In the last one year, the stock of Krishna Institute of Medical Sciences (KIMS) has gained about 8% against a flat Sensex.
The stock hit its 52-week high of ₹1,532.15 on January 4, 2022, and at present, it is 12% below that level.
Now, some brokerages think the stock can gain more as the fundamental outlook of the company has improved.
Brokerage firm ICICI Securities has initiated coverage on KIMS stock with a buy rating and a target price of ₹1,565 per share, based on 17 times FY24E EBITDA. This target price implies a 16% upside in the stock from the current level.
KIMS is one of the leading multi-disciplinary integrated private healthcare services providers in Andhra Pradesh and Telangana. It operates a chain of multispecialty hospitals with a focus on tertiary and quaternary healthcare.
The brokerage firm highlighted that the company has a strong acquisitive history with a proven track record of execution. With recent acquisitions in Nashik and Nagpur and proposed expansion in Bangalore and Maharashtra, KIMS has found a new growth lever in addition to a strong foothold in its home markets.
"We are positive on the company’s long-term outlook considering: (1) strong brand recall in its home markets of Andhra Pradesh and Telangana, (ii) expansion in adjacent geographies, (iii) strong execution and prudent capital allocation, and (iv) healthy margins," said ICICI Securities.
Investment rationale by the brokerage
Hospital industry on a solid growth path: The brokerage firm is positive on the hospital industry overall and KIMS, being a key player, is on the radar of the brokerage.
India’s overall healthcare market is expected to grow at a CAGR of 15-17% between FY21 and FY25 driven by rising cases of non-communicable diseases, rising government expenditure on healthcare (including Ayushman Bharat Yojana), growing awareness, increasing affordability and pent-up demand due to the pandemic, said the brokerage.
Inpatients account for nearly 70% of the overall market for hospitals in value terms while the remaining is from outpatients.
Key player in southern India: KIMS has nine multispecialty hospitals (excluding Sunshine) in its home markets of Andhra Pradesh and Telangana, and is recognised for its capabilities in speciality care, ICICI said.
"The company is currently the leading player in key micro markets of the two states. Moreover, through the acquisition of Sunshine Hospitals (three hospitals), We expect KIMS to further consolidate the market in Telangana, said the brokerage firm.
The company follows an affordable pricing strategy whereby its services are priced lower than key competitors. ICICI highlighted that KIMS intends to add nearly 700 beds over three years in its home markets, which would further provide incremental revenues in addition to the current base.
Expansion in adjacent geographies: KIMS has identified Maharashtra, Bangalore, Chennai and central India as key regions to drive the next phase of its growth. It intends to enter these geographies through a series of partnerships with reputed doctors, to scale the operations further, the brokerage firm underscored.
KIMS has acquired majority stakes in Manavata Hospitals, Nashik (partnership with Dr. Raj Nagarkar) and Kingsway Hospital, Nagpur. The company also intends to set up a 350-bed hospital in Bangalore and a 300-bed facility in central India, over the next two-three years to further expand its operations, said ICICI Securities.
"Overall, we expect revenue to grow at a CAGR of 26.7% over FY22-FY24E led by the consolidation of Sunshine Hospitals and Kingsway Hospital, Nagpur. We expect the EBITDA margin to decline to about 28% due to the proposed expansions. RoCE is likely to depress from current levels due to high capex requirement for the expansions and acquisitions, yet remain healthy at nearly 18%, said ICICI Securities.
According to a MintGenie poll, 3 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.