ICICI Securities Recommends Buy This Small Cap Healthcare Sector Stock For 32% Gains

Leading brokerage firm ICICI Securities maintains a "Buy" call on Thyrocare Technologies Limited (Thyrocare) with the upgraded target price of Rs 834 per share. According to this given target price, the stock is likely to surge 32% from its current level. Thyrocare is a small-cap healthcare sector (Diagnostics) company. It is India's first fully automated diagnostic laboratory with a focus on providing quality at affordable costs to laboratories and hospitals in India and other countries. It has a market cap of Rs 3,364.92 crore.

Stock Outlook & Returns on investment

The stock of Thyrocare is currently trading at Rs 635.10 per share, down 0.89% from the previous close on NSE. The stock in a week has given 4.71% negative returns, and 5.63% negative returns in 1 month, respectively. In 3 Months, it gave 2.1% positive returns. Whereas in 1 year, it gave a massive 45.73% negative return. In 3 years, it gave 13.19% positive returns and in 5 years, 4.99% negative returns.

The stock recorded its 52-week high level at Rs 1,298 on 15 November 2021, and its 52-week low level at Rs 600 on 29 August 2022, respectively.

Business review

Non-covid business was up 5.6% QoQ to Rs1.2bn. Volumes remained flat QoQ while realisations per test improved by 4.6%. Non-covid revenue CAGR over 3 years stood at 3.1% with volumes growing 4.9% over the same period. Volume recovery in the base pathology business is slower than peers, but is expected to improve in the coming quarters, especially with integration of API Holdings (API). API's share in non-covid business stood at ~12% in Q2FY23 vs ~13% in Q1FY23. Imaging business revenue also reported strong growth of 30.4/13.9% YoY/QoQ with normalising footfalls. Margins declined 470bps QoQ to 23.4% due to limited room for operating leverage ESOP-related expenses (~Rs60mn). "We expect margins to remain under pressure due to aggressive expansion and high discounting on packages," the brokerage has said.

Outlook

According to the brokerage firm, On the high base of FY22 (due to gains from covid-related tests), we estimate revenue CAGR of only 2% over FY22-FY25E, as we introduce our FY25E estimates. Aggressive expansion and discounting in the packages would pressurise the EBITDA margin, which we expect to drop 950bps over the same period. We however expect volumes to grow over the longer term due to integration with API Holdings and aggressive growth strategy.

Valuations and risks

The brokerage on the valuation of the stock has said, "We cut our revenue estimates for FY23E by ~ 3% to factor-in the slower-than-expected volume pickup in the pathology business. We also lower our EBITDA estimate by 15% to account for increased expenses and lower revenue growth. We remain optimistic on the growth potential for the company, especially with integration of API Holdings. We maintain BUY with a revised DCF-based target price of Rs834/share (earlier: Rs960). Key downside risks: Slow recovery in the base business."

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.