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Heading in to H2 weakness

Our view

Margin remained at Q1 level for the quarter excluding one‐time benefit of consulting income. Company awaits volume recovery to pre‐Covid range in terms of discharges and whether there is a shift towards a more long‐lasting mix in favour of high end surgeries. Even so, Q2 margins appear underwhelming (due to higher surgeries related expenses) given the favourable mix. Q3 is likely to be weak quarter as Cayman faces seasonality headwind though better than expected H1 performance leads to ~18% EPS upgrade for FY22 leading to 9‐10% rise in FY23/24 estimates. With core hospitals business on a gradual path to margin improvement followed by some scope for rise in low‐yielding surgeries as patient volume rebounds further, we see little incremental triggers in the near term. Retain Reduce with largely unchanged TP Rs450 (earlier Rs440) based on 13x FY24 EV/EBIDTA.

Result Highlights

* Revenues were up 10% QoQ and 56% YoY as reducing Covid cases led to increasing footfalls.

* India revenues were up 68% but included Rs230mn of vaccine revenues. Patient footfalls increased but still lower than pre‐Covid period. ICU occupied days also increased by 2% YoY. Operating revenues for Cayman came in at US$19.7mn, a small increase YoY despite lower discharges. EBITDA for Cayman was US$8.3mn, coming at 42%.

* Consolidated EBITDA margin for the quarter was at 17.4% (including vaccine and St. Lucia), higher by 181bps QOQ. Company generated one‐time Rs215mn EBITDA from St. Lucia Hospital project management contract. 

Valuations

We see little incremental triggers in the near term. Retain Reduce with largely unchanged TP Rs450 (earlier Rs440) based on 13x FY24 EV/EBIDTA. 

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