Very good results. Taking discussion further, also, the major increment in interest would start in FY21 when bulk of loan currently on moratorium will get into repayment . Also, the depreciations would go up. So, on one side we have increasing topline n hence related profitability. On other side we will have rising interest n depreciation before operating leverage picks up which should happen in FY22. Lets us see how Mr market behaves . For Apollo n NH, it was easier as it was more sequential than parallel . Here, it is bit tricky. Hopefully , the topline growth ensures decent PAT growth in FY21. Would be good to punch the numbers to get a broad range scenario of expected PAT. Disc : have been accumulating in last 60 days
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Also I wonder why they have not still taken the Corporate Tax cut. Current Tax/PBT is still 35.96%. I think I will write to the CS about this, but I doubt we will get clarity right away. The last time, when I wrote to them about a query on the Medical College, the reply was just âPlease attend the AGM and ask the questionâ. We may have to wait for the AGM to get this clarified.
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Even if loans are under moratorium and repayments are not due, interest needs to be accounted for on accrual basis the moment disbursement is made. However if the asset is not capitalized, the interest so accrued not appear in the P&L but will be added to the cost of the asset. In FY2018-19, Rs.11.93 crores of interest was capitalized. This is given in the Note 3 of the Balance Sheet.
As on 30-Sep-2019, Kovai had not capitalized the new college & hospital. We can see that the growth in Fixed Assets between Mar & Sep â19 is just Rs.30-odd crore while Capital Work-in-progress is Rs.326 crore. Once both these are capitalized, interest will start appearing in the P&L. Depreciation will also apply from that date.
Also, generally even with loans under moratorium such as these, interest is not only accrued but also payable in cash. Only principal repayments are deferred. We will know this from the current yearâs Annual Report (Cash Flow Statement).
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Kovai has been a pretty interesting case - wherein the company has had the best margins and other ratios in the whole industry by a wide margin and started trading at 20-25 PE multiple in 2018. For existing investors like me it was good to hear that the company would be taking a big capex going forward and given their past track record I was excited about it. However, as clarity emerged, people have been concerned about the new capex towards medical college as most believe that IRR would be bad in initial years or even after sometime how will the company generate the profitability like past given that the new hospital under medical college will have to offer concessions/cheaper rates etc. And the stock price has halved over couple of years and now the PE is just 10-12 despite a large capex about to be completed.
And now when there were no drivers in near term, the company has surprised and these recent nos look really good. I feel the capex towards medical college will not make sense from near 1-2 year perspective given the high interest and depreciation cost that might hit the company but for someone with 3-5 year perspective, it might be interesting given the superb track record of management of execution and sweating the assets well.
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Hey thanks for the in-depth analysis. I think itâs pertinent to add an important point to your calculations. Revenue from fees going forward will increase until it reaches 60 crores because new batches of students will be admitted every year. I believe that 8 lakhs is the fee per student per year and not for the entire course. Therefore, the recurring revenue from hospital could be 260 crores in the long run.
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Thanks @Inimitable_Investor @ayushmit @dineshssairam . just raising this at 10% net margin on 260 cr revenues =26 cr PAT on 700 cr capex right ?, 4% ROIâŚie : the earlier GFA turns was 1x prolly due to lower capex costsâŚi.e : 40 lacs capex a bed versus 1 cr capex a bed for 700 beds ?
So doubling of assets and 20% increase in PAT, almost halving of ROCE from 20%+ to 10% prolly ?
On tax @dineshssairam, prolly cleaning out the high tax liability adjustments (ie. ; over stated earnings)
While I am not very sure, medical colleges have become attractive due to 2 reasons - 1. You can charge decent fees on the education front. 2 If you are treating PMJAY patients, you can get some money reimbursed from the Govt. which earlier was self pay and hence the amount was much lower.
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Just to be clear, we have no idea about the actual plans for the new beds. All I was trying to do with my earlier post is just showing that the large Capex will not go in vain.
To answer your question, the back-of-the-envelope way to find out the PV of a 26 Crs PAT (Your estimate) is just to do 26/0.15 (Assuming 15% Cost of Capital), bringing it to Rs. 173.33 Crs. Thatâs a 24.70% RoCE (173.33/700).
The biggest impetus for the Medical College was this change of rule:
Before 2017, Medical Colleges used to be allowed only for Non-profit motives (I know some organizations did step-around, but still). The rule change allowed Medical Colleges to be built for Profit motives. As far as the world of Medical Education in India goes, this is landmark ruling.
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Found this News 7 Tamil interview of Dr. Nalla G. Palaniswami (Founder and Chairman, KMCH) taken on April 15, 2018. Showâs title is âLeadership Speaksâ.
Hereâs my best attempt at an English transcription. I may shorten many points for ease of writing.
Q: Before we talk about your lifeâs journey, I wanted to know, do you think India has a good Global Healthcare? If not, what are the difficulties in achieving that?
A: The best healthcare comparable to many developed nations is available only with Private Sector. Around 74% of Indiaâs population goes to Private hospitals for treatment. India got an opportunity to promote quality healthcare around the 1980âs, but it is still not widespread. Only 1.5% of Indiaâs GDP is allocated towards healthcare, compared to 30-35% in some European nations. Even if you include the Private sector, itâs still only at 4.5% of GDP. This is too low to provide good, quality Global Healthcare.
Q: Private hospitals have the public perception of being money-minded. How do you view this?
A: Good and bad happens everywhere in a country. As far as KMCH is concerned, our motto is to provide great quality healthcare at reasonable prices. Further, we stress on ethical practices. It has been that way ever since we started way back in 1990.
Q: When did the motto of âEthical /transparent medical practiceâ occur to you?
A: We come from the post-independence era. It is in our hearts to serve the people with truth and justice. It is difficult to change that stance. Many doctors are generally ethical too. But because of a few bad apples, we get a bad rap.
Medical practice used to be very simple. But these days, people already research in Google about their symptoms and come with pre-conceived notions of what treatment should be administered to them. When we are being asked to do additional tests, we have to comply, even when some of them may be unnecessary. So all these additional things cost extra to the patient.
Q: KMCH is a very modern hospital and contains all the latest equipment. Considering this and the fact that KMCH is also a business, donât you think your motto of serving people will be difficult?
A: Our aim at KMCH is to make sure that patients do not travel to unnecessary locations (Ex: Delhi, Chennai, Mumbai, USA) for healthcare. When we started, we decided âWe should have all the facilities to treat the patient locally at an affordable cost.â
There is a rate for every machine. So after spending for all of them, we are usually left with only 3-5% as Profits. You should have a Profit to run. Otherwise it (The company) will go down. Nobody should run any institution without Profits. We cannot maintain the equipment, keep the premises clean, paint the walls or change the furniture without Profits.
Q: You mentioned âAffordable Costâ. Your cost structure may be affordable to someone in a city like Chennai. But why did you want to start the hospital in Kovai?
A: I come from a poor farming family. I used to travel by a bicycle every day to school. I understand the struggles of the people. I hail from Nallampatti and studied in Coimbatore. One reason I selected Kovai is the weather. After coming back from the USA, Kovai is one of the places with a relatively comfortable weather. Also, everyone I knew, all my friends, family and the people of Kongu (Western Tamilnadu) were here. So, I naturally came back to where the people of Kongu were. Thereâs not much else to this.
I always say I want to serve the people of my land. I write off about Rs. 10 Crores in Revenue every year for people who come and request for it. I think Iâm the only Chairman of a hospital that does this. Because I also came from a poor family, I know their difficulties. But discipline is also a must. Both are necessary.
Q: You said you come from a poor family and not from an educational background. So, who inspired you to become a doctor?
A: Like I said, I come from a poor family. Out of 8 siblings, I was the only one who studied. When I joined my school, I met a teacher called Mr. Ramaraj Naidu. He taught me discpline, he was a follower of Gandhi. A student named âDastagirâ also studied with me. During the Quarterly Exam, he got the first rank in school. Our teacher told us âYou should consider him an example and follow his footstepsâ. That had a big impact on me. From the Half Yearly Exam, I started getting the first rank instead.
But I would get sick often. My dad used to bring me to the doctor every now and then. Then I thought âIf these doctors can diagnose a disease and cure it, why canât I do the same?â This was when I was studying VIII standard. So I focused all my efforts there and made it to a Medical College.
Q: These days information is abundant. You can Google anything. But those days, when you were the only educated person in your family, how did your establish yourself in the field of medicine, especially when it is not an easy field to get into? How did you achieve it?
A: Even when we were a poor family, our father always spent on education. He didnât spare any expense when it came to educating us. In life, what can be achieved or not is in your hands. From what I have seen in my life, if you want to do something and make efforts, you can definitely do it. I am a firm believer in this philosophy and I also had the capability to work towards it.
When I prepared for my medical education, I understood what needs to be learnt myself. There used to be 4-5 students in our school, who were very good students. We told ourselves what we wanted to achieve in life and we all achieved what we decided in those days in high school. Then, I completed my MBBS and MD in the Coimbatore Medical College.
When we studied, most of our study materials used to be from the US and the UK. Most of the procedures, chemicals or equipment mentioned in the books were not available in India. I wanted to see what was actually being done in the US and the UK myself. So when the time came, I prepared myself to go to the USA. I was able to do it only after my father died. When I saw what was being done in the US and the UK, I wanted to come back to India and do all of those things here. I used to work in a hospital there. I took the same plans of the hospital and established KMCH here.
Q: When people go abroad, whether it be an IT job or otherwise, they rarely come back. Because, you would have earned a handful and you would have been in a comfort zone. But why did you decided to come back to India, especially when it meant doing a challenging job like establishing your own hospital?
A: Because I already went to USA with that idea. I have 3 children. My elder son completed medicine in Michigan, USA. My youngest daughter was studying high school at the time. But I had already decided to come back. Our children suffered a lot during this time. They suffered like hell. They went through a lot for their father. Two of them came back here, completed their education in medicine and have gone back. But anyway, we are all happy. All 3 of my children are doctors. Two of them have gone back to the USA and one of my sons has stayed back with me in Kovai.
Q: When you started practicing as a doctor, what did you do? Who do you think is a good doctor?
A: We should listen to the patientâs needs and serve them accordingly. Although one may have studied in the USA and seen everything, they should work with the constraints they are given. What can be done, what can be improved in the current situation to help the patients better should be the primary focus. Wherever ones goes from here, they are a Citizen of India. There is no difference between them and the common folks. Maybe they are little more educated, but that should not get to oneâs head.
Q: Your point of reference was the USA, which was a well developed nation in those times. But India before globalization was very weak. We were not rich. What were the challenges of establishing a hospital in those times?
A: It was very difficult. Building a hospital is not easy. Those days, only industrialists used to build these. Also, capital was required. So I contacted all my friends. I didnât have that kind of money. KMCH is the product of the capital from a lot of NRIs. 120 NRIs are invested in KMCH. We started KMCH together. My friends were always with me.
Further, there will at least be a period of 5 years before a hospital breaks-even. Most people donât have that kind of patience, they leave. So only me and my friends know the kind of trials we faced. We were always worried that the government or the banks will take us over. But after the 3rd year, we made a Rights Issue once more and gathered enough capital to run the business. There were a lot of issues. All of them are solved now and we are okay.
Q: After leaving a good life in the USA, trying to build a hospital in Kovai and facing a lot of difficulties, have you ever regretted your decision to come back?
A: That has never occurred to me. Because, we came from a poor background. So, we didnât mind going back there. I can sleep on the floor or I can sleep in a castle. We didnât have any issues with trying. We thought: âWe will try our best or weâll go back to the floor.â What were we going to lose? It says in the Gita, âWhat did you bring into this world, that you are afraid of losing?â Thatâs it.
Q: For the next generation to understand about your efforts, can you please talk more about how your proceeded with KMCH, what were your next efforts?
A: Our Employees are a part of our family. Our shareholders too. We have over 7,000 shareholders. They have been with us through thick and thin. When we went for a Rights Issue, they paid the money. Our initial investment was only Rs. 5.50 Crores. Then we brought in another Rs. 5.50 Crores. So, that was our initial capital. Otherwise, we used to borrow, repay, circulate and improve ourselves. Also as I said earlier, we have 3,500 Employees. They are our backbone.
Initially, we were not able to return the capital. The issue price was Rs. 10. Then it went to Rs. 5, then to Rs. 3. Today, it is at Rs. 1,200. This was possible only due to hard work. Because they stayed with us during this difficult phase, they are benefited.
Q: How did KMCH develop into a multi-specialty hospital? What was the journey involved in bringing all the latest medical technology to your hospital?
A: In early days, the doctors used to diagnose a patient based on their acumen. The blood tests and other tests were minimal. Then as time went on, innovations happened. CT Scan was a breakthrough innovation. Computerized Tomography, Brain Scans all were great. Once we figured out that the brain can be scanned and seen on a screen, it was a very big thing. Operating it too was a big leap. Then we heard the murmur of hearts though a Stethoscope. Angio, heart operations were great too.
All of these used to happen in the US and the UK. Rich people used to go there to get a surgery on their brains or hearts. This was the 1980s. During the 1990s, we started getting it here. During the 2000s, we are able to do it here. In the last decade, we have seen a lot of rapid improvements.
Q: Whenever an innovation happens abroad or a new equipment is introduced, your hospital is able to immediately host it. This requires training the doctors, the nurses and others. How are you able to adapt to this?
A: KMCH was started on 24 June, 1990. Those days, we were able to bring a CT Scan and a Cath Lab. MRI was not there. We didnât have Cancer treatment. Even then, we decided to bring in doctors who were trained abroad, especially England.
But these days, due to technology, even our employees are able to learn it themselves. They do all the procedures, whateverâs available outside the country. Even the people who supply us new equipment, they train us too. For example, we bought a Robotic Surgery Unit. The people who sold it to us, taught our employees how to use it. This is big advantage. We can even send people abroad for specific training.
We used to only get cheap, third rate equipment. These days, because of the demand from India, we are being sold better equipment. In the US, there are restrictions on how many CT Scan equipment can be kept in a city. But due to lesser regulations in India, every city has hundreds of CT Scan equipment. Nobody bothers. The advantage from this is that, these sellers are not restricting anything. They bring all new technologies to us immediately.
Q: Among all these innovations, your hospital is the first one to bring a Mobile Stroke Unit in Southeast Asia. Can you tell us more about it?
A: Our motto at KMCH is to make sure that all the advanced medical technology should be available to our people too. Coming to the Mobile Stroke Unit, even AIIMS has the machine. But they do not have it in a mobile vehicle, a van. Even in the US, very few hospitals have this unit. The Cleveland clinic in the USA has this equipment. Some 4-5 hospitals also have this. So I decided that we should have it in KMCH.
If someone in your family has a stroke, once the brain gets damaged, it is impossible to bring the person back normal. But with the Mobile Stroke Unit, we can stop the disease from getting to the brain and arrest the stroke. Once that is done, we can try to cure the person. They donât have to suffer for a lifetime.
Even the van that carries the unit, the ambulance, is a special vehicle. It was actually designed by one of our own employees. He is an expert. We installed glasses to prevent radiation and readied the vehicle. You wouldnât find someone like him anywhere in India and he is from Kovai.
3-6 hours from the incident is the best time to prevent a stroke. Our first call for the vehicle was from a small village called Annoor. We picked up the patient, stopped in a petrol station and transferred him to the Mobile Stroke Unit. We did CT Scan inside the vehicle itself. We were able to diagnose the disease properly.
Q: These days, you are also entering the education space. You want to establish a medical college. What are your aspirations in this?
A: When people think about a hospital, people immediately think about doctors. Yes, doctors are important. But equally important is the support staff. Be it nurses, assistants, orderlies, pharmacists or physiotherapists, all of them are essential part of a hospital. Sometimes, the support staff are more important. People who visited a hospital abroad would know. For an effective Healthcare Delivery System, the entire supportive system is required.
There was a Minister named Muthusway during the ruling of MGR. He was the first one to bring paramedical staff into Tamilnadu. He allocated them to a lot of hospitals.
Q: In spite of technological advancements in medicine, new diseases keep springing up. Rich people and poor people get afflicted with the same disease. So this gap keeps increasing. Do you think it can be bridged?
A: This is an important question. âEducation for Allâ and âHealth for Allâ are two major subjects for a nation. In India, the biggest difficulty is that - the reason behind Private Sector growth in these two spaces is that the government did not allocate sufficient resources.
When it comes to âHealth for Allâ, either there should be a good insurance system or the government should subsidize it. Tamilnadu has a program called the CMKT. It is good. Similar programs should be announced. Either the insurance sector, the private sector or the government should support such initiatives. Otherwise, poor and needy people cannot access all of it.
Since we buy all the latest equipment and technologies, we incur a lot of expense. So we are forced to charge a lot of money in the Private Sector. Iâm happy if the government can do it all by itself, or some kind of insurance system should take care of it. Since these donât exist, may people are in a fix. In the course of time, my wish is that everyone should be able to access good healthcare, regardless of whether he is rich or poor.
END.
(Probably noteworthy is the fact that there are lot of comments on the video complaining about the high cost of treatments at KMCH).
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doesnt avg revenue per bed of 15k look on the higher side ?
i tried to ask a friend of mine who has an acquaintance working in kmch as a junior doctor and he gave me a figure of around 8k
What are the activities performed by Kovai Medical during the ongoing COVID-19 pandemic? Does anyone have any info on how the functioning of the hospital has been affected/changed during the 3 week lockdown?
Disc:invested.
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generally 70% cases are planned surgeries. Those will typically be postponed.
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Things look grim for hospitals (counter intuitively) though there might be some exaggeration in this report:
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Hospitals have had to postpone all elective surgeries,along with this there is also a shortage of PPE which puts all healthcare workers at risk.
If all this was not enough there are some incidents of violence against doctors which is very disturbing,read some distressing news about the passing of Dr.Simon today and the horror that followed.
No doubt hospitals are one of the most impacted institutions due to this crisis (As someone else mentioned, generally a majority of a hospitalâs revenue comes form pre-fixed surgeries and treatments, which would likely be postponed by most people).
But specific to KMCH, itâs already trading at a steep discount to (my) Value. So far there hasnât been any stark dip in the share price. But any such event in the future is undoubtedly a good buying opportunity. At least, I will continue holding KMCH and will not hesitate to add on dips (As and when I get more cash).
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Many far-reaching changes expected in the entire healthcare universe now, the impact of which will be massive. For example, Government of India has issued Tele-medicine guidelines last month, making such a practice âofficially allowedâ. Potential for Tele-medicine always existed, but it never really picked up, until now, that is.
Many technology trends also mentioned in this interview, which will gather momentum:
https://www.cxotoday.com/news-analysis/tata-elxsi-bringing-innovations-in-medical-device-market/
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While reading through the annual report of 2018-19, I noticed something related to shareholding pattern which prompted me to post here.
A company named PAVAI PROPERTY DEVELOPERS PVT. LTD. is among the top ten shareholders of the company with 4.75% holding. The company is holding shares in KMCH since many years. (Below is the link for shareholding pattern for Q4 FY2002-03).
https://www.bseindia.com/corporates/shareholding_new.aspx?scripcd=523323&flag_qtr=1&qtrid=37
In which company is non promoter shareholder classified under private corporate bodies.
However, if we go a quarter back, the same company was included in Promoter category.
https://www.bseindia.com/corporates/shareholding_new.aspx?scripcd=523323&flag_qtr=1&qtrid=36.
I checked onto the MCA website looking for PAVAI PROPERTY DEVELOPERS (CIN: U70101TZ1994PTC005531). We can see that the address of the company somehow matches the address of KOVAI PURANI FINANCE PVT LTD. which is the promoter company of KMCH. Of course address has slight variation, but enough to note that both the places might be same.
The same address can be noted for PURANI HOSPITAL SUPPLIES LIMITED. This company is mentioned under related party disclosures in AR.
One of the directors of PAVAI PROPERTY DEVELOPERS have common directorships with KMCH promoters in other companies as well. 1) BIOMED HITECH INDUSTRIES LIMITED. 2) EDG PHARMACEUTICALS. 3) PURANI HOSPITAL SUPPLIES. (Can be easily googled)
Now with an exception of PAVAI PROPERTY each of the above companies is disclosed in annual report wherever necessary i.e. under promoters, related parties or under âcommon directorship in other companyâ disclosure.
My doubt is:
What prompted the company to move PAVAI PROPERTY from promoter to non-promoter entity?
Even the company does not find its place among related party disclosures. How can we be sure that KMCH does no transactions with the company? Even EDG PHARMACEUTICALS is not included under related party and hence no disclosures of transactions.
I have no auditing experience but just curious if they are exploiting any loophole in AS.
Disc: Invested and building up position.
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I believe SEBI reclassified shares held via Employee Trusts and/or other indirect means to be classified as Non-Promoter. Similar reclassification happened in Ion Exchange as well a few quarters back. Iâm sure itâs nothing more than a regulatory requirement.
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