Metropolis Healthcare - Recovery slow; profitability strong- ICICI Securities

Metropolis Healthcare (Metropolis) reported Q3FY21 performance better than estimates on margins, although recovery in revenue growth remained slow. Non-COVID volumes (no. of patients) dropped 3.6% but its average realisation (revenue/patient) improved 4.4% YoY. Overall, revenue grew 23.3% YoY to Rs2.7bn (I-Sec: Rs2.9bn). EBITDA margin improved 300bps to 31.5% led by higher realisation and controlled costs. COVID-19 related RT-PCR tests contributed ~19% of total sales. The non-COVID revenue saw recovery but below expectation and we expect normalcy to be achieved by Q1FY22. We expect growth in non-COVID business to continue to improve in coming quarters. Aggressive network expansion with B2C focus and expectation of faster shift of market to organised players would help Metropolis to continue growth momentum. Retain ADD.

- Strong revenue growth led by COVID tests: Metropolis witnessed revenue growth of 23.3% while non-COVID tests remained flat YoY as normalcy is yet to be achieved. COVID-19 tests contributed ~19% to total sales vs ~35% in Q2FY21 and we expect this contribution to reduce further as realisation has dropped and so have COVID-19 cases. Realisation per patient (ex-COVID) improved 4.4% to Rs959 as share of B2C, specialised tests and home collection increased. We believe non-COVID volumes would improve in the coming quarters and expect double digit growth Q4FY21 onwards. The anti-body and anti-gen tests contributed ~2.5% of total sales. The tests per patient metrics remained steady at 2.05x.

- Higher B2C share and controlled costs helped in margin beat: Metropolis reported an EBITDA margin of 31.5%, an increase of 300bps YoY primarily because of higher realisation in non-COVID business driven by increased B2C share, specialised tests and home collection coupled with controlled costs. We expect B2C share to continue to rise, however, the cost base would increase with expansion plans. We estimate EBITDA margin to settle around ~30% in FY22-FY23E.

- Outlook: We expect Metropolis to register revenue, EBITDA and PAT growth at CAGRs of 17.1%, 21.5% and 20.6%, respectively, over FY20-FY23E including acquisition of Hitech Diagnostics. RoE and RoCE would remain strong at 28.7% and 21.8% respectively in FY23E but would be lower than current levels due to acquisition of Hitech. We are positive on the long-term outlook given strong brand franchise with sustainable growth, healthy FCF and potential shift of unorganised market to organised players.

- Valuation: We lower our revenue/EBITDA estimates by 4-5/2-3% to factor in lower COVID-19 test revenue and slow recovery in non-COVID business. We maintain ADD rating on the stock with a revised DCF-based target price of Rs2,308/share (earlier: Rs2,368/share) implying 46.1xFY23E EPS and 28.2xFY23E EV/EBITDA. Key downside risks: Higher-than-expected competition and pricing pressures.

Source : Equity Bulls

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