Healthcare Global: Up 329% from COVID lows but down 17% from year's high; brokerages now see recovery in this stock

Healthcare Global Enterprises (HCG) has given exceptional returns to its investors in the past three years. Since hitting its all-time low of ₹62 per share in April 2020 during the COVID pandemic, the stock has surged 329 percent to trade around ₹266 (as on March 22, 2023).

Since hitting its 52-week high of ₹320 in November 2022, the stock has lost around 17 percent of its value. Healthcare Global has consistently given negative returns in the past four months till date.

The stock has fallen nearly six percent just in March month-to-date (MTD) and is down nearly 8 percent in 2023 year-to-date (YTD).

Brokerages are now turning ‘bullish’ towards the healthcare stock on the back of its strong expertise in oncology services, margin expansion outlook, robust growth levers, and expectations of double-digit revenue growth. Being bullish simply means they expect the sector to perform well and return above average value to its investors. 

Recently, brokerage house Dalal and Broacha initiated coverage on the stock with a target price of ₹391, indicating an upside of nearly 47 percent. Sharekhan also has a buy call on HCG with a potential upside of 33 percent over the next 12 months. Simply put, both the brokerages think the share price of Healthcare Global will rise 47% and 33%, respectively. 

About Healthcare Global

HCG, headquartered in Bengaluru, is the largest provider of cancer care in India under ‘HCG’ brand and a leading provider of fertility treatments under the ‘Milann’ brand. The company’s network comprises 22 comprehensive cancer centres across India (21 centres) and Africa (1 centre in Kenya), seven fertility centres in Bengaluru and North India, and four multispecialty hospitals in Ahmedabad and Bhavnagar. HCG’s comprehensive cancer centres provide expertise and advanced technologies for the effective diagnosis and treatment of cancer under one roof, while fertility centres provide integrated reproductive medicine services to patients.

Earnings

In the December quarter, the cancer care hospital chain posted a net profit of ₹42 crore as compared to a loss of ₹49.80 crore in the previous year. The hospital chain's net revenue jumped 18.66 percent to ₹423.91 crore versus ₹357.22 crore during the same quarter last year.

“We have seen growth in our volumes and patient count across modalities, and with increased awareness, investments in digital technology, marketing initiatives, and positive outcomes, we are optimistic about sustaining the growth momentum,” stated Raj Gore, CEO of HealthCare Global Enterprises.

Brokerage views

As per Dalal & Broacha, HCG is a story of how a doctorpreneur created a world-class cancer hospital chain. It is a brainchild of an oncologist whose radical & multi-disciplinary approach towards cancer treatment combined with the highest levels of research and technology in India is killing cancer affordably. The company is truly at an inflection point,  it said.

It pointed out that the company has delivered a positive adjusted profit after tax (PAT) of ₹32.1 crore in the nine months of FY23 (9MFY23) from an adjusted loss of ₹114 crore in FY21.

The firm has continued its streak of highest-ever revenue of ₹424.7 crore in the December quarter (Q3FY23), for the 8th straight quarter in a row and its highest-ever EBITDA of ₹75.5 crore in Q3FY23, for 7 quarters straight in a row, informed the brokerage and added that on the cashflow front company has always been positive with it expected to touch ₹280 crore by FY23E.

The company is also revamping its business model from owning the machines to renting it (Asset heavy business to asset-light leading to higher RoCE). Various other initiatives such as ramping up of emerging centres, hiring big-4 to drive business excellence, low incremental capex, change in go-to-market strategy, integration of various departments and centres, digital transformation & brand building activities are key drivers of revenue & growth, highlighted the brokerage. Also, HCG is actively looking for smaller acquisitions to drive future growth, it added.

With emerging centers already performing well, the drag on margins will lower and the company is confident of 200-300 bps margin improvement with 100-150 bps to be visible from Q1FY24 itself, predicted the brokerage. The company has engaged one of the Big-4 to start driving operational efficiencies at a one-time cost of ₹5 crore, it further informed.

With multiple levers in place HCG is all set for turnaround & growth, stated Dalal & Broacha.

Another brokerage, Sharekhan, also maintained its positive view on HCG with a potential upside of 33 percent over the next 12 months. It has a buy call on the stock with a target price of ₹355.

"The recent correction of 17 percent from its high provides a favourable risk-reward with valuations at 12x, 10x and 8x in its FY2023E, FY2024E, and FY2025E earnings," estimated the brokerage.

The brokerage highlighted that strong expertise in oncology services, pay-per-use equipment (asset-light model), and growing awareness for cancer care are some of the key growth levers to achieve double-digit revenue growth.

It further pointed out that the management has maintained its thrust on achieving over 20 percent EBITDA margin and RoCE of 20 percent over the next 2-3 years.

"HCG is scouting for inorganic opportunities in core markets to gain a higher share and consistent growth. With a leadership position and sustainable business model, HCG is a unique play in healthcare service providers. The company’s top management is focusing on making it a sustainable business model with efficient cash management to improve

shareholders’ value in the medium to long run. Further, the company might look to divest its stake in its non-focused IVF business – Milann – at suitable valuations to improve growth prospects of the core oncology care business and generate returns for shareholders," explained Sharekhan.

The brokerage estimated that the firm's revenue is expected to post a 16 percent CAGR to reach more than ₹2,000 crore in FY2025, led by healthy improvement in key business fundamentals. A scale-up in operations of the new centers will help them to fast breakeven and the increased contribution of Milann fertility services will help consolidated EBITDA margin to improve to 20 percent from 17 percent in FY2022, it forecasted. The company’s PAT is expected to stand at over ₹150 crore in FY2025 compared with a loss of ₹12 crore in FY2022, it further estimates.

The company remains one of the preferred picks in the healthcare space, it added. However, any pandemic-led disruption, slow scale-up in new centers, and increased competition for top players would act as key risks to Sharekhan's earnings estimates in the medium term, it cautioned.