Ptl enterprises

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=1cf43a15-828a-4e18-92cc-988b5e658538

Folks,
a new member here. FOllowing PTL for sometime.

Demerger issue up for a hearing in court on 16th december.
Announcement here-
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=3e1e17aa-d46e-44ad-afbc-b9e0eef6a7ba

Co. has informed Exchange regarding the de-merger proceeding.
You can read the announcement from: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/B9FF47D5_FE59_4D05_9A1D_0755EA2ADA71_144810.pdf

Regards,
Yogansh Jeswani
Disclosure: Invested

2 Likes

Thank you Yogesh. With this I believe, we are set for the demerger? is there a need for more approvals now?

Regards,
aditya
Disclosure: Invested

I have been looking into PTL since past few months. Now when the demerger has been announced and sanctioned by NCLT, it makes sense to look at both business separately.

PTL Enterprises: The parent company’s EBITDA can be estimated at around 44 crores (32.4 cr for 9 months) due to th plant leased out to Apollo tyres. Considering it as an annual safe return for next 4 years (the period of agreement) and assuming the safe pre tax return is @8% this can be valued at 44*(100/8) which is 550 cr. Applying a discount between 30% to 50% gives a valuation range between 275 cr to 385 cr. There can be another way of valuation arrived at by valuing the land assets of the company but I think it is far more subjective and difficult to understand in terms of value estimate. As per revaluation done by the company before demerger the land assets at Kalamassery was valued at 588 crores.

Artemis Hospital business: Artemis hospital is located in Gurgaon (370 beds) and Dwarka, New Delhi (50 beds). The last year financials of the hospital are given below:

The hospital as mentioned above has 420 beds and the company is coming up with a brownfield expansion of 200 more beds just behind the current facility taking the capacity to 620 beds. The construction activity here started in December 2016 and is likely to be completed in a year’s time. Valuing hospital business is a difficult task since hospitals are an asset heavy business. The matrices generally used are per bed price and an EV/EBITDA multiple.

Per bed Matrix: The last two PE deals in Gurgaon of Max hospitals and Medanta happened in 2014 at per bed price of 2.4 cr and 3.2 cr respectively. Assuming the new capacity of 200 beds the hospital business can be valued between 1488 cr (Max) to 1924 cr (Medanta) further since these transactions happened 3 years ago there will also be an inflation factor as well. From these matrix and applying a discount of 20% the hospital business can be valued between 1200 cr to 1540 cr.

EV/EBITDA matrix: Hospitals in India trade between 13 times to 20 times EV/EBITDA with Narayana, HCG, Apollo trading at nearly 20 times and Kovai at 13 times trailing. Also PTL currently operates at 12% EBITDA margin compared to more matured hospitals like Kovai which operate at 25%+ EBITDA margins (Narayana’s matured hospitals basket of 5+ years also has similar EBITDAR) Assuming a 10% increase in sales and a 2% EBITDA margin growth PTLs FY17 EBITDA would be around 63 cr. At the lower end of multiple with Kovai the valuation works out at 13*63 = 819 cr.

A sum of parts gives us a valuation range between 1094 cr to 1925 cr. Also the company has plans to increase to 1000 beds in coming few years at the same Gurgaon facility. The hospital also has 2 clinics at DLF club 5 and one more at an upcoming SEZ.

Risks: The hospital business does have significant risks coming out of govt policies a recent example being the pricing of stents. The regulatory policies of both State and Central govt can impact the business. Further any untoward incident can result in denting the reputation of the hospital and impacting future revenues. There is also a concern in which the promoter family tried to takeover the hospital business at ridiculously low valuation of 200 cr in 2014.

Conclusion: The hospital business generally has a very strong base business and is generally not impacted by most disruptions except govt regulatory policies. From a 3 year view I can see Artemis reaping benefits of increased Medical Tourism due to its location along with the industry tailwinds due to healthcare insurance and hospital corporatization. The additional 200 beds facility will also boost the mid term growth prospects. There is ample scope of operating leverage since the current EBITDA margins are well below industry standards of mature hospitals. At the same time one can expect an increased focus from the promoters post demerger. At current market cap of 950 cr a sum of parts provides decent margin of safety.

Trivia: Artemis is the sister of Apollo in greek mythology.

Discl.: Holding. Forms more than 5% of my portfolio.

f1 1_InstEYE_PTL_ThatSinkingFeeling_Sept2014.pdf (638.8 KB)
Artemis Super Speciality Hospital India.pdf (1.0 MB)

http://environmentclearance.nic.in/writereaddata/FormB/EC/FORM_1/020220170QE1GMA9FormI.pdf
http://environmentclearance.nic.in/writereaddata/FormB/TOR/PFR/02022017KCVX1DYCConceptualPlan.pdf
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/f64c1931-a954-4d43-ac8c-1add13c8db40.pdf)

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Good work Anant, I had prepared a rought note on this in September 2016 (before the proposed expansion). Even at the pre-expansion numbers, there was definite value at the prices at that time (INR 115-120).

One thing to note, the expansion approval says the existing beds are 206 and the proposed expansion is 400 beds, for a total of 606 beds. Whereas, my previous understanding was that the current number of beds is 380. Of course, various sources on the internet have different numbers, but around 380 was the most consistent one (when I had last researched).

Note is attached. PTL Enterprises Demerger - Rough Calculations.pdf (347.1 KB)

2 Likes

@ Anant Jain : Nice & detailed analysis. Screener is showing book value per share Rs. 20 on comsolidated basis even when land had been revalued.

Pl. read it 18.18.59 instead of 20

The 418 is taken from the biography of Onkar Kanwar. Verbatim from the biography of Onkar Kanwar 'The Man Behind The Wheel ’

‘Today the 418-bed hospital is on a 9-acre campus and employs three hundred full time doctors with forty different specialities…A new building will add another 200 beds when completed…The Artemis brand also has a fifty bed super-speciality hospital in New Delhi and clinics in Gurgaon, New Delhi and Rewari in Haryana.’

1 Like

Let’s hope it’s not an easter egg.

Dear Anant,

Thanks for sharing the detailed note. I have also been tracking the company for sometime. One interesting thing that I observed is:

Despite a fantastic growth in the topline of the company, the operating margins have remained stagnant at about 11-12%. May be as the group wanted to keep the hospital business out of limelight and take it private cheaply, the profitability hasn’t shown up. Finally with the demerger happening + brownfield expansion coming up (learning from investment in Kovai was that brownfield expansion for a well established hospitals usually give big operational leverage), we may get so see much better profitability over next 2-3 years.

Regards,
Ayush
Disc: Invested

14 Likes

Ayush

I am not certain if the Kanwar family wishes to remain in the hospital business for the long term. I personally feel the demerger is to unlock value and then sell a large stake to strategic investors (maybe foreign funds). They have tried to sell the subsidiary in the past, which is where I am taking the cue from. I do not think there is much management bandwidth to actually take an expansionist view of the hospital business - to me it seems to be running on autopilot with expansion being undertaken only for the existing hospital. No plans seem afoot to start other hospitals (but one never knows).

One should note that Artemis Hospital ranks very well for multispecialty hospitals in NCR region, so an optimistic valuation may well bear out.

1 Like

Thanks @ayushmit for pointing this. I agree with you Ideally the margins should have gone up when the sales moved from 150 cr to 400 cr. Why they have been subdued is anybody’s guess :slight_smile:.

In my opinion successful mature hospitals have quite a few things going for them the key among them are:

a) Ability to perform complex procedures.
b) Higher capacity utilization resulting in higher sweating of assets.
c) A brand name.

when you combine brownfield expansion at relatively low cost the operating leverage achieved at higher capacity utilization level gets better due to a better asset turnover ratio. The biggest cost for hospital expansion in metro cities comes from the cost of land and also a risk of the success of greenfield expansion.

In case of Artemis although there is decent clarity for short to medium term any lack of proven ability for greenfield expansion block my view for a longer term (5+ years). The same applies for Kovai.

Discl.: Hold PTL and Kovai.

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Once again from the biography of Onkar S Kanwar:

‘Onkar Knwar’s daughter Shalini Chand who works as a psychotherapist in Singapore, is on the board of Artemis.’

'His eldest grandchild, twenty fiv year old Zubin Chand completed his Master’s in Public Health at Imperial College London in 2016. … ‘I realized that my passion was healthcare, especially in India. I stayed in my grandfather’s house in Delhi for a year…He said that if I was interested in healthcare I should com to work in his hospital…After 3 months of doing that he suggested I try healthcare consulting so I went to work with Ernst & Young in Mumbai. Those two experiences motivated me to do my master’s.’

Here is the linked in profile of Zubin Chand:
https://www.linkedin.com/in/zubin-chand-09848254/

Not to read much from the above but there could be a hint of some management bandwidth being created.

6 Likes

That is good to know Anant, I have not read the biography.

@Anant - Questions -

a. Any idea on the current utilization levels? Growing topline does suggest a definite improvement in this utilization number in last 5 years. But is there still room for growth here in term of utilization? Also, as you said, ability to perform complex procedures is the key to improve margins. Is this hospital providing some non-commodity procedures? Or are more into generics?

b. What is the cost per bed for brownfield expansion generally, and what is will be in Artemis’s case? Do we have the numbers? Read somewhere that the cost will be close to 40 cr to make it a 500 bed hospital…so 120 additional beds coming at just around 40 cr? Is there more land available for another brownfield expansion? Greenfield projects in this segment incur very high capex and have very long gestation periods. So for revenue growth visibility, it would be important to know if they have space for another brownfield expansion.

If you read the attached links to Anant’s post, you will find answers on the scope for expansion.

Hi Tushaar,
With so many red flags emerging out because of the promoter integrity, you are still willing to invest. I want to understand the rationale behind it. Because of this forum and reading the seniors, promoter integrity is of utmost importance.
I looked at the 638.8Kb Pdf posted by @Anant . @ayushmit Any guidance would be of utmost help because I learnt the most from you guys by reading this forum :slight_smile:

Kanv

I have not stated anywhere that I am willing to invest. I merely provided you with some calculations.

Because I saw your keen interest in the business, I thought you hold it. Anyway would you buy it hypothetically? If yes then why and if no then what could make you buy it ?

Kanv