Artemis Medicare looks very interesting from several parameters. Having gone through several hospital businesses, there seems to be a combination of factors here that made me interested in the investment.
1. Interesting position in Capex cycle with recent bed expansion completed
My main issue with hospital businesses was brutal Capex requirements always keeping cashflows and return ratios subdued. This continues in several reasonably valued stories like Aster. On the other hand, with the beds expansion completed in its only hospital in Gurgaon and no further Capex plans, it does seem that operating leverage could play out significantly and we could see enhanced return ratios accordingly for Artemis in the coming year.
2. The return of medical tourism should lead to better payor mix
I have personally been to the hospital a while back and it is very well located in Gurgaon and was very full (this was pre COVID). What I also noticed was a massive number of international patients, medical tourism is a large business component for them. It is also the most lucrative business for hospitals. With COVID hopefully waving away, there should be renewed demand and maybe even pent up demand in this space which should drive up profit margins and ROCE profile.
3. Growth visibility in the coming year due to new wing
My scuttlebutt with a doctor indicated that the new wing is getting operational, and it should be useful in terms of incremental revenue as the hospital is usually very full and continued to be highly occupied (>70% from estimates). Even if Artemis retains the revenue per bed, this should be a clear incremental factor towards additional revenue and profits next year.
4. Gurgaon is a very lucrative market for leading hospitals, with excellent ARPOB numbers, high spend power for patients and proximity to the airport for Medical tourism
The fact that the hospital is centred in Gurgaon makes me think that this as an individual entity has the potential to be a cashflow generating business even more than the top chains. Additionally, at current valuations, could this also be a lucrative acquisition target? Considering the valuations Max, Apollo are quoting at, I won’t be surprised if this would be accreditive to earnings and return ratios (this is purely a hypothesis though with no concrete information behind it)
5. Management skin in the game
The issue with Artemis is management disclosures are very poor and they do not hold conference calls etc which really reduce the coverage of the stock in my opinion, in addition to it being a micro cap. What I do like though is that the promoter ownership is high and scuttlebutt was positive regarding Mr. Neeraj Kanwar and his involvement in the business. Additionally, with ownership in Apollo Tyres which is a much larger company, it makes me wonder why would management risk any corporate governance issue here, considering it could have a larger impact for them elsewhere.
6. Interesting JVs which could be potentially high growth and less capital intensive versus a hospital business
Quoting from the latest results : Currently Artemis Hospital is running 5 Cardiac centres under the Joint Venture with Philips Medical System Nederland BV and one Obstetrics and Gynecology centre under Brand “Daffodils by Artemis”.
7. Attractive Valuations
Currently, Artemis is quoting much cheaper on a per bed valuation as pointed out by forum members above. On all valuation parameters, including PE and EV/EBITDA it is very cheap versus hospital peers. Currently it is available at below 10 EV/EBITDA while the likes of Max, Fortis, Apollo, NH and HCG are far higher (most>20, Max is >30 I believe being the best quality business)
Some other points which could be points to ponder were:-
- Management disclosures are very poor, I believe they can do a lot more in terms of investor relations
- They announced getting into management of international hospitals through an arrangement with PolyClinique De L’Ouest Ltee,Mauritius. There is no visibility of this might mean in terms of growth/capex - so this could be a positive or a negative
Overall, this does seem to be a very interesting story with growth visibility, at a very good valuation and with potential tailwinds on return ratios/better business mix/higher revenue per bed. I wish management was better in investor relationship management.
Disclosure : Invested, biased. Transactions in last 30 days. I am not a SEBI registered advisor, please do your own research before investing.