HealthCare Global Enterprises - Recovery continues as expected - ICICI Securities

HealthCare Global Enterprises' (HCG) Q3FY21 performance was broadly inline with our estimates driven by continued sequential recovery in occupancy that improved to 43.6% vs 41.4% QoQ. Q3FY21 revenues declined 1.4% YoY and EBITDA margin dropped 270bps to 13.8%, but improved 170bps QoQ as revenue recovered. We expect the recovery trend to continue and normalcy to be achieved by Q1FY22E. Recent capital infusion has removed the key overhang of high leverage with repayment of debt from the fund raising exercise. We remain positive on the stock as the company is poised to grow positively Q4FY21 onwards and strengthening of balance sheet with no major capex plan in near term. Upgrade to BUY with a revised target price of Rs182/share.

- Revenue recovery on track: Consolidated revenues declined 1.4% primarily due to reduced footfall and surgeries on account of COVID-19. However, decent recovery has been observed on a sequential basis. Hospital business revenues were largely flattish on YoY basis with average occupancy improving to 43.6%. However, Milann (infertility) segment revenues declined 26.0% YoY. Karnataka cluster declined 1.6%. Gujarat cluster revenue remained flat. However, the occupancies have improved materially on QoQ basis to 43.6% vs 41.4% and we expect the performance to gradually improve in coming quarters with positive growth Q4FY21 onwards. We believe Gujarat and Maharashtra clusters would be the key growth drivers over FY20-FY23E. Maharashtra and East India cluster witnessed positive growth of 19.8% YoY and 5.0% YoY respectively.

- Margin trending in line with revenue recovery: EBITDA margin dropped 270bps YoY to 13.8% but improved 170bps QoQ with revenue recovery. Effective cost control on personnel and S,G&A fronts also helped which would be sustained. We expect EBITDA margin to normalise by H1FY22 with positive revenue growth and estimate 110bps improvement over FY20-FY23E.

- Outlook: Over all we expect 10.4% revenue and 12.7% EBITDA CAGR over FY20-FY23 with COVID-19 impacting FY21E performance. Capex phase is complete and no new projects are planned in the near term. We expect losses from new centres to narrow improving overall profitability. The recent fund raise has helped in paring down the leverage significantly, with net debt dropping to Rs3bn.

- Valuations and risks: We broadly maintain our estimates and remain positive on the stock considering focus on niche oncology healthcare services and potential to grow faster with strengthening of balance sheet post the recent fund raise. Considering recent fall in stock price, we upgrade the stock to BUY from Add with a revised target of Rs182/share based on 15xFY23E EBITDA (earlier: Rs173/share based on Sep'22E). 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.152 as compared to the previous close of Rs. 151.4. The total number of shares traded during the day was 9733 in over 410 trades.

The stock hit an intraday high of Rs. 154.35 and intraday low of 141.55. The net turnover during the day was Rs. 1451426.

Source : Equity Bulls

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