kredent_indian healthcare sector

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www.kredent.com [email protected]

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Equity Research

Indian Healthcare Industry:Poised For Growth

11th

January, 2010
http://www.kredent.com/mailto:[email protected]:[email protected]://www.kredent.com/


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Table of Contents

Process Flow Chart 03

Business Model 04

Parameter Evaluation Chart.. 06

Final Recommendations. 10

Overv iew of Indian Healthcare Sector

Introduction.. 11

Opportunities... 11

The Niche Sector: Wellness Sector. 15

Swot Analysis...19

Peer Comparison... .20

Zydus Wellness..... .21

Kovai Medical centre And Hospital Ltd....25

Disclaimer.29


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Process Flow

We choose all companies that were listed on BSE and werethere in the healthcare industry

A total of 17 listed companies were selected in this industry

In the next step, the various segments of this industry was

identified The companies with maximum presence in this segments and

those with niche presence were chosen

We short listed 12 companies on the basis of their businessmodels

In this stage we conducted a financial analysis of the above 12companies and scored them according to their performance in the

various ratios We also had a look at the market cap of the complete 17 companies

Stage 1

Stage 2

Stage 3

In the financial analysis we chose 7 out of 12 companies while inthe market cap category we chose 9 out of 17 companies

Then we chose those companies which was found common in the

above two categories Finally, after an extensive study of these companies we short listed

four companies

Stage 4


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Stage 1:

Study on business model and segmential presence

IT

WellnessCenters

SpecialtyHospitals

Biotech

DiagnosticCenters

MultispecialityHospitals

BusinessModel


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Stage 2:

The presence of the companies in the various segments of the industry is shown below:

Selection Grounds

CompaniesMultispecialty

hospitals Diagnostic Biotech ITSpecialtyhospitals Wellness

Apollo Hospitals EnterpriseLtd. Y Y N N N NChennai MeenakshiMultispeciality Hospital Ltd Y Y N N N NDolphin Medical ServicesLtd. N Y Y Y N NDr Agarwal's Eye Hospital

Ltd. N N N N Y NFortis Healthcare Ltd. Y N N N N NIndraprastha MedicalCorpn. Ltd. Y N N N N N

Invicta Meditek Ltd. N N N N N NKovai Medical Center &Hospital Ltd Y N N N N NLotus Eye Care HospitalLtd N N N N Y N

Malar Hospitals Ltd. N N N N Y N

NG Industries Ltd. Y Y N N N NNoida Medicare CentreLtd. Y Y N N N NSecunderabad HealthcareLtd. N N N N N NSiemens HealthcareDiagnostics Ltd. N Y N Y N N

Transgene Biotek Ltd. N N N N N N

Zydus Wellness N N N N N Y

Marico N N N N Y Y

Source: Kredent Group

On the basis of business model study, 12 companies were short listed and were put through thefinancial analysis scanner.


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Stage 3:

The various ratios taken for evaluation were considered to get an estimate of the overall performance ofthe companys health

RATIOS

ProfitabilityRatios

Pat margin

EBIT Margin

ROE ROCE Pat Growth

EPS Growth

Solvency ratios

InterestCoverage

Debt-equity

LiquidityRatios

CurrentRatio

OCF Ratio

Quick Ratio

ValuationRatios

PEG Ratio P/B

PE Ratio

Mkt.cap/Sales

Other Ratios

SalesGrowth

Retentionratio

Sales/TotalAssets


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The above 17 companies were analyzed on the basis of financial ratios and were marked according totheir performance in these various fields (ratios)

133

7

123

1714

813

129

13

0 5 10 15 20

Apollo Hospitals Enterpr ise Ltd.

Chennai Meenakshi Multispeciality

Hospital Ltd

Dolphin Medical Services Ltd.

Dr Agarwal'S Eye Hospital Ltd.

Fortis Healthcare Ltd.

Indraprastha Medical Corpn. Ltd.

Kovai Medical Center & Hospital Ltd

Lotus Eye Care Hospital Ltd

Marico Ltd.

Noida Medicare Centre Ltd.

Siemens Healthcare Diagnostics Ltd.

Zydus Wellness Ltd

Note: Higher score means good performance while lower score means poor performanceSource: Kredent Group


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The market cap of the companies was also considered in this stage. We selected a range in the market

cap for which the companies were to be chosen. The market cap of the companies is given below:

The companies who had their market cap in the range of 1100 crores to15 croreswere short listed

Name of the CompanyMarket cap(in cr.)

Marico Ltd. 6,314.97Apollo Hospitals Enterprise Ltd. 3,456.86

Fortis Healthcare Ltd. 2,669.10

Zydus Wellness Ltd 1,070.58

Indraprastha Medical Corporation Ltd. 372.19

Siemens Healthcare Diagnostics Ltd. 163.84

Kovai Medical Center & Hospital Ltd 110.41

Lotus Eye Care Hospital Ltd 73.1

Transgene Biotek Ltd. 71.5Malar Hospitals Ltd. 52.81

Dr Agarwal's Eye Hospital Ltd. 22.73

Noida Medicare Centre Ltd. 15.23

Dolphin Medical Services Ltd. 7.46

Chennai Meenakshi Multispecialty Hospital Ltd 6.72

Secunderabad Healthcare Ltd. 6.35

Socrus Bio Sciences Ltd 4.7

Invicta Meditek Ltd. 2.68Source: Ace Equity


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In the final step of stage 3 we selected the companys which performed well in the financial analysis and

also fell in the selected market cap range. The selection is represented below:Financial Analysis Market cap

Selected Companies

Source: Kredent Analysis

Zydus Wellness

Dr. Agarwals Eye

Hospital Ltd.

Noida Medicare centre

Ltd.

Kovai Medical Centre &Hospital Ltd.

Indrapastha Medical

Corpn. Ltd

Zydus Wellness Ltd

Indraprastha Medical

Corpn. Ltd.

Siemens Healthcare

Diagnostics Ltd.

Kovai Medical Center &

Hospital Ltd Lotus Eye Care Hospital

Ltd

Transgene Biotek Ltd.

Malar Hospitals Ltd.

Dr Agarwal'S EyeHospital Ltd.

Noida Medicare CentreLtd.

Apollo HospitalsEnterprise Ltd.

Dr Agarwal's EyeHospital Ltd.

Indraprastha Medical

Corporation. Ltd.

Kovai Medical Center

& Hospital Ltd

Marico Ltd.

Noida Medicare Centre

Ltd.

Zydus Wellness Ltd


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Recommendations

Finally, the above selected five companies were considered for detailed analysis. We went through thecompanys annual reports and management discussion & analysis section. We also analyzed theirsources of revenue, capex plans, individual risks, product range, etc. At the end, we came down to twocompanies, which are finally recommended.

Companies View

Zydus Wellness Ltd. Buy

Kovai Medical centre & Hospital Ltd. Buy


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Introduction

Healthcare industry is the world's largest industry with total revenues of approx US$ 2.8 Trillion (2005) It constitutes 5.2% of Indias GDP and employs 4 million people It is expected to grow at 15% per annum to US$78.6, reaching 6.1% of GDP and employing 9 million

people by 2012 The sector has registered a growth of 9.3% between 2000-2009, comparable to the sectoral growth

rate of other emerging economies such as China, Brazil and Mexico It is a US$ 35 billion industry in India, and is expected to reach over US$ 75 billion by 2012 and US$

150 billion by 2017 (CII). This would include pharmaceuticals, hospitals and diagnostics, healthinsurance and medical tourism

According to the IRDA, the Indian healthcare industry has the potential to show the same exponentiagrowth that the software industry showed in the past decade

Future of Healthcare in India

35

75

150

0

20

40

60

80

100

120

140

160

2009 2012E 2017E

US

$(in

bn)

Source: IBEF

Opportunities:

Healthcare is a non settling business, where the growth is non-cyclic in nature It has emerged as one of the most challenging as well as one of the largest service sector industries in

India The growth in the sector would be driven by healthcare facilities, both private and public sector

medical diagnostic and pathlabs and the medical insurance sector Of the sum, diagnostic and pathology services would account for $2.5 billion in 2012, more than

double its estimated current size of $1billion


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The growth in the segment is expected to be driven by consolidation in the industry and increasinginsurance penetration among the countrys population

Healthcare facilities, inclusive of public and private hospitals, the core sector, around which thehealthcare sector is centered, would continue to contribute over 70% of the total sector and touch afigure of $54.7 billion by 2012.

The various opportunities in the healthcare are segmented below

Medical Tourism:

According to the estimates of McKinsey and the CII, medical tourism in India could become a US$ 2billion industry by 2012

Medical tourism is predicted to grow at between 25-30 per cent annually ( Credit Suisse) In 2007, India treated 450,000 foreign patients ranking it second in medical tourism The advantage of this industry in India is many, like one of them being its cost effectiveness. It

provides better and cheap healthcare services than most of the other countries Treatment cost is lowest in India 20 per cent of the average cost incurred in the US, Singapore,

Thailand and South Africa

A number of private players including Max Healthcare, Apollo Hospitals, Fortis, Global Hospitals,Wockhardt, etc are already present in this sector The number of such players may get larger in times to come According to one estimate India's revenue from health care sector is expected to touch US$ 2.2 billion

from health tourists

Government has also introduced many new schemes to promote medical tourism in India like:

A new category of visa "Medical Visa" ('M'-Visa) has been introduced which can be given for aspecific purpose to foreign tourists coming into India

Reduction in custom tariffs on life saving medical equipments & clinical drugs

Depreciation rates have been increased for medical equipments under the Income Tax Laws Health insurance schemes to the poor & increased FDI limit from 2.6% to 5.1%

Health Insurance:

Health Insurance another sub-section of health care is poised to emerge as a US$ 3 bn industry in thenext three years


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Currently, it is standing at an estimated current size of $1 billion and is growing at 50 per cent Presently, there is a dismal health insurance penetration rate; only 10 per cent of the Indian population

has health insurance, which means that there is tremendous scope for growth in this area Large number of private players like Max New York life insurance and ICICI Prudential have entered

the market to cash on the booming phase

Growth in health insurance based on collected

premiums

0.711

5.75

0

1

2

3

4

5

6

7

2006 2009 2010E

U

S

$(Bn)

Source: PHD Chamber of Commerce and Industry

Increase in Lifestyle Diseases:

A shift from chronic diseases to lifestyle diseases like obesity, hypertension, diabetes and cardiacdiseases have been on rise due to lifestyle problems

Problems like career challenges and the demand for long working hours are detrimental to the adultpopulation while the middle-aged group is affected because of excess household comfort

The above reasons have a negative impact on confidence, productivity and self-esteem Indians have a higher body fat percentage and high incidence of abdominal obesity One in every five Mumbaikars is obese, and 50 per cent of urban women and 40 per cent of men are

overweight (Kaya). One can have a very good idea about the % of Indians being obese from the tablebelow:

Obese people under various age groups (%)

Children under five years 1.9

Prevalence of adult male(>= 15 years) 1.3

Prevalence of adults female (>= 15 years) 2.8

Source: WHO

Another lifestyle disease which is on rise is diabetes


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India has a dubious distinction of having the largest number of people with diabetes Every year 6 million people develop diabetes

In 1985, there were an estimated 30 million people but today, it affects more than 230 million people Recent studies have shown that for every person known to have diabetes, there are more than 2

people who have diabetes but are unaware of it In fact, many persons with Type II diabetes already show the presence of the long term complications

associated with diabetes at the time of diagnosis

Participation of PEs

The Indian healthcare industry, is attracting investment opportunities from private equity (PE) andventure capital (VC) firms

There is a huge demand supply gap in healthcare delivery business in India as there are feworganized hospital chains.

Pharma, retail, medical equipment, diagnostics services are businesses where efficiency can bebrought in by private investments

Private sector plays a significant role by contributing 4.3% of GDP and 80% share of healthcareprovision

The medical technology market was worth about $2.7 billion in 2006 and is likely to cross $10 billion by2012 with a growth rate of over 20 per cent

With the Indian software and hardware strengths, India will be a strong source for such products in

emerging markets Most MNCs are currently sourcing their products from China through OEM arrangements, joint

ventures or own manufacturing facilities Given the overall increase in prices in China, there are significant chances of India becoming a

potential alternate sourcing centre for such MNCs The different branches of healthcare where the private players are trying to make its foray are:

Diagnostic centers: The first investment of $6 million occurred in 2005, followed by another $4million in 2007. VC firm Sequoia Capital India has so far invested $10 million in Dr Lal PathLabs for a minority stake.

Hospitals: When it comes to urban areas, it is the hospitals which receive the maximum chunkof funds. In 2006, hospitals attracted 18 per cent of the total Healthcare PE investments.

Other Areas of Investment: Some of the new targets and focus areas of PE funds would bepharmacy retail chains, health and wellness centers, spas, ayurvedic and herbal skin, slimmingand beauty centers which are primarily consumer-oriented sectors. With Pantaloon Retail Indiaplanning to launch 'Health Village', and Reliance Retail launching Reliance Wellness, thissector is definitely forecasted to draw more PE funding. Corporate hospitals have shown how


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healthcare is a profitable business and thus the funds believe the other healthcare area to alsofollow the same trend

The New Wave In The Healthcare: Wellness

Wellness is being heralded as the sunrise industry of the 21st century Indian wellness services market is a US$ 2.26 billion industry Evolving lifestyle trends have revolutionized the human mindset, and a great deal of importance is now

attached to concepts such as Wellness Currently, the approach to Wellness is proactive rather than reactive While ayurveda, health foods and drinks and tonics have traditionally been integral to the Indian diet

Indians are now increasingly looking at new avenues of wellness, in line with their proactive approach To maintain and improve their Wellness, they engage in activities such as regular exercise, massage

therapies and counseling On the supply side too, industry players are increasingly moving away from curative wellbeing to

preventive and lifestyle wellbeing by providing services ranging from health-oriented hospitalspharmacies to rejuvenation based spas and yoga centers and beauty-based salons, gyms andcosmetic procedures

Increased consumer focus, along with favorable supply dynamics, has put the Wellness industry in a

sweet spot At the same time, services such as ayurveda treatment, alternative treatment centers and salons

require much lower investment and also have lower payback periods of up to three years

Wellness can be segmented into two broad categories: physical and social

Physical Wellness includes all activities related to fitness and the prevention of physical ailments.

Allopathy: Hospitals and pharmacies.

Alternative therapies: Ayurvedic medicines, products and treatments.

Social Wellness encompasses elements of mental, emotional and lifestyle wellbeing, and social Wellnessservices primarily cater to needs such as esteem, aesthetics and self-realization. They can be classifiedinto more sub-categories:

Nutrition: Dietary supplements and health and convenience foods Rejuvenation: Spas and yoga centers Exercise and fitness: Gyms and slimming centers


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Beauty: Salons and cosmetic procedures (both surgical and nonsurgical) Counselling: Professional counseling on nutrition, diet and emotional wellbeing

Holidays: Travel services

Factors affecting the wellness industry

Indian wellness industry is poised to grow at a double-digit rate over the next five years, with certain sectors, suchas spas and beauty treatments, projected to grow at more than 3540%

Moreover, given that few organized players currently exist in most Wellness segments, the opportunity for corporateand organized players is significant

Wellness sector is poised to grow because of the following growth factors:

Demand Based Factors

Enhanced awareness due toseamless international mobility

Increased disposable income andhigher discretionary spending hasled to conspicuous consumption

Need for more convenience beingdriven by changing lifestyle trends,with focus on health

People are increasingly workingtoward holistic wellness, whichincludes not only physical, but also

emotional and social

Supply-Based Factors

Multiple new channels beingexplored to offer a variety ofWellness-based products andservices

Wellness-based programs beinggiven more focus thereby,providing a platform to increasepublic awareness and also toshowcase innovative products andservices

With the entry of multiple

international companies the Indianmarket will further expand leavingthe customers with more choices


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Government Initiatives:

Healthcare is one of the 7 thrust areas under the National Common Minimum Programme (NCMP) andimprovement in health continues to be an important part in the overall strategy for socio-economicdevelopment over the planning period.

The special focus given to Health Sector in the NCMP has formed the core of the programmesformulated under both Health and Family Welfare.

The National Rural Health Mission (NRHM) is the key plank for giving effect to the mandate of theNCMP.

The Government launched the National Rural Health Mission (NRHM) in 2005 It aims to provide quality healthcare for all and increase the expenditure on healthcare from 0.9 pe

cent of GDP to 2-3 per cent of GDP by 2012 During the 2009 interim budget, the government allocated US$ 2.42 billion for NRHM The government has prioritized the health sector in the Eleventh Five Year Plan, recognizing its

significant potential and challenges The Tenth Plan period witnessed a transition in health care policies and strategies with the effecting of

an architectural correction in the healthcare delivery system at the primary and secondary level andthe steps taken to set in motion regional balance in the availability of tertiary healthcare facilities.

Wide ranging reforms and policy initiatives have been taken for improving health infrastructure andaddressing the healthcare needs of the population

Hurdles to be crossed

India has 16 per cent of the worlds population, 18 per cent of its mortality, 20 per cent of morbidity, yetthe countrys healthcare expenditure is a miniscule one per cent of global expenditure

As one of the fastest growing economies, it cannot continue to be ranked 171 out of the 175 countriessurveyed by WHO for percentage of GDP spent on public sector healthcare

According to WHO, India ranked 17th in terms of private sector health spending that is now at 4.3 per

cent of GDP The healthcare system has grown manifold over the past few years, but has not kept pace with the

rapid rise in population According to KPMG, against a world average of 4 beds per 1,000 people, India has just 0.7 There is an acute shortage of doctors, nurses, and an additional 0.7 million doctors are needed to

reach a doctor: population ratio of 1:1000 by 2025


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Another major problem is that many companies in this sector like VLCC, Himalaya, Workhardt andLifecare are not listed

Governments expenditure on healthcare is not as much as compared to other nations. As a result,private spending accounts for most of the healthcare expenditure in the country

The table below provides a comparison of India with other countries under various parameters

Particulars USA India China Japan

Number of physicians 730801 645825 1862630 270371

Hospital beds (per 10 000 population) 32 9 22 141

Per capita total expenditure on health (PPP int. $) 6719 86 216 2581

Total expenditure on health as percentage of GDP 15.3 3.6 4.6 8.1

Source: WHO


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Strength Cost-Effectiveness

Expanding Middle-class

Increased awareness among masses Good Infrastructure

One of the major drug suppliers

Weakness Lack of Quality &

Accreditation Absence of

necessaryinfrastructures

Lack of qualifiedprofessionals

High advertising &promotion costs

Threats: Competition from

other countries Presence of more

unorganized playerscompared toorganized ones

Absence of statutory& regulatorycompliances

Opportunities Shift of demand from preventive to curative

approach Demand for personalized healthcare

solutions Medical Tourism

Emerging Health Insurance Market Growth of Telemedicine


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Peer Comparison:

Particulars ZydusWellness

Dr.AgarwalsEye Hospital

NoidaMedicarecentre

Kovai MedicalCentre &Hospital

Net sales (Rs cr) 194.74 72.77 25.04 110.36

EBITDA Margins (%) 19.89 12.99 29.43 30.15

Net Profit (Rs cr) 25.41 0.19 2.12 22.21

Net profit Margins (%) 12.98 0.26 8.38 19.91

EPS 6.52 0.42 2.26 20.38

BVPS 3.53 4.18 - 37.43

CMP 273.25 51 16 102.75

P/E 41.90 121.42 7.07 5.04

P/B 3.96 54.26 - 5.03

Dividend-Yield 0.02 0.00 0.00 0.01

Market Cap/Sales 5.47 0.32 0.60 1.01

Source: Annual Report & Ace Equity


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Zydus Wellness Ltd.

BSE : 531335NSE : ZYDUSWELLBloomberg : ZYWL:INCMP : 273.25Sector : HealthcareView : Buy

Key Metrics as on 11th January, 2010

Listing BSE

Current Price (Rs) 262.40

Market Cap (Rs Cr) 1023.36

Free Float (%) 27.49

52-WEEK HIGH (Rs) 301.65

52-WEEK LOW (Rs) 52.00

BETA 0.63

P/B (x) 14.86

Current P/E (x) 40.24PEG Ratio 19.11

Dividend Yield (%) 0.02

Price Performance

Period Stock BSE

1 M -3.95 1.74

3 M 51.07 4.06

1 Year 274.86 86.33

Shareholders Pattern as on 30th Sep 2009

PROMOTER 72.51

FII 1.94

DII 16.66

PUBLIC 6.66

OTHERS 2.23

Company Background:

Zydus wellness forayed into the wellness sector bymerging consumer healthcare business of Cadilahealthcare Ltd. It provides wholesome options for healthyliving through the best of healthcare, nutrition andcosmeceuticals and has strong brand presence in allthese segments.

Investment Rationale:

It has launched Indias first skincare designed formales called MENZ, thus having a first moveradvantage

It has plans for setting up manufacturing facility forsugar-free and everyuth in sikkim

It has a strong presence in the cosmetic industrythrough brands like everyuth and menz

It is present in the health food segment with productslike nutralite, sugar-free sweetener and low calorie

health drinks (Dlite) It has a market coverage of over 80% in the sugarsubstitutes segment

It has a strong, creative and innovative marketing andbrand management strategies, forming the backboneof the consumer business

Dominant focus to accelerate the top line throughincreased manpower to rope in institutions andmodern retail formats

It has a pan India presence through a distributionnetwork of over 1 lakh outlets

Key Risks:

Increase in prices of key inputs like refined vegetableoil and aspartame used in butter and sugarsubstitutes respectively has led to an increase in theraw material costs of the company

Fluctuations in foreign-exchange earnings


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ECONOMIC ACTIVITIES

The key product of the company includes:

Everyuth Menz Nutralite Sugarfree :

Sugarfree Gold Sugarfree Natura Sugarfree Dlite: Ready to drink and powder drink

Management Personnel:

Chairman: Mukesh M.Patel;

Also in the board of directors of Hitachi Home % Life Solutions,

Sandesh Ltd., FICCI, German Remedies Ltd.

Managing Director: Jitendra R. Patel

Board of directors:

Pankaj R. Patel H. Dhanrajgir Ganesh N. Nayek

Dr. Sharvil P. Patel


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Financial AnalysisAnnual:

Key Ratios 2006 2007 2008 2009

Sales (Rs. Cr) 30.91 42.7 56.33 194.74

Net Profit (Rs. Cr) 2.48 2.41 4.57 25.41

EBITDA Margin (%) 16.25 10.53 11.7 19.89

EBIT Margin (%) 13.87 9.54 10.42 19.04

Net Profit Margin (%) 7.86 5.5 7.89 12.98

ROCE 13.84 10.75 17.3 32.87

Sales Growth % (YoY) 8.43 38.18 32.09 244.06

EPS growth (YoY) -37.32 -38.05 89.63 -20.16

Retention Ratio 0.77 0.77 0.88 0.7

OCF Growth (%) 151.88 -24.32 -194.1 -1694.0

Debt-Equity 0 0 0 0

ROE 19.71 12.81 20.25 54.37

Current Ratio 10.6 5.96 2.4 2.05Source: Annual report

Analysis:

The companys pat margin has increased to 12.98% in FY 09 from 7.89 in FY08 mainly because ofgrowth in sales

EBIT & EBITDA Margins have increased over the last three years because the raw material costs and

the employee cost as % of sales have decreased substantially over the last three years which waspartially offset by an increase in the S&A expenses as % of sales over the same period Depreciation and amortization expenses doubled since majority of capital expenditure was capitalized

in Jan08, thus, depreciation on this additional capital was charged on full year in FY09 Higher sales growth was achieved due to higher sales of product in cosmetic segment like Everyuth Retention ratio has been almost constant while OCF growth is positive in FY09 standing at 45.75 cr.

from -2.87 cr. in FY08


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The company is a debt free company and its ROE has increased by more than double because of theincrease in its paid-up capital

Current Ratio has decreased in FY09 compared to FY06 because of huge increase in the currentliabilities of the company due to increase in provisions and advances from customers

Quarterly:

Key Rat ios 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9

EBIT Margin (%) 17.05 24.02 10.09 17.8


Sales Growth (YoY) 579 -62.07 44.16 1.12

EPS growth (YoY) 26.28 -48.55 -28.09 70.31Source: BSE

Analysis:

The companies EBIT margin had increased in the last two quarters of FY08 but again fell in the first

quarter of FY09 because of high depreciation and amortization expenses

The Pat margins have also followed the same pattern of EBIT margin standing at 13.12% in thesecond quarter of FY09 higher than 7.83 of the first quarter of FY09 on account of low expenses

The sales growth of the company have been very fluctuating in the last few quarters which is a matterof concern

EPS growth has turned positive from the negative figures reported in the last quarters


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Kovai Medical Centre &Hospital Ltd.

BSE : 523323NSE : N.A.Bloomberg : KMC:INCMP : 102.75Sector : HealthcareView : Neutral

Key Metrics as on 11th January, 2010

Listing BSE

Current Price (Rs) 123.05

Market Cap (Rs Cr) 134.12

Free Float (%) 54.69

52-WEEK HIGH (Rs) 140

52-WEEK LOW (Rs) 43.00

BETA 0.41

P/B (x) 22.25

Current P/E (x) 6.04

PEG Ratio -

Dividend Yield (%) 0.01

Price Performance

Period Stock BSE

1 M 28.31 1.74

3 M 47.19 4.06

1 Year 115.5 86.33

Shareholders Pattern as on 30th Sep 2009

PROMOTER 45.31

FII -

DII 17.18

PUBLIC 19.76

OTHERS 17.75

Company Background:

Kovai Medical Centre & Hospital Ltd.is a 500 bed multi-disciplinary hospital with more than 50 medical disciplinesmanaged by highly qualified and skilled doctors andnurses. It is equipped with 11 operation theatres andtreats over 1000 patients everyday.

Investment Rationale:

The company is focused on increasing its top linegrowth and thus has strategically planned a Rs.200crore expansion plan around its present location inCoimbatore

It is recognized by the Royal College of Surgeons,Edinburgh to train AFRCS candidates. Under itsresearch & educational trust it offers graduate & postgraduate paramedical courses in various fields like inphysiotherapy, nursing pharmacy, physiotherapy,occupational therapy and nursing. It is also set toopen its own medical college in Coimbatore

It is recognized for organ transplant programmes bythe Govt. of Tamilnadu. It is one of the few centers inIndia to introduce new techniques in the treatment ofvarious specialized diseases.

The company has forayed into the treatment ofvarious lifestyle based diseases and is expected toreap profit in the light of the increasing trend in it. Ithas specialized clinics comprising of slim & diabeticcentre and also provides services related to cardiac,neuro and other fields

It has been consistently paying dividends to its

shareholders

Key Risks:

Mammoth investments required for expansion andmodernization programmes which may affect thefinancial health of the company in the initial years

The company is using a part of its internal funds forthe expansion of its campus


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ECONOMIC ACTIVITIES

The company provides all the facilities listed below:

Laboratory Services Pharmacy Blood Bank Artificial Limb Centre Immunization for Adults and Children Spech Therapy

Management Personnel:

Chairman & M.D: Dr. Nalla G Palaniswami

Vice Chairman & Joint Managing Director: Dr. Thavamani Devi Palaniswami

Board of Directors: Dr. Mohan S. Gounder Dr. Kasi K. Goundan

Dr. M. Manickam


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Financial AnalysisAnnual:

Key Ratios 2006 2007 2008 2009

Sales (Rs. Cr) 51.17 64.66 87.54 110.36

Net Profit (Rs. Cr) 40.91 51.06 18.38 22.21

EBITDA Margin (%) 90.6 90.98 30.67 30.15

EBIT Margin (%) 84.6 85.54 26.27 26.6


ROCE 106.64 79.15 28.12 22.95

Sales Growth % (YoY) 26.19 26.36 35.39 26.07

EPS growth (YoY) 2260.6 24.81 -64 20.84

Debt-Equity 0.27 2.91 2.54 3.4

Interest Coverage 50.34 49.38 7.4 6.6

Current-Ratio 1.57 2.99 2.61 4.64Source: Annual Report

Analysis:

EBITDA Margins has decreased in the last two years because of higher operating expenses like S&A,raw-materials and employee cost

EBIT & PAT Margins have also decreased in the last two years because of falling EBITDA

Sales growth has almost been consistent standing at 110.36 cr except in FY08 when the growth was

35.39% Debt-Equity ratio has increased significantly from 1.57 in FY06 to 3.45 in FY09 because of increase in

the secured loans

Current-ratio has increased over the 4 years because of significant increase in cash and bankbalances

Interest-coverage has decreased over the years which is not a good sign for the company


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Equity Research

Quarterly:

Key Rat ios 2 0 06 20 0 7 2 0 08 20 0 9

EBIT Margin (%) 28.28 28.78 30.09 32.4


Sales Growth (YoY) 2.39 1.77 4.55 7.68

EPS growth (YoY) 73.15 7.49 28.36 18.22Source: BSE

Analysis:

THE EBIT Margin of the company has increased marginally in the last two years standing at 32.4 cr. inthe second quarter of FY09

Pat Margin has increased in the last two years standing at 10.31 cr in the first quarter of FY09compared to 9.41 cr in the second quarter of FY09

Sales has gradually started increasing in the last few quarters and the growth had touched 4.55% inthe first quarter of FY09 against 7.68% in the second quarter of FY09

EPS growth has been very fluctuative over the last 4 years standing at 18.22 in the second quarter ofFY09


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Equity Research

Kredent Brokerage Services Limited

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