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Our Take:

Shalby Ltd is one of the leading multi-specialty chains of hospitals in India, having a bed capacity of 2012 beds. Shalby has a strong presence in western and central India with 11 operational hospitals and has a network of 50+ outpatient clinics across 15 states in India and abroad to increase accessibility to quality healthcare. It has been a pioneer in the field of joint replacements in India, it is also one of the leading providers of quality and affordable healthcare services.

Shalby’s leadership position in the arthroplasty speciality (joint replacement) segment along with its increased diversification into cardiology, oncology, bariatrics and other non-arthroplasty segments have improved its brand equity. Shalby Ltd has plans to set up new hospitals through a calibrated expansion strategy. It is pursuing an asset light model of expansion through franchise route for orthopaedics and for joint replacement to expand its pan-India presence.

It is expanding its geographical presence by adding new OPD centres across India. It is also investing in the state-of-the-art technology and equipment notably in the cardiac and spine areas to provide best possible services and is focusing on digitalization including revamping the website and launching a very interactive Shalby app to serve the patients. Shalby under the leadership of Dr. Vikram Shah and the management team have demonstrated a strong operational track record of more than two decades in the healthcare industry.

Valuation & Recommendation:

Introduction of franchise model, better occupancies and new service offerings (home care & Shalby Care cards) are the key triggers for the company. Recent Implant facility acquisition will enable Shalby to procure quality implants at a competitive price for captive consumption. Potential to market these products in US and Asia would be significant growth driver.

The division’s growth will be further augmented by simultaneous accelerated growth of the franchisee model in India. Rapid ageing, greater life expectancy, lack of exercise and altered lifestyles are driving incidences of osteoarthritis (degenerative joint disease) among Indians.

Knee replacement surgery in India has been growing in double digits over the years. The company is likely to benefit from this trend due its strong market position and established brand name, especially in this segment. We believe the base case fair value of the stock is Rs 211 (31.5x FY23E EPS, 17.0x FY23E EV/EBITDA) and the bull case fair value of the stock is Rs 235 (35.2x FY23E EPS, 19.0x FY23E EV/EBITDA) over the next two quarters.

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