This page says it has already completed some parts. Is it in line with your observations?
Unfortunately, I didn’t visit Kovai myself. I got this from a WhatsApp group. Just thought it might be relevant to boarders here.
I see that the current hospital has revenues of approx. 50 lakhs per bed per year, with satellite centers’ in-patient revenues increasing at a larger pace. (Good sign I take)
|Inpatients doctor fees||33185.15||29346.36||25807.82||22144.85||18744.13|
|Outpatients doctor fees||10941.59||10140.87||9374.29||8097.88||6609.45|
|Pharmacy & Dietary for inpatients||7433.24||6505.82||9796.04||9901.14||8048.33|
|Pharmacy & Dietary for outpatients||6991.32||6569.1|
|Revenue from solar power||403.19||372.03||0||0||0|
|Academic course fees||133.22||30.75||0||0||0|
Coming to the college, they are taking in 150 undergraduate students for the first year starting AY 19-20(ref AR FY18). Given the demand for MBBS admission (confirmed with a friend pursuing dental), I’m assuming all seats get filled up. What is the typical fees per year per student?
According to Manipal Hospital (one of top multispeciality in BLR) it is 50 lakhs for full MBBS => 10 lakh per year. Lets discount by 30% (unverified) as it is a new college => 7 lakhs per year.
So estimated revenue = 7 lakhs * 150 = 10 crores for one year of students. More details in table below. Assuming 5% hike in students fees each year.
|Medical College projected revenue|
|Increment in manipal student fees per year||1.05||1.05||1.05||1.05||1.05||1.05|
|Manipal student fees||10.5||11.025||11.57625||12.1550625||12.76281563||13.40095641|
|Discount from Manipal for Kovai||0.3||0.3||0.25||0.2||0.2||0.1|
|Per student fees||7.35||7.7175||8.6821875||9.72405||10.2102525||12.06086077|
|Students join on roll||150||300||450||600||600||600|
Any guesses on revenue per bed on the teaching hospital (700 beds)? I believe it is targeted at lower income segment. So will have to discount it to some lower amount? If yes, could someone help on figuring out that amount? Looking up hospitals’ balance sheets which cater for low-income population should help. But do we have public companies focussing on that space? I’m finding it a bit difficult to estimate this part
Also, is it safe to assume that all the 700 beds will be occupied from the initial years of the college itself as we only have first year students?
I think first step to value the company is to estimate the revenues.
Please feel free to comment on the approach.
Disclosure: Not invested but closely tracking
From where did you get the breakup of the revenue? Its a very useful data.
I could in past get details of the number of patients from credit rating reports but that data was stopped from 2012 onwards
I still have a feeling that the major part of the mentioned capex (bed addition) would be like regular expansion for the hospital. A part of the stated capex would be towards towards medical college (student training)
Revenue breakup is present at the end of the annual reports.
(Eg: Page 197 in AR FY17-18)
I would be very surprised if it is a regular expansion as the report’s wording says “Construction of 700 bedded medical college teaching hospital is underway and is slated to complete by end of March 2019”
Local scuttlebutt should help more.
If anyone is visiting Coimbatore, it would be helpful if they can check this out.
I really doubt a Medical College with 150 seats would require all of 700 beds all to itself. I second @ayushmit in the sense that, perhaps about 300 of these beds would go to the college + catering to low income patients. I think the rest will be commercialized.
KMCH’s Investor Relations isn’t exactly investor friendly, else we could drop a query. Of course, I’m no expert. The figures are just a guess. Someone in the field can maybe gives us their opinion.
Q2 results show that operating margins under tremendous pressure due to increase in employee costs, financial charges and depreciation expenses, mostly related to the expansion project.
The big increase in Employee expenses is mostly a result of the increase in minimum wages by TN govt. This was shown as 184 lacs under contingent liabilities not provided. Looks like this has now materialised. Most of it will be one time but still employee costs will go up and this will have to be passed on if margins are to be maintained.
Revenues have gone down but seems ok considering that last year same quarter there was a one off huge revenues coming in from Dengue breakout which was absent this year.
FY19 full year Profits could be at same level as last year as this quarters dip could be offset in the March 19 quarter uptick in profits on YoY basis. (last year YoY had crashed due to IND AS restatement).
It will certainly take a few quarters to get back its Mojo.
Balance Sheets shows the ramping up of the Capital WIP as loans have increased by 100 crs.
Another interesting development is the resignation of the MDs Son from the post of Joint MD. He was Joint MD with his mother ( MDs wife). He will continue to be an non executive director…i.e. no participation in operations. The second son could be appointed as Joint MD in place of the one leaving??
With ageing promoters and one son already showing lack of interest will there be a sell out down the road?? A remote possibility but a possibility nevertheless.
A lot is riding on the college project and expansion. It’s success has become very critical. For the sake of all stakeholders I hope it succeeds post the difficult years coming up.
Price will certainly be subdued and a knee jerk reaction next week is given. Imp to see where it stabilises after the hammering. Will it find support again at sub- 700 levels??
MCI REQUIREMENTS RE BEDS
B. TEACHING HOSPITAL
B.1 GENERAL REMARKS
*A functional teaching hospital with 300 beds having a minimum of 60% indoor bed
occupancy shall be available at the time of submission of application to Medical
Council of India, at the time of inception of the hospital by Medical Council of
India and up to 2nd renewal of the medical college. The bed strength shall be 500
with minimum of 75% bed occupancy at the time of inspection for third renewal and
thereafter for subsequent renewals and recognition.
Distribution of 300 beds is as mentioned in the above document.
The question is how commercial will the rest be?
Why do you think there will be ‘hammering’? And why do you think it will go to sub-700 levels? Do provide your POV.
I’d valued KMCH back when the Medical College plans were just a rumor. So I had valued it based on regular operations. This is what I turned up with (I have updated the current date and price):
So, it goes without saying that I see immense value in KMCH. However, I’m holding back on investing more just to see what kind of financial impact the College would have on the Balance Sheet.
The reasons why I see a knee jerk downward reaction:
- Impact of poor results
- Illiquid stock so lack of any buying can easily bring it to LC
- Sub 700 was the recent support when it collapsed hence that number
Being invested I hope that doesn’t happen but that’s biased wish of a shareholder and nothing more. Would certainly be delighted to see someone spot value and do some bulk buying. Lets see.
Thanks for your valuation chart. Quite helpful and interesting
Just to add that MBBS students are not the only source of revenue. The creamy layer is usually made up of the other short term courses, conferences etc… For e.g. MS Ramaiah Teaching Hospital attached to the Ramaiah Memorial Hospital has the following courses:
- Radiology Technician Course
- Dialysis Technician
- Cardiac Care Technician
- Dental Assistant
- Diabetes Educator
- Emergency Medical Technician - Basic
- Emergency Medical Technician - Advanced
- OT Technician
- Anesthesia Technician
- Pharmacy Assistant
- Medical Records & Health Information Technician
- Geriatric Aide
- Diet Assistant
- Blood Bank Technician
Courses like these can add to the margins as they are short term and can have high student in take. In the ultimate analysis their revenues will depend on how much they can leverage.
Running an educational institute is not new to KMCH as they have been running a nursing college for the past 25 years. It’s more a matter of project management and proper funding. More details of nursing college here:
Thanks for kindly sharing this info
By the way, did you look at “What Our Students Say” section in the home page of that website? Can’t stop laughing
Coming back to the new extended hospital, I believe they said that the 700 bedded hospital would be completed by early 2019. I hope they mean all the 700 i.e. 300+400.
LOL Looks like person who maintains the website was smoking something really strong that day. Literally, all Greek and Latin!!
I would be surprised if all the 700 beds are ready by March 19. I think the 300 needed for the Medical College will be and the rest in phases. Will also help release the associated costs (finance and depreciation) into the P&L at a controlled pace rather than all at once.
For details of all other colleges and school run by the KMCH Trust namely
Tumbles below 700 as expected…heavy volumes and the fact that it has bounced from the same levels earlier gives hope of a near term double bottom…question is will it hold?? Fingers crossed!!
The website is created from standard template, and most template usually contain pictures and text like that.
It would be great if someone answers the below questions.
- Any reason why stock is going down like this with end in sight. Is it due to low sales or something recently reported ?
- Despite debt, why is ROE and ROCE of this company better than Apollo and most of other players ? What is this company doing special ? I hope it is not hiding costs. As per 2017-18 report, it capitalized roughly Rs. 1 Cr interest cost.
- Why is employee cost per sales increasing ? It jumped from 12% ( 13.45 / 110.36 ) in Mar 09 to 17% ( 98 / 592 ) ?
- Did the current MD and other personnel own Idhayam Hospitals ( Zauba ) before merger ? This hospital had negative reserves and surplus ( 2017-18 Annual report ) ? The company’s total assets are below share capital.
- It seems that the promoters own a NBFC - KOVAI PURANI FINANCE PRIVATE LIMITED - which indirectly owns 36 % of KMCH ? Do we know shareholding structure of this company ?
Disclosure : Not Invested.
Ill try to give my opinion on your questions but i won’t consider them answers as such
Drop in margins owing to increase in finance costs , amortisations and probably a one time wage arrears relating to increase in minimum wage by TN govt. is pulling down price and performance
Their operating metrics have improved ever since the previous major expansion started contributing to the top line. They have had a good leash on costs until recently. In fact OPMs have gone down in the past few quarters. Most of the other big hospitals are in metros which have been most adversely impacted by regulatory diktats on prices etc. Being in a Tier 2 city the impact is not so much for them. Cash flows are real as previous bank loans have been consistently repaid.
The merger was of a 100% owned subsidiary and losses probably could have helped save income tax upon consolidation if at all. It is too insignificant in the overall picture as such.
Most family owned businesses have their holdings structured through such NBFCs etc for ease of operation. They don’t have to keep reporting minor changes in promoter holding and changes can be managed through the pvt co and as long as that cos shareholding remains constant reporting requirements are not stringent.
Stock will recover only when the market is convinced about the viability of the new college / expansion project. Until then it is likely to languish…probably for 12-18 months at least unless there is some major corporate action.