HealthCare Global Enterprises - Capital infusion removes key overhang of high debt - ICICI Securities

HealthCare Global Enterprises' (HCG) Q1FY21 performance weak impacted by lockdown on hospital that resulted in occupancy dropping to 32.4% vs 45.8% YoY. Q1FY21 revenues declined 28.0% YoY and EBITDA margin dropped 670bps to 10.0% largely due to the impact of pandemic. The company has received ~Rs5.1bn through preferential allotment of equity shares and equity warrants (25% amount received upfront) to Aceso Company Pte Ltd. (part of CVC group). The company will receive additional Rs1.4bn upon conversion of warrants including issued to promoters within the next 18 months. We believe this capital infusion removes the key overhang of high leverage with repayment of debt from this fund raising exercise. Maintain BUY.

- Low occupancy due to lockdown impacted revenues: Consolidated revenues declined 28.0% as occupancy dropped over 1300bps and ARPOB declined 2.5% YoY. Hospital business revenue dropped 25.5% and Milann (infertility) segment revenues declined 65.1%. Karnataka cluster declined 21.3%. Gujarat cluster was the worst impacted with revenue fall of 41.6%. However, the occupancies have improved in July across the business clusters and we expect the performance to gradually improve in coming quarters. We believe Gujarat and Maharashtra clusters would be the key growth drivers over FY20-FY22E. East India cluster witnessed positive growth of 3.3% on a low base.

- Preferential allotment to CVC Group and promoters: HCG is doing a total equity dilution of ~36% to raise ~Rs6.5bn at Rs130/share. This includes issue of 30mn equity shares and 19mn convertible warrants (partly already exercised) to CVC Group. This would result in CVC Group holding 35% of equity stake. Promoters have been issued 2mn convertible warrants. The promoter holding would come down to 15% of post issue equity capital. The company has already received Rs5.1bn including upfront amount of warrants and balance Rs1.4b would be received within next 18months when exercised. The CVC Group has also made an open offer to acquire 26% equity stake at Rs130/share.

- Outlook: Over all we expect 9.0% revenue and 12.6% EBITDA CAGR over FY20-FY22 with COVID-19 impacting FY21E. Capex phase is largely complete with no projects planned in the near term. We expect losses from new centres to narrow, aiding overall profitability improvement. The fund raise would help pare down the leverage, with net debt/EBITDA dropping below 2x from 5.1x in FY20.

- Valuations and risks: We factor in impact of COVID-19 in our estimates and hence, cut our revenue/EBITDA estimates by 6-13/10-26%. However, we raise target EV/EBITDA to 13x from 11x as the balance sheet strengthens with falling leverage which was the key overhang on valuations. Maintain BUY with a revised target of Rs156/share based on 13xFY22E EBITDA (earlier: Rs148). Key downside risks: Higher competition in oncology, and delay in operational turnaround of new centres.

Shares of HealthCare Global Enterprises Ltd was last trading in BSE at Rs.129.05 as compared to the previous close of Rs. 129.15. The total number of shares traded during the day was 11757 in over 189 trades.

The stock hit an intraday high of Rs. 130.45 and intraday low of 129.05. The net turnover during the day was Rs. 1526544.

Source : Equity Bulls

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