Buy HealthCare Global Enterprises; target of Rs 375: Prabhudas Lilladher

HCG’s consolidated post IND AS EBITDA grew healthy 21% YoY (4% QoQ) to Rs 747mn, in line with our estimates (Rs754mn). Adjusted for one time consulting (Rs50mn) and ESOP related charges (Rs12.9mn); was up by 28% YoY. Existing centers reported strong profitability with EBITDA growth of 30% YoY (4% QoQ) to Rs777mn, while new centers reported EBITDA at Rs 95mn (Rs 195mn in H1FY23). Margins improved by 10bps QoQ (25bps YoY) to 17.8% on cost rationalization initiatives. Margins adjusted for one off were at 19.3%. HCG’s asset light approach with focus on partnering has made its business model – capital efficient and scalable. The company operates most of its Comprehensive Cancer Centre (CCC) on lease/rental basis with HCG investing only in equipment’s. Out of 25 HCG’s CCC, only four are on owned land. HCG is in a consolidation mode and given reducing capex intensity, we expect profitability to improve further. Our FY23E and FY24E EBITDA stands increase by ~4-5%. We expect a 27% EBITDA CAGR over FY22-25E after adjusting for IND AS. At CMP, the stock trades at 15x FY24E EV/EBITDA adjusted for rentals.

Outlook

We maintain ‘Buy’ rating with revised TP of Rs375 (Rs358 earlier) valuing at 18x FY24E EV/EBITDA.

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