Recommendations From Hospital And Medical Service Sector

Here Is Why:

• Following an asset-light model, the return ratios are much higher compared to peers (RoE at 20 per cent and RoCE at 25 per cent)

• The company has been a generous dividend payer

• It is a leading player in medical tourism

The hospital bed availability in India stood at 9 per 10,000 in 2012, which was significantly lower than the WHO guidelines of 30 beds per 10,000 people. As such, India lags behind other developed and emerging economies in healthcare infrastructure. With the increasing penetration of health insurance, the demand for medical treatment in quality hospitals is expected to improve. Therefore, we have picked a stock from this space - one that is expected to show steady growth during the coming years.

Indraprastha Medical Corporation (IMCL) has been efficiently managed by Apollo Hospitals Group, a pioneer in hospital management for over 25 years. It offers affordable international standard medical care in New Delhi, providing 57 specialties under one roof. The hospital has high utilisation levels and the overall bed occupancy of the hospital has been consistent at an average of 82 per cent for the year. The current total bed strength is 716. IMCL has an asset-light model with nominal lease rentals to the Government of Delhi and therefore the return ratios such as RoE at around 20 per cent and RoCE at around 25 per cent are much higher compared to peers which require higher investment and gestation period.

IMCL is a pioneer in solid organ transplant surgeries and reported growth of 13 per cent in FY15, including 761 kidney and 316 liver transplants. Therapeutic and diagnostic modalities in the digital subtraction angiography laboratory increased from 372 to 435 — a growth of 17 per cent. With the Endoscopic Bronchial Ultra Sonography (EBUS) system acquired last year, it registered growth of more than 75 per cent compared to last year. A growth of 32 per cent was registered in bone marrow transplantation. From these facilities, the company has contributors accounting for over 50 per cent of the total revenues.

IMCL has consistently paid dividends in the past 10 years (around 50 per cent of the earnings). At the present price, the dividend yield is around 3 per cent. For the full year FY15, sales rose 5.06 per cent to Rs 693.46 crore in the year ended March 2015 as against Rs 660.03 crore during the previous year ended March 2014. The net profit declined 8.32 per cent to Rs 32.49 crore in the year ended March 2015 as against Rs 35.44 crore during the previous year ended March 2014. The company’s EBIDTA was Rs 85.83 crore compared to Rs 91.85 crore in the previous year due to EBITDA margin decline of 154 bps to 12.38 per cent in FY15.

As on March 2015, the company has a debt of Rs 35.41 crore, consequently translating into a debt to equity ratio of 0.18x. IMCL is a leading player in medical tourism. As the domestic healthcare industry has a large demand-supply gap, IMCL will report good performance in the future. Hence we recommend buying this stock, expecting 25-30 per cent upside in the next one year.