ICICI Securities on Medical consumable devices - Get set for 'home' run!

We believe the Indian medical device industry provides enough levers for sustainable healthy growth over the medium term (~2x the global industry growth rate), driven largely by the government's push for home-grown products and inherent demand in associated sectors. The sector is fragmented and dominated by MNCs but domestic players have upped their ante and captured market share over the past few years by providing high-quality products at affordable rates. We expect organised domestic companies to grow at ~18-20% over the medium term, benefiting from established brands, growing demand in export markets and industry tailwinds in the domestic market. We initiate coverage on Poly Medicure (Polymed) and Tarsons with a BUY rating.

- Multiple drivers to support domestic medical device industry: Domestic medical device industry is expected to grow at 12-13% CAGR over FY20-FY25E vs 5-6% CAGR for the global industry. The higher growth rate for the Indian industry is likely to be driven by multiple demand and supply side factors such as: 1) increase in healthcare facilities and demand for healthcare services (led by rising per capita income, disease awareness, chronic and non-chronic diseases, medical insurance), 2) government's focus on policy framework and ecosystem support (e.g. PLI schemes and dedicated parks) and 3) ability to provide quality products at competitive rates due to technological efficiency and low-cost labour supporting exports. Also, the enhanced government focus on Make in India initiative and health cess on imports are helping domestic manufacturers to curb the import dependency on MNCs.

- Domestic medical consumables segment to grow at 13% CAGR over FY20-25E: Domestic medical consumable market size is estimated at Rs125bn-135bn as of FY20 (20-25% of overall medical device market), growing at a CAGR of 12% over FY16-20. The segment is expected to grow at 13% CAGR over FY20-25E led by increased usage of consumables and disposables for infection protection and rise in medical procedures and treatments with increasing penetration of healthcare facilities in India.

Initiating coverage:

- Polymed - Initiate with BUY: We initiate coverage on Polymed with a BUY rating and a target price of Rs950 based on 25x FY24E EV/EBITDA. We like the company mainly due to its strong presence in the fast-growing medical disposable segment, industry tailwinds, leading market shares in key categories, entry into larger markets like the US, expanding into margin-accretive segments, and strong financials.

- Tarsons - Initiate with BUY: We Initiate coverage on Tarsons with a BUY rating and a target price of Rs781 based on 22x FY24E EV/EBITDA. We like the company for its strong domestic presence with a well-established distribution network, brand recall, favourable industry tailwinds, growing export opportunity and robust financials.

Key risks: Volatility in raw material prices, intensifying competition, disruption in distribution network and failure to comply with regulatory requirements.

Source : Equity Bulls

Keywords

ICICISecurities MedicalConsumbaleDevices Polymed Tarsons