KMC Speciality hospital

[Rahul_Bhardwaj]

This is my first post on Valuepickr and i am new to investing world. I couldn’t find any topic related to KMC hospital so starting a new discussion please share your valuable thoughts and contra view will be appreciated.

Kauvery Hospital - erstwhile- KMC Specialty Hospital is located at Trichy.
KMC acquired Seahorse Hospital - a public limited company in the year 2008 & since then it has been functioning as KMC Speciality hospital - a 235 bed multispecialty facility.

It offers services in neurology, nephrology, obstetrics, gynecology, pediatrics, neonatology, cardiology, ENT, dental, orthopedics, joint replacement, liver transplant surgery, neurosurgery, plastic surgery, etc.
The hospital has 20 Doctors ,40 consultants and more than 600 nursing and supporting staff as per Dec 2021 Credit rating report. Which might have increased to a lot more.

It is a subsidiary of Kauvery group of hospitals which hold 75% stake in it.
The company is present in 5 locations with 7 hospitals and ~1500 beds.
The company has done >60’000 kidney dialysis and >10’000 heart surgeries until now and >2’000 Gastro, Neuro and Cancer procedures each along with Joint Replacements.

CAPEX:
The new maternal and child care hospital - it will incorporate the obstetrics and gynecology, and pediatrics and neonatology departments of the existing hospital.
It is almost complete and it will be operational from Jan/Feb 2024 as per inverstor relation personnel.
The new hospital was expected to commence operations in April 2023 but then it delayed to Oct 2023 and there was an increase from 150 beds to 190 beds with an increase in the total outlay from Rs. 85 Crs. to Rs. 141.80 Crs.

Now the operationalization of hospital is delayed to Feb 2024.
The project is being funded with Rs. 97.40 Crs. of the project loan as per Dec 2021 credit rating report.

As per latest AR – Term loan amount from SBI is 42.9 crore with payment of Principal quarterly and Interest monthly. Outstanding Instalment as on date March 31,2023 - 40 Quarters, with 9.45% interest rate.

Financials
Yearly

Quarterly

Stock Price: 85, P/E:50.2 Mcap: 1380 D/E: 0.39

Compounded Sales Growth
10 Years: 18%
5 Years: 17%
3 Years: 17%
TTM: 16%

Compounded Profit Growth
10 Years: 36%
5 Years: 32%
3 Years: 32%
TTM: 14%

Stock Price CAGR
10 Years: 48%
5 Years: 40%
3 Years: 61%
1 Year: 33%

Return on Equity
10 Years: 25%
5 Years: 27%
3 Years: 27%
Last Year: 27%

Investment Rationale:
Recession proof, Growing business and sustainable services for cash business.
Promoter holding > 75% and Only 38 Shareholders have 87% of shareholding.
Part of a big group ( Kauvery ) - add to reputation.
Kauvery group also eyeing for ipo ( read somewhere not sure about source and how will it affect share price - senior members comments on this will be helpful)
Almost debt free : 39.87 Long term debt with 38.79 Cash Equivalents.
CFO increased from 10crores in 2017 to 32crores in 2023.
Occupancy %, increasing per year in FY 23 it was 79%.
ARPOB increasing from INR 17956 in FY22 to 19100 in FY23.
IMHO Maternity hospital will have more Average length of stay so revenue might be on higher side for 190 bed new hospital will add to bottom line.

Best in industry ratios - only better ratios than kmcshil is of NH.

I also calculated target price after 3 year using previous data.
3 years CAGR from cmp of 85 at median PE(40) -
at 23OPM for 132 target - 15.9% , at 27% OPM for 162 target - 23.9% looks good to me.
This was my first time so i might be wrong.
Contra views are appreciated because i have position and i only see positives.
This not to be taken as an investment advice.

Technically
Monthly
Recently also break ATH in Monthly with volume.
-ve point is that next month candle red with high volume also.
if you look at stock history after breaking out in MTF never touched the breakout point again.
and breakout comes around 2-3month before or after capex i checked with Fixed assets in screener.

Weekly
Broke out of consolidation in weekly with high volume also.
Now retesting.
Follows 30 ema in weekly in uptrend.
same pattern observed in last breakout.

Negatives:
Capital intensive business.
Single hospital in Trichy only and upcoming hospital also in 300 meters vicinity.
High competition among other hospitals like Apollo and Maruti multispeciality.
Capex delayed 2 times already.

Disclaimer:
I already hold this one from lower price.
Not a Sebi registered and this one not a investment advice.

I just humbly want valuepickr community opinion because i couln’t find any negative about this one and not a lot of information available on internet about this.

[Rahul_Bhardwaj]

@sridhar @ayushmit @dineshssairam @Rajesh1975 @hitesh2710
Sir learned a lot from Kovai medical discussion.
Your view on this one will be appreciated. Thanks

[HarshalL]

Hi Rahul, thanks for your analysis. Can you please share the link of the discussion on Kovia? Thanks

[venkatesan]

Just to add, this is the current status of building which is under construction

[HarshalL]

I think for capital intensive industries, in my opinion it would be wiser to look at EV/EBITDA ratio. Currently it is trading at 30x EV/EBITDA and with geographic risk it is definetly not cheap at the moment and hence the upside could be limited,

P.S. I am also new to the investing space and hence can be 200% wrong.

[Rahul_Bhardwaj]

Thanks.
From the looks of it doesn’t look like it will be operational in feb too.

If you are from locality can you tell something about reputation of hospital, doctors or anything you can add which is not available to us sitting thousand kilometres away.

[Rahul_Bhardwaj]

Hey harsha you can search Kovai in forum. You’ll find it there.
Thanks

[venkatesan]

KMC has good reputation on trichy locality and good name also.
Have visited hospital few months back they are good in response and hospitality.
Basically they venturing into maternity hospital,
This is good move by KMC because Trichy is tier 2 city and rapidly expanding.

[Rahul_Bhardwaj]

They changed Rating agency from brickwork to fitch.
This is first time they have information about whole Kavery group in credit rating instead of standalone Cantonment KMCSHIL hospital.
I think they are eyeing for whole group’s IPO in future.

I don’t know if it is positive or not.

If any senior member can explain on this.
Thanks

[atmiya_369]

Here is one of the Twitter posts by Atul Asan where he mentioned about IPO. Please have a look.

https://x.com/Atulsingh_asan/status/1656483342303494144?s=20

[Jeferson_S]

While going through the regulatory fillings, something actually caught my attention!
Here are the list of resignations of CFOs and CS&COs of the company :
1.Mr G Ranganathan – CFO – Resigned on 24 Jan 2017.
2.Mr. Sathyan G – CS&CO – Resigned on 12 Jan 2019.
3. Mr. Badrinarayan S – CFO – Resigned on 31 Mar 2019.
4.Ms. H Akshaya – CS&CO – Resigned on 31 Oct 2020.
5.Ms. K Priya – CS&CO – Resigned on 5 Mar 2021.
6. Ms. Yasotha Benazir N - CS&CO – Resigned on 15 Jun 2022.
In a span of 5 years, 2 CFOs and 4 CS&COs have resigned.
I would really appreciate if anybody can shed some light on this one. Thanks

[Rahul_Bhardwaj]

KMC Hospital
Intrinsic Value Calculated using Pat Dorosy DCF Method.
Assumptions-
Mar 23 FCF taken as 16( Mar 22 =15.59 and Mar 23 = -ve becasue of large capex)

FCF growth rate - 15%
Discount rate - 14%

Growth rate taken as 5% because hospital industry is quite stable.

I’m no expert and might be wrong.
I ask senior members if they can check and help if any correction needed.

Disclaimer- Holding from lower levels and added some at 88 after technical breakout

[atmiya_369]

35141c72-e816-4e95-b8d9-29fb9e541dd7.pdf

New Maternity & Childcare Hospital started its operation on 29th JAN - 2024 in Trichy.

[rnaveen]

I see few red flags in KMC specialty hospital.

1. This is a subsidiary company and the management already have some plan to go IPO to list the parent itself. There is no plan to expand this hospital in near future beyond trichy.
2. There are some rumors circling around in tamil political youtube channel about the involvement of a political party stake.
3. Apollo Trichy is big hit in recent times and pulling high ticket(like maternit, ICU etc) and elite class. Strategically located in NH-45 and near to upcoming Panjapur central bus stand.
4. Highly overvalued compared to other hospitals.

Disc: Invested(reduced position in recent times)

[nowere]

Any updates on the business side?

[R_Sawkar]

Sir, but Intrinsic value being shown in Screener as 36.2/-
Your take please.

[srinik1988]

looking at their ROIC, it way higher than other hospitals. Any ideas why their capital efficiency is so good compared to others? Is it coz their capacity utilization is highest? or is there any other reason?

[srinik1988]

@Rahul_Bhardwaj I am trying to get some historical dat on their % occupancy, ARPOB and average length of stay. Is the investor presentation that they released for Q3 2024 the only available source of this information? I am unable to find any more info on this.

[Yug_Patel]

Maybe yes, because they have not disclosed it in AR also

[Rahul_Behera]

March 24 was fantastic year with Highest ever Sales of 177 crore and Profit After Tax of 30 crore having EPS of 1.86

Fixed assets jumped significantly from 84 crore to 206 crore

Source: x.com