Buy This Small-cap Healthcare Stock, Average Occupancy Rate Increased By 58%: Top Brokerage

Axis Securities, a top brokerage firm suggests investors buying the stock of Healthcare Global Enterprises Ltd. (HCG). HCG is the largest provider of cancer care in India under the HCG brand. The firm believes that HCG is well-placed to grow new patient registrations backed by its competitive strengths such as high-end works, strong brand recall, easy access to centers, and reasonable prices.

Stock To Buy: Target Price

The Current Market Price (CMP) of Healthcare Global Enterprises Ltd. is around Rs. 286. Axis Securities has estimated a Target Price for the stock at Rs. 330. This stock has the potential to give a 15% return, in the upcoming 1 year. It is a small-cap stock with a market capitalization of around Rs. 4,139 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 286
Target Price	Rs. 330
Potential 1 year return	15.00%
52 week high share price	Rs. 308.80
52 week low share price	Rs. 214.90

Stock Upside - outlook

Giving a buy rating, Axis Securities said, "HCG is expected to turn around its operating profitability with Operating EBITDA Margins improving by 680bps over FY21-FY24E, majorly driven by Operating leverage driven by the increase in Average Occupancy rates (53%-58%), increase in ARPOB led by the increase in international patients and high end works, and operating leverage in new centers that have already achieved break-even."

Average Revenue Per Occupied Bed

HCG's Average Revenue Per Occupied Bed (ARPOB) reached Rs. 38,345 (+21.9% Q3FY22 YoY) due to high end works such as robotic surgery and Cyberknife in Oncology verticals of Head & Neck, Urology, Bone Marrow transplantation, Liver Surgery and complicated tumours. Furthermore, the increase in the volume of international patients may improve ARPOB (Waned Covid-19 impact) in the upcoming quarters. (International patients comprise 2% of the sales now which was 6% before the Covid-19 pandemic).

Strong operating leverage

Given variable and fixed costs comprise 35% and 65% in hospitals respectively, we believe strong operating leverage in new centers may improve margins to 12%-15% over FY21-FY24E. We believe the current ARPOB are sustainable and may report a CAGR of 10% over FY21-FY24E.

Oncology opportunity

Oncology, with a 13% CAGR over FY16-19, is the fastest growing industry in the Healthcare market. The size of the Oncology industry is Rs. 165 Bn and reports 1.5 Mn new cases every year. HCG has been outpacing the industry growth with revenue CAGR of 19% and new patients' registration CAGR of 24.6% over FY16-FY19. The company has set up a strong network of 25 centers across the country which stands 2x the capacity of the immediate competitor.

Company Portfolio

HCG owns and operates comprehensive cancer diagnosis and treatment services (radiation therapy, medical oncology, and surgery). HCG has a network consisting of 25 comprehensive cancer centers, including the center of excellence in Bengaluru, and 1 center in Africa. Each of the comprehensive cancer center offers comprehensive cancer diagnosis and treatment services at a single location.

Disclaimer

The above stock was picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.