This Healthcare Stock Is A Buy For A 22% Upside, Says Sharekhan

Brokerage firm, Sharekhan has placed a "buy" call on the stock of Metropolis Healthcare for a near 22% upside from the current levels.

Financials of Metropolis Healthcare (estimates by Sharekhan)

	FY 2022 (E)	FY 2023 (E)
Revenues	Rs 1227.9	Rs 1398.1
Operating profits	Rs 370.3	Rs 429.3
EPS	Rs 44.4	Rs 52.6
Returns on capital employed	31.70%	31.30%
Net profits	Rs 226.9	Rs 268.8
RONW	26.30%	26.10%

The brokerage sees net profits surging to Rs 268.8 crores for FY 2023 from Rs 226.9, it is estimated to achieve in FY 2022- The above numbers are only estimates by the brokerage firm.

Rationale for buying the stock of Metropolis Healthcare

According to Sharekhan, there is an emphasis of the company on growing the lucrative business to consumer business. The company plans to increase the share of B2C segment in focus cities to 65% from 58% (FY21) coupled with efforts to convert few seeding cities to focus cities and sturdy expansion plans basis asset light franchise model to drive the topline growth.

"Efforts to drive the home collection services and more specialised tests, and higher growth in B2C segment leading to favorable mix would drive up margins leading to a strong 21% PAT CAGR over FY21-FY23E," the brokerage has said.

Expansion of network to help

According to Sharekhan the company is also consistently focusing on expanding its network to fuel growth.

"Going ahead, the management plans to add around 90 new laboratories and 1800 new patient service centers over next three years, driven by the asset-light franchise model. The expansion could entail an investment of Rs 25- 35 crore. Further, given the strong growth potential in seeding cities (21% of sales), the company plans to convert a few 'seeding cities' to 'focus cities' (in which it has a higher market share)," the brokerage has said.

Metropolis Healthcare according to Sharekhan has a strong and an established presence in the focus markets of Mumbai, Pune, Bangalore, Surat and Chennai.

Good mix to drive growth

According to Sharekhan, Metropolis's operating margins for the Financial Year 2021 stood at 28.7% as compared to 27.2% as of FY2018, implying an expansion of 150 bps, this largely supported by the reduction in employee cost and other expenses (as a percentage of sales). However over the period from FY2017 to FY2021 the company has substantially expanded its network / touch points including the patient service centers. Considering substantial expansion in network, test volumes have grown at a mere 7.4% compounded annual growth rate over FY2017 to FY2021 thus implying at ample head room for expansion.

According to the brokerage the company's leading position in diagnostics space, wide test portfolio, pan-India presence would be the positives for Metropolis. The stock trades at 62.6 times and 52.9 times its FY22E/FY23E EPS

Disclaimer:

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies Pvt Ltd, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only.