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Continues its strong momentum

* Posts 20%+ revenue growth in 2QFY26, for the fifth consecutive quarter, led by volume. Margin at 34.8% continued to show improvement (up 180bp QoQ).

* The significant business turnaround and strong performance make it an ideal candidate for a re-rating and trade at 40-45x on a two-year forward P/E.

* We have increased FY26F/27F EPS by ~8%/7%, respectively. Maintain ADD rating on the stock with an unchanged target price of Rs1,400.

In-line 2Q performance; margin improvement continues

The 2QFY26 performance of Thyrocare Technologies (Thyrocare) was in line with our estimate, with a beat on the margin front by 180bp. Revenue growth of 20%+ (22% vs. our estimate of 20%), for the fifth consecutive quarter, was driven by volume (tests growth of 21% YoY). Despite lower fever-related volume (down 26% YoY), volume growth was strong during the quarter. Realization growth (revenue/test) was 2% YoY. The radiology business reported flat revenue YoY as a couple of centres got impacted, which, going ahead, is expected to resume growth. On the positive news front, radiology business margin improved significantly by ~800bp QoQ to 19.7%. The EBITDA margin improvement of 180bp QoQ was due to operating leverage benefit. Nueclear Healthcare (NHL), its subsidiary, showed improvement on the gross margin front by 270bp QoQ. Thyrocare expects 2HFY26F margin to be in the similar range of 1HFY26 (~34%) and hence, we revise upwards our margin estimate for FY26F by 80bp to 32.6%.

A rerating candidate

Over FY23-25, Thyrocare’s revenue/EBITDA/PAT grew at a CAGR of 14%/23%/16%, respectively, with margin improvement of 400bp. Over FY25-27F, we expect Thyrocare’s revenue/EBITDA/PAT to register a CAGR of 16%/21%/27%, respectively, with margin improvement of 250bp and RoE/RoCE reaching 30-35%. The significant turnaround in its business and strong performance make it an ideal candidate for a rerating. We expect Thyrocare to trade at a valuation similar to that of Dr Lal Pathlabs (40- 45x two-year forward P/E) as against the long-term mean P/E valuation of 32x.

Other highlights

1) Tanzania business – Expects to double the revenue in FY26F and achieve breakeven in 18-24 months. 2) Despite passing on the entire Goods and Services Tax (GST) rate cut benefit to franchises and partners, Thyrocare expects the margin to remain stable. 3) GLP1 is expected to be a big opportunity and is in the process of launching complimentary packages regarding the therapy.

Maintain ADD rating with a higher target price of Rs1,400

We have revised upwards our FY26F/27F EPS by 8%/7%, respectively. We maintain our ADD rating on Thyrocare with an unchanged target price of Rs1,400. Any slowdown in volume and franchise addition is a downside risk.

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