IGI Logo

On strong footing

Strong margins compensate for topline miss  

Shalby’s (SHALBY IN) Q3FY24 revenue came in 6% below our estimate, but better margins helped EBITDA and PAT beat our estimates by 10% and 5%, respectively. In the hospitals segment (90% of revenue), occupancy was up 110bps YoY and EBITDA 25% YoY. The implant devices business and others continued to be weak.                 

Sanar acquisition accretive; other expansion plans on the anvil    

SHALBY recently acquired Sanar Hospital in Gurgaon, a high-end procedure-focused medical facility specifically targeting international patients. The valuation at ~2x EV/revenue seems reasonable to us. We build in the acquisition into our projections and expect it to be accretive to earnings. Franchisee center in Rajkhot is set to open late this quarter. Nashik hospital is seeing some delays though. We push out anticipated commissioning to FY26E in our projections. Plans for the Mumbai hospital are on track – we expected commissioning in mid-FY27.   

Expect high EBITDA growth to sustain

While we expect some softening in profitability for the overall Hospitals sector in the next 2-4 quarters, SHALBY may be an exception, with continued industry-beating EBITDA growth. We project 24% EBITDA growth in FY25E (partly helped by Sanar acquisition), followed by sustained mid-teen growth.         

Implant devices – Medium-term optimism   

SHALBY is yet to see smooth take-off in its Ortho implants business based out of the US. The management attributes this to supply-side issues related to sourcing certain instruments. It maintains the target of reaching USD 100mn annual revenue run rate in five years. We have not built in such upsides in this business.                    

Valuation: Reiterate Buy; TP raised to INR 364

We add Sanar acquisition and better margin outlook and push out Nashik bed addition to FY26E (from FY25E) in our projections, with the overall impact being 7%, 20% and 10% rise in FY24E, FY25E and FY26E core EPS. SHALBY currently trades at 28.6x FY25E core P/E. Our raised TP of INR 364 (from INR 321) is 31x FY26E core P/E plus cash per share. Worsening demand in the Hospitals space is the key risk to our call/estimates.

Please refer disclaimer at Report
SEBI Registration number is INH000000933