Good point Nikhil. It s quite possible that they done this to not disclose related party transactions. There was a huge hue and cry some 4 years ago no related party transactions. It’s a not a good step then. Can somebody check with the promoters?
There is no donation/capitation fees in any private college now. Admission application process is online and counselling is also online. Admissions are done by Directorate of Medical Education not by any college. No one can take any admission bypassing any candidate. Basis of counselling is NEET score. Why will one give donation ? In private colleges fees for 65% seats is fixed by government i.e. Director Medical Education. Fees for other 35% is fixed by College management. Students who dont get government quota, apply for NRI & Management quota which is 15 & 20%. Vaccant NRI seats are filled by management quota. No donation does not mean that fees is reduced, in fact, donation is added to fees.
So all income by medical college will be accounted.
If Kovai medical college wants to charge more, it can charge on 35% of seats only on the basis of quality education if people consider it as quality college. They can decide fees for 100 % seats if they turn into university like Manipal. It will take time. These 12 crore revenues from college will continue to incrase as college gets established on quality front as they can charge more on 35% of seats.
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Impact of COVID19
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@dineshssairam Do we have any growth left in this company?
Like are they planning to add new hospitals? or Add new capacity to existing hospital?
Do you think promoters are serious about business even now? And what about second generation of Leaders in the company?
Please go through the previous posts in this thread.
Please read the interview I posted just a few posts back.
Also yes, all 3 Sons/Daughters of the MD are Doctors. The son is currently running the hospital alongside the MD.
Management has not indicated but it is my feeling that new capex slowly slowly will shift towards Medical education business. This is a vast field and big opportunity to grow. If they establish themselves as quality education provider in society, they will grow faster. New capex should come into medical education. As per logic their near term tasks should be as following in order.
- Run college for four more years and meanwhile apply to increase allotted seats from 150 to 250 which is maximum.
- Prepare infrastructure to accomodate PG courses and apply for affiliation.
- Once established, apply for Deemed university so that they can decide their own fees.
- Grow with another campus affilated with same university.
Every step will boost profit margins, topline. It is highly predictable business, no revenue loss even in corona like situation. Since they have opportunity to increase revenues, margins in college business, obvioisly focus will shift towards it. These are my observations only, I dont know what management thinks or their plan.
Discl - Took position recently in this downturn. 5% of portfolio.
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Company’s COVID-19 disclosure doesn’t say anything about the education business. Any idea what the impact is going to be? Will the admissions happen on time or will there be a delay this year?
Yes, all colleges are closed as we know. Still NEET is not held, forget about admissions. Dont worry, college business is a fixed revenue business, college will get its fees at due time even college is closed, admissions will be there, may be late, so no loss of revenues.
Session may be delayed by some months. It is loss for students not loss for company.
I believe admissions already happened. A list of students for the first batch and the money collected from them initially has been posted in this thread a while ago. But yes, all colleges are closed due to COVID19.
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I think his question is for August 2020 session. Admission process must have begun till now. Due to pandemic, even CBSE exams are not complete. So the session is going to be late, I guess.
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Yes, my question was for this year’s batch actually.
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Medicore results for the Quarter. But overall a good year.
Positives:
- PAT doubled because of some tax breaks / deferrals. Rest assured, it will come back to haunt later.
- FCF is improving. Hopefully a lot quicker in the next year, once this Virus issue is dealt with.
Negatives:
- D/E has crossed 100%, which is a bit worrying, given the company’s history with Debt.
- PBT took a hit because of Depreciation (Understandable). In fact, Depreciation has almost made a ~2.5x.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/e9ce79a3-4e33-4e39-87db-eddb351c9988.pdf
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What am I missing? Doesn’t the figure of 173 Cr indicate that the Mgmt should have spent only 173 Cr today instead of 700 Cr on the project to breakeven? How can we use the PV of cash flows to calculate RoCE? Would be really helpful if someone explains.
So I built a basic model to calculate IRR. This is what I get. Bull case would be 15% IRR. What would be the interest cost?
KMCH’s 3 year average RoCE at 23%!
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This business is different. I think you missed the growth part in college. They can easily increase MBBS seats after two three years to 250 from 150. Also they can add 125 PG classes after 3 years. In FY 20 they already got MBBS fees. Other growth lever is less capex in college and turning to university. If they turn to university, they will take admission on their own not by Directorate of medical education. Fees will be decided by them. Presently at 150 capacity fees will increase by 12 crore per year more i.e. double. This is the ony medical college listed. I dont know their planning but we need to understand from management in annual meet of company how they are planning their college to shape in future. If one incorporates all these things in next ten years, one can not beleive cash flows from this company after 10 years. Let us see what management says in annual meet. For disclosure I am newly invested here at lower levels considering all these growth levers.
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Also, see the business model of Manipal to visualise the opportunity in immediate future. They have tied up with university in Carribean sea. They recruit students here and teach them one year in India. After that they send them to Carribean. Their they syudy to compete USMLE. There is no limit of intake capacity as this business model is different. Give one call to Manipal to understand fees and other things. I dont say Kovai is going to do it. I am just focussing the future opportunities in this field. All depends on management’s vision and hard work. We dont know what they think. We have to extract from them in annual meet.
Some work I have to do when I have time -
What are compliances for PG, university. The main thing land, beds, staff requirements and college run time. I dont know how much land they have for college.
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I have already included the 12 Cr incremental revenue for each new batch that comes in. And regarding your point about increasing seats to 250, I checked the Medical Council website for the requirements:
- Standard for 250 intake:
- Increasing capacity to 200 or 250:
A) 1100 beds? We only have 700 right?
B) 3000 OPD per day? No. FY19 figures of 7.5L / 360 days = 2050 only (even if we consider only 300 days, it is 2500 OPD / day) We satisfy the criteria for 200 seats by a small margin.
C) Bed occupancy 75%? FY19 occupancy was 69% and FY18 at 70.6%
D) What does “standing of 10 years” mean?
Can someone read the documents and verify the requirements?
https://www.mciindia.org/CMS/wp-content/uploads/2017/10/STANDARD-FOR-250.pdf
I didn’t want to read about the PG or University requirements after the diappointment.
The State Government wants to increase seats to 250 for existing government colleges. Maybe it is possible for them because of them being Govt hospitals. Occupancy and OPD will be high. I am not sure about Kovai.
400 more MBBS seats on offer in Tamil Nadu | Chennai News - Times of India.
This data table shows that only few Govt colleges in TN have more than 150 seats.
Regarding your point on the land parcel, from the Essentiality certificate:
Thanks for a different perspective. To me, these are just optionalities. At face value, I still doubt the project returns. Given that KMCH operated in a highly regulated environment (right from seat allocation to fees and subsidy beds), I am not convinced enough to increase my allocation. Wish someone can extract more details from the Management.
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KMCH New Capex IRR Calculation (Key Assumptions):
- Extra 700 Beds will contribute at least 200 Crores in Revenue. This is a conservative assumption. Hospital EBIT will grow at 18% over 20 years (Historical is about 20-23%).
- Medical College will contribute at least 12 Crores in EBIT. Again, a conservative estimate, because we still do not know what are the additional streams of income from this business. This will grow at 20% over 5 years. Then PG fees of at least Rs. 50 Crores gets added, but growth slows to 15% for the remaining 15 years.
- Maintanence Capex calculated from historical Depreciation/Gross Block (Depreciation is proxy for Maintanence Capex) at ~5%. Ignored last couple of years because of distortion from new Capex. Maintanence Capex will grow at 5% every year (Inflation).
- Interest Paid calculated from historical numbers at 8.81%.
- Debt repaid in equal installments 5-6 years from now.
- Taxation at 25%.
KMCH New Capex IRR:
KMCH IRR Calculation.xlsx (27.7 KB)
(For initial few years of negative IRR, I have put in some fillers for better pictorial representation - ignore them. Just look at IRR from when it turns positive)
I have done this just for about 20 years of operation. But clearly, assets like a Hospital last very, very long - far beyond just 20 years. With just a small investment in Maintanence Capex, a lot of Cashflows can be extracted. In fact, if you just continue this exercise for even 1-2 years more, IRR jumps even further - which we otherwise call “Operating Leverage”. But of course, nobody knows what will happen to the business environment over a long period like 20 years and that is exactly the risk we take as investors.
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MCI is not doing its job perfectly. There are many things in air against MCI. Their policies can not meet Indian health services demand. Govet has already replaced it with Medical Commission. So new “Affiliation body” we have to see. No where in world Medical education is this much costly. As you already researched that it is not viable to open Medical College. These norms are nothing.
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Following list is from Tamilnadu mbbs admission prospectus. The college in Tamilnadu is authorised to charge 3.55 lakhs per annum. Kovai college is not there as they got affiliation late. They might be allowed the same fees. So they are charging 3.55 lakhs per annum for 65℅seats of 150. My point was, if granted university, this fees will shoot up to the level of management quota fees and 12 crore fees will almost double to 24 crore.
Course Self Financing Medical College
Fee in for
2019 – 2020
(in lakh)
Govt. Quota
MBBS ESIC Medical College and PGIMSR,
K.K.Nagar, Chennai District.
(compulsory service under bond: 3 yrs).
1.00*
Wards of IP
Rs.24,000/- (p.a)
Tagore Medical College and Hospital,
Chennai Distirct.
3.85
Karpagam Faculty of Medical Sciences &
Research, Coimbatore District.
3.55
PSG Institute of Medical Sciences &
Research, Coimbatore District.
4.00
Karpaga Vinayaga Medical College,
Maduranthagam, Kancheepuram District.
3.85
Melmaruvathur Adhiparasakthi Institute of
Medical Sciences and Research,
Kancheepuram District.
3.60
Sri Mookambikai Institute of Medical
Sciences, Kanyakumari District.
3.90
Velammal Medical College Hospital &
Research Institute, Madurai Dist.
3.90
Dhanalakshmi Srinivasan Medical College,
Perambalur District.
4.00
Trichy SRM Medical College Hospital &
Research Centre, Trichy District.
3.85
Rajah Muthiah Medical College,
Annamalai University, Chidhambaram
5,54,370/N19061918.pdf (1.6 MB)
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