HealthCare Global Enterprises' Q4FY18 results (Outperformer) - Another steady quarter

Q4FY18 result highlights

• Revenues grew by 22% yoy to Rs2.22bn marginally higher than our estimate of Rs2.2bn with the HCG centres posting a growth of 21% yoy and the Milann centres growing 29% yoy.
• EBITDA stood higher at Rs322mn (+24 qoq) above our estimate of Rs305.  Margins stood higher at 14.5% (vs 12.6% in Q3) vs our est 13.8%. Overall, the new centres (commissioned since FY16) generated lower EBITDA loss of 21mn vs loss of Rs48mn for Q3FY18. Existing centre EBITDA stood higher at R343smn (vs Rs309mn in Q3FY18).
• Other income stood lower at Rs26mn vs est of Rs30mn. Depreciation stood higher at Rs213mn vs est of Rs180mn while tax rate was higher at 69%. Interest cost was higher at Rs145mn vs est of 105mn led by forex impact.
• Resultant there was PAT loss of Rs2mn vs profit Rs12mn in Q3FY18 and est of 35mn

Key positives: Lower losses from new centre and higher EBITDA from existing centres;

Key negatives: Higher depreciation and interest cost

Impact on financials: We have maintained our FY19E/FY20E EBITDA est

Valuations & view

HCG’s business model is custom designed to provide comprehensive cancer care at competitive prices on a pan-India basis, with focus on non-metro locations. The company’s asset light approach with focus on partnering has made its business model capital efficient and scalable. The fertility treatment segment, operated under brand Milann, follows broadly similar tenets. HCG is among the most scalable Indian healthcare models, with focus on high-potential cancer care/fertility segments. The successful ramp-up of recently commissioned centers, reflected in breakeven within 12m of commissioning and limited start-up losses, significantly enhances comfort of the model scalability. Steady growth across 18/9 existing/new cancer centres should trigger 20%+ revenue/earnings CAGR in the next 3-5 years with limited incremental capex spend. Given HCG’s strong growth visibility and unique business model, we maintain our Outperformer rating.