Buy This Multibagger Small Cap Healthcare Sector Stock, Shares Can Surge: ICICI Securities

ICICI Securities has recently published a report on HealthCare Global Enterprises Ltd. has suggested buy the stock of the company for a target price of Rs 339 apiece. Considering the brokerage estimated target price, the stock of HealthCare Global Enterprises could surge 24% in 12 months. HealthCare Global Enterprises is a small-cap Hospital & Allied Services sector company. It has a market capitalization of Rs 3,815.99 crore.

Stock Outlook

The current market price of HealthCare Global Enterprises' stock is Rs 271.70 apiece. The 52-week low of the stock was recorded on February 25, 2022, at Rs 214.90 apiece and the 52-week high was recorded on April 13, 2022, at Rs 308.80 apiece. 

Returns over the years

In the past 1 week, the stock gave a negative return of 0.66% and in the past 1 month, it gave a 5% negative return, respectively. However, in the past 1 year, the stock has gained 13.36%. In the past 3 years, it has given a multibagger return of 171.5%. In the past 5 years, it has given a positive return, roughly 0.63%. 

Key Highlights

The brokerage met the management of HealthCare Global Enterprises (HCG) to discuss the company's performance and strategy. Here are the key highlights:

• HCG reiterates its focus on: i) cost rationalisation, ii) talent upgrade, and iii) digital transformation. It intends to stick to its core competency area of oncology and has no plans to venture into other therapy areas.
• International patients: i) Alongside Bangalore hospital, Mumbai and Kolkata too are witnessing good inflow of patients. Proximity to Bangladesh (which contributes highest volumes in terms of medical tourism) should bode well for the Kolkata hospital, and ii) on absolute terms, revenues from international patients have increased to 1.5x pre-covid levels.
• HCG launched a new website in Jan'22 and has trebeled the traffic hits since its launch. Moreover, it has also implemented an improved CRM system for better servicing of patients.
• Inorganic activity: HCG is selectively assessing assets for acquisition to further strengthen its foothold in the oncology hospital space. It is looking at standalone oncology hospitals that would be EBITDA-accretive from the onset and be available at reasonable valuations.
• Tier-2 city hospitals bear a significant discount in terms of ARPOB. While ARPOB in the tier-1 city hospitals typically stands at ~Rs60,000, it would be ~Rs30,000 in the tier-2 city hospitals.
• 85% of the treatments for cancer can be completed in HCG's tier-2 city hospitals.
• Company expects its new hospitals to achieve operational and financial performance similar to the existing hospitals over ~18-24 months, during which their RoCE would gradually rise to double digits.
• Milann: Company is not in a hurry to divest the Milann business, but intends to scale it up to a certain level without any need for expansion.
• HCG believes that its ongoing digitisation activities are necessary and it intends to spend an additional ~Rs200mn (capex + opex) on it.
• Company expects to reach peak occupancy of ~80% (on operational beds) in the next 2-3 years.

Valuations

According to the brokerage firm, "Comfortable debt levels with limited capex plans provide room to explore additional growth opportunities and drive efficiency at the newer hospitals. Hence, we remain positive on HCG and retain our BUY rating with a target price of Rs339/share based on 15x FY24E EV/EBITDA."

Key downside risks

Higher competition in oncology, and delay in operational turnaround of new centres.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.