Stock to Buy: This Small Cap Healthcare Service Provider Stock Gets Buy Call For 39% Gains

Edelweiss Wealth Research in its report on Metropolis Healthcare Ltd has given a buy call to the stock of the company for a target price of Rs 1,965/share. Considering the estimated target price and the current market price of the stock, it has a potential of 39% upside in 12 months. Metropolis Healthcare Ltd is a small cap Diagnostics company with a market capitalization of Rs 7,262.72 crore.

Stock Outlook & Returns

The current market price of the stock is Rs 1,419.20/share. The stock's 52-week low is Rs 1,355.50/share recorded on 23 August 2022, and the 52-week high is Rs 3,579.90/share recorded on 20 December 2021, respectively.

Returns on investment

The stock in the past 1 week moved up 0.27%. Whereas, in the past 1 and 3 months, it gave a negative return of 5.34% and 12.22%, respectively. Over the past 1 year, the stock has fallen 47.2%. In the past 3 years, it gave a positive return of 36.4%.

Healthy growth in non-Covid business

Metropolis Healthcare reported healthy revenue growth in its non-Covid business (up 26% YoY vs. Dr Lal - up 25% YoY, Thyrocare - up 33% YoY) on account of normalisation of core business, led by patient volume growth of 7.5% YoY and testing volume growth of 4.5% YoY. On a 3-year basis, non-Covid revenue rose at a CAGR of 9% (vs. Dr Lal - 13%, Thyrocare - 6%) over Q1FY20-Q1FY23. Revenue contribution from specialised tests decreased to 43% from 53% in Q1FY22, reflecting correction in realisation due to the steep fall in Covid revenue. In addition, B2C non-Covid revenue grew 28% YoY and B2C revenue share (non-Covid revenue) in focus cities stood at 60% in Q1FY23 vs. 59% in Q1FY22, which management aims to increase to 65% in the coming years by increasing the density of centres in focus cities. Furthermore, the company plans to add 419 service centres in FY23 in focus cities. Of these, 150 centres will be added in Mumbai, as existing centres were highly profitable, despite heightening competition in FY22.

Lab and service network expansion to affect EBITDA margin

Metropolis Healthcare reported 680bps YoY contraction in operating margin to 24.5% due to investments in labs and service network expansion; increase in employee cost on account of additions to the leadership team and front-end staff; and drop in Covid business revenue leading to operating deleverage. "We expect the planned network expansion and Hitech consolidation and investments in digitisation and marketing to affect operating margin in FY23. Management has guided for a target pre-Covid margin level, which ranged between 27-28%," the brokerage said.

Brokerage Maintain BUY rating for a target price of Rs 1,965

The company reported soft results with declining volumes due to erosion of Covid business, while pricing pressure led to decline in realisation per test. However, non-Covid revenue growth was healthy. EBITDA margin contracted YoY to 24.5% but remained flat sequentially. "We believe margins will remain under pressure in the near term and hover around the pre-Covid level in the coming quarters, as the company will continue to incur costs related to lab and service network expansion in FY23. The stock is currently trading at 33x FY23E and 27x FY24E earnings. We revise our earnings estimates downwards for FY23E and FY24E by 18% and 13%, respectively. We maintain BUY with a revised target price of INR1,965 (based on DCF)," the brokerage said.

About - Metropolis Healthcare Limited

Metropolis Healthcare Limited is one of the leading and renowned Indian diagnostics companies. The Company owns a chain of diagnostic centres across India, South Asia, Africa and the Middle East. Over the years, Metropolis has carved a niche for itself.

With its widespread operational network, Metropolis offers a comprehensive range of clinical laboratory tests and profiles. These tests and profiles are used for prediction, early detection, diagnostic screening, confirmation and/or monitoring of the disease.

Metropolis plays a pivotal role in raising the bar of diagnostic accuracy, technological equipment, customer experience and research-driven empathetic service in the industry.

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. 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.