Indraprastha Medical - Initiating Coverage - A short and sweet cure - Centrum

Rating: Buy; Target Price: Rs55; CMP: Rs35; Upside: 57.6%

A short and sweet cure

We initiate coverage on Indraprastha Medical Corporation (IMCL) with a Buy recommendation. IMCL has been efficiently managed by Apollo Hospitals Group, pioneers in the healthcare industry for over 25 years. In this resource scarce industry with a large demand supply gap, IMCL offers world class medical treatment at affordable cost. IMCL has consistently paid dividends in the past 10 years and grew by over 15%CAGR in the period. The company is a pioneer in kidney and liver transplantation and derived ~13% revenues from it in FY13. Our target price of Rs55 is based on 8xDec'15 EPS of Rs6.9. Key risk to our call is the pending PIL case in the Supreme Court on provision of free medicines and consumables to poor patients and the attrition of key doctors and para medical staff in its hospitals.

Efficient management to drive growth: IMCL has been efficiently managed by Apollo Hospitals Group, a pioneer in hospital management for over 25 years. It offers affordable international standard medical care in New Delhi offering 57 specialties under one roof. IMCL has been adjudged the best private multi-specialty hospital in Delhi for the fifth consecutive year. Its Noida hospital achieved break-even in FY13 and is operating at ~100% capacity utilisation. IMCL has an asset-light model with nominal lease rentals for its two hospitals. In the resource scarce healthcare industry, world class treatment at an affordable cost will drive future growth of the company.

Multiple growth drivers: IMCL is the pioneer in kidney and liver transplantations. The company achieved 57%CAGR in kidney transplantation and 34%CAGR in liver transplantation over FY10-FY13. These procedures collectively contributed ~13% to the company's revenues in FY13. IMCL is a leading player in medical tourism. We expect IMCL's medical tourism to grow at 17%CAGR to Rs1,130mn in FY16 from Rs703mn in FY13. The main growth driver will be patients from Tanzania. IMCL completed the expansion project of adding of 127 beds (22% addition) in FY13. The total number of beds has increased to 710 from 583. We expect these initiatives to drive future growth.

State-of-the-art hospitals: IMCL's two hospitals at Sarita Vihar and Noida are equipped with state-of-the-art facilities for liver and kidney transplantation, heart surgeries and ICU, dialysis, bone marrow transplants among others and has a Da Vinci robotic surgical system. IMCL's cardiac (CVS), neurology (CNS), oncology and orthopaedic segments are major revenue contributors accounting for over 52% of revenues. IMCL was accredited by Joint Commission International (JCI), US as the first internationally accredited hospital in India in 2005 and re-accredited in 2008 and 2011. Noida Hospital's Laboratory Services were re-accredited by National Accreditation Board for Testing and Calibration Labs (NABH) in March'13.

Valuations and key risks: IMCL has achieved 15.5%CAGR in revenues, 13.7%CAGR in EBIDTA and 7.1%CAGR in net profit over past 10 years. As the domestic healthcare industry has a large demand-supply gap, IMCL will report good performance in the future. We expect IMCL to report 15.4%CAGR in revenues, 23.5%CAGR in EBIDTA and 32.5%CAGR in net profit over FY14-16. We initiate coverage on IMCL with a Buy rating with target price of Rs55 based on 8x Dec'15 EPS of Rs6.9 with an upside of 57.6% from the CMP. Key risks to our call is the pending PIL case in the Supreme Court on providing free medicines and consumables and the attrition of key doctors and para-medical staff in its hospitals.

Source : Equity Bulls

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