Buy This Small-Cap Healthcare Stock For Target Price Of Rs 597, Likely To Gain 66%: ICICI Securities

Stock Outlook & Returns

The current market price of the stock is Rs 360.35 per share at the time of writing, it was opened at Rs 365.65 per share. The 52-week low of the stock is Rs 295 per share and 52 week high is Rs 672 per share. It is a Healthcare sector small-cap company having a market capitalization of Rs 3,680 Crore. 

The stock was listed on the exchanges last year In September. The share price of the stock in the past one week has fallen nearly by 5.15%, whereas, in the past 1 month, gained around 18.79%. Its Return on investment is good over the last one month. However, in the last 3 months, the share price slid more than 3%. Whereas, in the last 6 months, the shares gave gained 23.78%. Since its listing on the exchange, the shares have fallen 41.84%.

Business review

Revenue declined 14.9% YoY in Q1FY23 due to waning covid-led revenues. Non-covid revenues witnessed healthy recovery and grew 11.7%/2.9% YoY/QoQ while covid revenues slumped 90% YoY and 82.1% QoQ. Overall realisation declined 16.5% YoY to Rs469/per test with falling covid contribution, but was largely stable QoQ. Total number of tests grew 2.3% to 2.23mn. On a high base, we expect 8.1% YoY volume growth over FY22-FY24E driven by the addition of new centres and increasing footfalls in non-covid segment (ex-covid, we expect volume to grow 15.8%). Higher contribution from radigy (36% in Q1FY23 vs 32%/31% in Q1FY22/Q4FY22), wellness packages (10% in Q1FY23 vs 4% in Q1FY22) and non-covid revenue supported gross margin expansion of 470bps YoY (290bps QoQ) to 87.5%. Higher expenses toward newer centers dragged EBITDA margin by 810bps YoY (-300bps QoQ) to 38.2%.

Concall highlights

1) Reiterated intent to add 14-15 centres this fiscal.

2) Rajahmundry facility to be inaugurated on 11th Aug'22. Expect annualised revenues of ~Rs 120mn-130mn once stabilised. Panjagutta centre to be launched in a couple of months and expect Rs 400mn annually.

3) Guidance: non-covid business to grow in double-digits in coming quarters. Revenue per patient to be ~Rs1,250-1,300.

Outlook

With higher contribution from radiology and B2C focus, Vijaya commands best-in-industry EBITDA margin, which we believe would likely continue and sustain above 40%. However, due to higher base of covid, we expect revenue to grow at 5.1% CAGR over FY22-FY24E. Due to fall in the margin-accretive covid business and cost inflation, we estimate EBITDA to grow at a CAGR of 2.9% over FY22-FY24E with 180bps decline in margins. Despite continuous expansion, the company is likely to generate free cashflow of ~Rs1.8bn over FY23E-FY24E.

Valuation, Recommendation and Risks

According to the brokerage firm, Vijaya Diagnostic Centre's (Vijaya) Q1FY23 performance was broadly in line with our estimates with revenue declining 14.9% YoY to Rs1.0bn (I-Sec: Rs1.0bn) on a high covid base. EBITDA margin contracted 810bps YoY and 300bps QoQ to 38.2% (I-Sec: 41%) due to higher expenses linked with new centres. Non-covid revenues witnessed healthy YoY growth at 11.7% led by recovery in footfalls. Covid revenue slumped 90% YoY to Rs32mn.

"We remain positive on the stock mainly due to the company's B2C focus (95% of revenue in Q1FY23), highest margin within the industry and continued focus on deeper expansion in its dominant regions. These strengths synergise with supportive macro factors, including the likelihood of a faster shift of market to organised players. Further expansion in east, especially Kolkata, may drive mediumto long-term growth. However, intense competition may affect near-term performance," the broekrage stated.

"We cut our revenue and EBITDA estimates by 2-3% each year for FY23E and FY24E to factor-in loss of revenue from covid business, cost pressures and increasing competition. Retain BUY with a revised DCF-based target price of Rs597/share (earlier: Rs614)," the brokerage said.

According to the brokerage firm, the key downside risks are Slowdown in growth in southern region, and regulatory hurdles.

About - Vijaya Diagnostic Centre Limited

Vijaya Diagnostic Centre Limited is India's largest comprehensive diagnostic network with over 90 state-of-the-art centres spread across 15 cities. Vijaya Diagnostic Centre has a qualified team of over 2200 professionals consisting of some of the country's top radiologists, pathologists and healthcare professionals. This has enabled oriented diagnostic services that help us in establishing trust and reliability with our patients.

Vijaya Diagnostic Centre helps facilitate the provision of timely, affordable and state-of-art diagnostic care in a safe and secure environment. At Vijaya Diagnostic Centre, we understand that high quality and reliable diagnostic findings are critical for superior clinical outcomes. Vijaya Diagnostic Centre Diagnostic space is equipped with instruments and devices of highest technical standards and managed by the most skilled Radiologists & Pathologists thereby meeting the needs of the physicians and patients.