Thyrocare Technologies - Pricing in the growth uptick - ICICI Securities

Thyrocare Technologies' (Thyrocare) reported healthy Q2FY21 results supported by strong growth in COVID-19 tests and recovery in non-COVID tests. Consolidated revenue grew 31.8% YoY to Rs1.5bn (I-Sec: Rs1.6bn). EBITDA margin dropped 450bps YoY but improved 2540bps QoQ to 40.4% (I-Sec: 30.2%). The company conducted 0.6mn COVID-19 tests which contributed ~41% to total sales in Q2FY21. Regular pathology business witnessed a volume decline of 23.1% in the number of samples but improved sequentially with easing of lockdown. Current performance has largely benefited from COVID-19 tests (~41% of revenue), sustainability of which remains uncertain. Coupled with concern on slower growth in the base business and recent run up in the stock has made valuations expensive, hence we downgrade to REDUCE.

- Strong growth led by COVID-19 tests: The company witnessed revenue growth of 31.8% YoY and 172% QoQ driven by growing volume. Regular pathology (ex-COVID tests) witnessed a YoY decline of 23.1% in number of samples, but QoQ it improved 126% with easing of lockdown. RT-PCR tests witnessed a 227% QoQ jump in volume and 104% rise in revenue despite declining realisations. Company also benefited from COVID-19 anti-body testing of 0.3mn samples in the quarter. Overall, COVID -19 tests generated Rs622mn of revenue in the quarter rising 166% QoQ and contributing ~41% of sales. Imaging business (Nueclear) also witnessed healthy recovery with 152% QoQ growth to Rs47mn (-45.3% YoY).

- EBITDA margin back to normal levels: Thyrocare reported EBITDA margin drop of 450bps YoY but grew 2540bps QoQ to 40.4%, better than our estimate of 30.2%. Sequential growth of revenue aided 1290bps improvement in gross margin. Despite rise in personnel costs and S,G&A expenses on absolute basis, as a percentage of sales the costs were sharply lower boosting margin. We believe S,G&A and personnel expenses would gradually increase with revenue as lockdown situation is easing restricting EBITDA margin around 40% for the next two years.

- Outlook: We raise our revenue and EBITDA estimates for FY21E by 27% and 35% to factor in COVID-19 tests and for FY22E-FY23E by 2-3% and 1-3% to factor in gradual recovery in non-COVID tests and lower cost structure. We expect non-COVID business to normalise in the coming months with pick up in the preventive care. Growth would be driven mainly by ~9% volume CAGR with stable realisation. Imaging business would continue to remain under pressure and we expect it to continue to negatively affect profitability.

- Valuations and risks: Concern on sustainability of COVID-19 revenue and slower growth in the base business coupled with recent run up in the stock has made valuations expensive, hence we downgrade to REDUCE from Hold with revised DCF-based target of Rs986/share, implying 33.2xFY23E earnings and 21.5x FY23E EBITDA. Key upside risks: faster recovery in preventive care business and incremental tie-ups with standalone labs for sample processing.

Shares of Thyrocare Technologies Ltd was last trading in BSE at Rs.1148.1 as compared to the previous close of Rs. 1138.15. The total number of shares traded during the day was 23305 in over 2489 trades.

The stock hit an intraday high of Rs. 1185.05 and intraday low of 1139.85. The net turnover during the day was Rs. 27218542.

Source : Equity Bulls

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