HealthCare Global Enterprises' Q4FY19 results (Outperformer) - Focus on consolidation; near term challenges
Q4FY19 result highlights
- Revenues grew by 16% yoy to Rs2.58bn below est with the HCG centres posting 18% growth yoy. Milann centres de-grew by -6.8% yoy.
- EBITDA stood higher at Rs322mn (flat yoy) vs est of Rs310mn. Margins stood lower at 12.5% (vs 11.6% in Q3) vs our est of 11.1%. Overall, the new centres (commissioned since FY16) generated higher EBITDA loss of 22mn vs loss of Rs48mn for Q3FY19. Existing centre EBITDA stood at Rs344mn (vs Rs337mn in Q3FY19).
- Interest cost was lower at Rs156mn (vs est of 190mn). Other income was lower while tax higher than estimates. Minority interest was also higher at Rs53m due to higher losses in few partner hospitals.
- Resultant there was PAT loss of Rs109mn vs our loss est of Rs67mn
- Mgt underlined strong focus on consolidation from FY20 onwards with no new centers planned beyond Gurugram / Kochi centers which may commission in FY21. Incremental capex to be primarily funded from internal accruals thereby limiting debt near FY19 levels of ~Rs6bn.
- Mgt indicated that Milann performance has dipped during FY19. The break-even of Borivali / Nashik units is delayed by 2 quarters. Oncology drug price control impact – Mgt feels that they will be able to contain the adverse impact emanating from this move. The same needs to be seen.
Impact on financials: We have reduced our FY20/FY21 EBITDA estimates by 13-14. PAT reduction is much steeper.
Valuations & view
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, as reflected in its breakeven within 12 months of commissioning for most units and limited start-up losses, significantly enhances comfort in the model’s scalability. Despite the likely near term earnings softness due to recent regulatory issues, delays in break-even in couple of large new units and weakness in Milann, we continue to like the growth potential of HCG unique business model, Maintain Outperformer with target price of Rs253 (16x FY21E EV/EBITDA).​
HealthCare Global Enterprises Limited is engaged in managing cancer hospitals, cancer centers and medical diagnostic services, including scientific testing and consultancy services in the pharmaceutical and medical sector. The Company is involved retail sale of pharmaceuticals, medical and orthopedic goods and toilet articles. It operates cancer care network under the HCG brand. It operates infertility treatment clinics providing assisted reproductive services under brand Milann. Its Milann fertility centers provide reproductive medicine services, including assisted reproduction, gynecological endoscopy and fertility preservation; and follow a multidisciplinary and technology-focused approach to diagnosis and treatment. Milann fertility centers also offer training programs for fertility specialists and embryologists. Under the Triesta brand, it provides clinical reference laboratory services with specialization in oncology, including molecular diagnostic services and genomic testing.
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