin. Continued recovery in base pathology revenues would provide operating leverage lifting EBITDA margin to 39- 40% for the next two years.

* Outlook: We reduce our revenue and EBITDA estimates for FY21E-FY23E by 2-7% and 3-12% to factor in reducing contribution from COVID-19 tests and slower recovery in non-COVID business. Hereon, we expect non-COVID business to grow at normalised rates especially, the preventive care segment (~44% of revenue). Growth would be driven mainly by ~8% volume CAGR with stable realisation. Imaging business would improve but still remain muted on an overall basis.

* Valuations and risks: Considering ~23% fall in stock price since our downgrade in Oct’20, we upgrade it to HOLD from Reduce with revised DCF-based target of Rs874/share, implying 29.8xFY23E earnings and 19.6xFY23E EBITDA. Key upside risks: faster recovery in preventive care business and incremental tie-ups with standalone labs for sample processing. Key downside risks: slow recovery in the base business and growing losses in imaging business.

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