Thanks for the comparision Akshada.
On the Kovai Medical, the number of beds has crossed 2000.
From the Annual Report 2021-22, page 37, " KMCH has grown into a 2,250 bed multi-locational,multi-disciplinary Super specialty hospital, the best and most trusted in Southern India. "
Hi Navin,
Yes you’re right. If you read the CARE report on Feb’23 this is what they’ve said,“The revenue profile of KMCH is heavily dependent on the main hospital at Coimbatore which contributes about 77% of total revenue in FY22. Though KMCH, over the past few years has been starting peripheral centers at nearby areas, the flagship hospital is expected to be the key revenue and profitability driver for KMCH in the medium term mainly because, the peripheral centers are much smaller in size. Furthermore, as a means of diversification of revenue and further revamping its brand image, the company has successfully set up a medical college comprising of 750 hospital beds.”
This is why I ended up taking comparison of the main hospital centre only for now, as numbers get very skewed on a base of 2000+beds when 868 beds are giving the revenue.
I am interested in this discussion, as I own both hospital stocks. Artemis from 70 odd levels and Kovai from 1300 levels. I feel Artemis has been sharing info through presentation and led by a CEO who is expanding network little bit aggressively. Kovai on the other hand though a good management dont share any info apart from annual report.
Artemis Medicare Services Ltd. - 2023 AGM Notes.
https://announcement.acesphere.com/Annoucement/20230808/06ce17a7-cfd6-495c-960e-4c7677bf10ef.pdf (press release)
I have been tracking this Hospital since a year now and have some interesting insights on this name. Looking forward to interesting discussion on the company.
Artemis has been one of the silent and probably the best performer in this Hospital Rally:
The business growth and profitability has performed well over last 2 years. Company is growing at ~20%+ with strong margin expansion. The Stock has re-rated well from 8-10 EV/EBITDA to ~20x EV/EBITDA now (v/s. peers at 25-35x EV/EBITDA).
About Artemis Medicare:
Artemis Medicare, founded in 2007 (90 beds) operates as a standalone multi-specialty hospital with 541 (FY23) bed capacity (394 bed in FY21) spread over a 9-acre land bank. It currently generates ~95% of revenue (FY23: 691Cr) from its flagship hospital at Gurgaon and the remaining ~5% (FY23: 47Cr) from other asset light hospitals like Daffodils (Luxury Paediatric care), ACC (Artemis Cardiac care) & Artemis Lite (Secondary care Hospital). It is focused on the Northern region of India with its flagship hospital situated at Sector 51, Gurgaon (~6km away from Medanta Medicity and ~5km from Fortis, FMRI). It is at par with the top listed hospitals in terms of Equipment, Doctors, Occupancy (80% over FY18-20 and ~70% after expansion of 150 beds at tower-2), ARPOB (75K per day) & ALOS (3.7 days). Artemis generates ~35% of revenue from international patients which is highest vs other listed peers in Indian Hospital Industry.
**The Story that I understood:**
Expansion of beds at Flagship Hospital led to the significant growth in business and subsequently the Stock price:
• Artemis was pre-dominantly a 400-bed hospital running at peak capacity until FY21 (Peak Topline of Rs 550Cr in FY20 with 80% Occupancy). After running at peak capacities for a decade, the company expanded its bed capacity by ~150 beds by opening tower-2 adjacent to its Tower-1 at Gurgaon during FY22 (Thus, a brownfield expansion, which is very lucrative in the Hospital Industry). This took the total bed capacity from 400 beds to 540 beds starting FY23.
• This expansion scaled up successfully with company doing 70% Occupancy on ~430 operational beds. This led to a Revenue growth of ~23% CAGR over FY22 (528Cr) to H1FY24 Annualized (~800Cr). This led to an incremental Revenue of ~290Cr over FY22 to H1FY24 Annualized. Being a Brownfield Expansion, the operating leverage kicks in, as the key head doctors remain same and other operational costs get distributed to a larger base. Thus, EBITDA for the Gurgaon Hospital almost doubled from ~Rs 63Cr in FY22 to ~Rs 130Cr in H1FY24 Annualized, a CAGR of 44%. The EBITDA Margins expanded by ~500 bps during the same period.
•
• Interesting to note that on incremental basis (between FY22-H1FY24 Annualized), company is poised to generate ~280Cr of Incremental Revenue and ~Rs 67Cr Incremental EBITDA, thus generating 23% EBITDA margin on incremental sales.
•
What can be the story ahead:
• While showcasing a strong execution during FY23, the company was in process of building tower-3 in the same vicinity of Gurgaon Hospital, and this time with a larger bed capacity of 200 beds. This would take the total bed capacity 750 beds. The tower-3 is expected to commercialize from Q1FY25 onwards and will drive the next leg of growth for Artemis.
• Ballparking the current execution, I believe the economics look very interesting for the company:
o With a capacity of 750 beds, there would be 600 operational beds (usually 15-20% beds are reserved for government patients).
o The current ARPOB for the company is ~76K per day and it can grow at ~3-5% CAGR.
o The Occupancy for the company is currently at ~70% which will be a little depressed in FY25 due to addition of new beds. In the initial year the tower-3 (with 250 beds) can do ~35% Occupancy followed by ~60% in Year 2 and ~70%+ in Year-3.
o Thus, the Blended Occupancy for the company on ~600 beds can be somewhere between 70-73% over FY26/FY27.
o Thus, the Revenue potential from the Gurgaon facility can be of ~Rs 1200-1400Cr (Assuming 600 beds * 72% Occupancy * 80K ARPOB per day * 365 days = ~Rs 1,250Cr)
o Since it is a complete brownfield expansion, the EBITDA margins can further see some improvement and can improve by ~300 bps from ~16.7% currently to ~20%. This can generate an EBITDA of ~250-280Cr during FY26/27 vs Current EBITDA of ~130Cr in H1FY24 Annualized.
• Another Kicker which the company can have is earning fee via O&M model. Artemis has Bagged O&M contract with 200 bed Mauritius hospital which can directly contribute to the topline and bottom line.
• Artemis is expanding via smaller format Hospital:
o There are 3 types of small format hospital which the company currently operates under:
I. Daffodils: 30-40 bedded Luxury Paediatric Services
II. Artemis Lite: 50-100 bedded secondary care hospitals bridging the gap between a family physician and multi-specialty hospital.
III. Artemis Cardiac Care (ACC): Operating Cath labs with partnered hospitals. ACC is a JV between Artemis (holding 65%) and Phillips medical system.
o At mature state, these spokes can contribute 20%+ EBITDA margins and 16% ROCEs with 4-5Cr of investment and ~12-18 months of breakeven period.
o These spokes act as a referral point to the Flagship hospital and help lever the Artemis Brand in and around the region.
o Currently the scale of these 3 formats combined is ~80Cr on H1FY24 Annualized basis. Currently it is not EBITDA positive (just breaking even), but the With newer centres to be opened every year, this part of business will take 2-3 years to stabilize. It can become a Rs 200Cr Franchise with ~15% margins by FY26/27.
o Potentially Artemis can generate a EBITDA of ~30Cr from here after next 2 years.
o Although this business is margin dilutive currently, this can turn out to be a decent investment for Artemis over the next 3-5 years. Considering it is a small part of the business, this should not affect the aggregate business.
• All these business plans point towards the willingness to grow and create Artemis a global brand. Lastly, the company appointment Dr Devlina Chakravarthy as the MD & Whole-time director in FY21 (previously only WTD since inception) and awarded 69.7L shares as ESOP (~5% of the company) in FY21.
• Valuation:
• Assuming the company can deliver ~250-280Cr EBITDA just from Artemis Gurgaon Facility over FY26-27, at current Enterprise Value of Rs 2,800Cr , it trades at just 10-12x FY26/27 EBITDA.
• Basis on current Industry valuation, the peers trade between 25-35x EV/EBITDA.
Additional value can be generated from successful execution in the smaller format Hospital and O&M fees from Mauritius.
Disclosure: Educational purposes only, Not a buy recommendation, I am not SEBI registered analyst or advisor an I am invested in it hence my views may be biased.
