Kovai Medical Center and Hospital - Health and Wealth

sambandham82 · July 27, 2020, 7:17am

Thanks for sharing detailed analysis & data.

Why company was borrowing at an average of 12.1% between FY13 and FY17 which is a little higher ?
How it drastically decreased to 6.4% and 3.2% in FY18 & FY19 respectively ? Is company not paying the interest due fully for the past 3 years (In FY20, only 15 Cr for 413 Cr debt). If not paying, then interest rate has to be 12% and not 8.8%.

Why you have accounted only FY18 - FY20 debt taken as capex for Extra beds and medical college ? Is it mentioned by company specifically ?

dineshssairam · July 27, 2020, 7:39am

KMCH Capitalizes interest from time to time. That’s why I took the long term average.
No, but I included all the Debt taken as a conservative move. You’re true in saying that some of the Debt will actually be for other business activities. That simply means the IRR / Payback will be better.

Sanjay_Kumar_E · August 1, 2020, 4:32am

I wanted to know if the NEP affects KMCH. And it does!

"Another major change at the level of higher education is the focus on making universities multi-disciplinary. This means that an institution will have to teach arts, science, social science, basically everything under one roof. Single-stream institutions will fade out and, by 2040, all institutes will aim to become multidisciplinary, it states.

The NEP also does away with multiple regulators like the University Grants Commission (UGC), the All India Council for Technical Education (AICTE), and the National Council for Teacher Education (NCTE). All these will now be replaced by a single regulator."

So the optionality of KMCH getting University status is very bleak now? We are only left with PG seats.

dineshssairam · August 1, 2020, 9:32am

Section 18.3 of NEP 2020 clearly states that Medical and Legal education will be excluded from NHERC regulation.

Further, NEP 2020 also seems to have given a free hand to ICMR for research funding.

Source: https://www.mhrd.gov.in/sites/upload_files/mhrd/files/NEP_Final_English.pdf

kishorfaria · August 21, 2020, 8:12am

Kovai Medical ~ Fundamental Analysis By KBF:

Kovai Medical Center and Hodpital (KMCH)

CMP : Rs754/-

FV: Rs10/-

Mkt Cap: Rs826 Cr

Enterprise Value: Rs1441 Crs

Eq Cap: Rs10.94 Crs

Reserves: Rs420 Crs

Loan Liab: Rs570 Crs

Fixed Assets: Rs913 Crs

Current Assets: Rs129.24 Crs (Includes Cash Balance of Rs101.89 Crs)

EPS: Rs86/-

Industry PE : 43

Stock PE : 9

Div : 30%

Promoter Holding: 51%

FIIs & DIIs Holding: 28%

Sector: Hospitals & Medical Services

BV : Rs393/-

P/BV : 2

Kovai Medical Center & Hospital is a multi-disciplinary super specialty 894 Bed Hospital with modern medical facilities and state-of-the-art medical equipments.

Overview:

A Health Care Provider of Western Approach with an Indian Touch.

KMCH is the most trusted Multispecialty Hospital in the Southern Indian City of Coimbatore.

The relentless service of KMCH in the past 26 years, taken health care to the most modern levels in the region catering to urban and rural population.

KMCH HAS ESTABLISHED ITS NAME IN MULTIPLE SPECIALTIES SUCH AS ITS:

Heart Institute –
– Bypass operation, heart transplant, valve repair, further more we have…
– The region’s only heart rhythm specialist (Electro physiologist).
– The region’s only established Paediatrics Cardiologist.

Multi Organ Transplant Center – Heart & Lung, Liver, Kidney and Bone Marrow.

Comprehensive Cancer Center – Medical Oncology, Surgical Oncology, Radiation Oncology, Nuclear Medicine & PET.

Interventional Radiology – A pioneer in the field of IR advocating methods of expertise to institution across the Globe.

OBG – High risk pregnancies and Fertility Center

Paediatrics – 26 years of unblemishing track record in treating neonates and infants.

Critical Care & Trauma – In emergencies they handle life threatening situations through world class trained Doctors and Intensivists.

Orthopaedics – Hip and Knee Replacement and complex deformity correction.

Others as well
Endocrinology,
Diabetes management,
Rheumatology,
GI,
Pulmonology,
Interventional Pulmonology with EBUS,
Psychiatry,
Cosmetic surgery,
ENT,
Dermatology,
Hematology,
Urology,
Nephrology and
Paediatric Surgery.

They believe in bringing the most modern techniques and delivering extraordinary care to ailing population with the highest levels of ethics and standards.

They are committed to continuing medical education, through their fellowship and DNB programs.

They organize atleast one conference a month and support research foundation for continued advancement.
“No matter what your problems are, they receive you with care, so you go back with a smile.”

DEPARTMENTS

Comprehensive Cancer Center

Critical Care Medicine

Fertility and Reproductive Medicine

General / Laparoscopic / Gastrointestinal and Bariatric Surgery

Health Check Program

Internal Medicine

Interventional Radiology & Imaging Sciences

KMCH Heart Institute

KMCH Liver Institute

Nephrology / Urology

Neurosciences

Nuclear Medicine & PET CT

Obstetrics & Gynaecology

Orthopedics and Joint Replacement

Paediatrics

Speciality Departments

Branches:

Peripheral Centers

KMCH City Center, Ramnagar, Coimbatore

KMCH Sulur Hospital, Sulur, Coimbatore

Kovai Medical Center – Erode

KMCH Speciality Hospital - Erode

KMCH Kovilpalayam Hospital

KMCH TRAUMA CARE CENTERS AND EMERGENCY CARE CONTROL ROOM FACILITIES:

Trauma is an emotional shock producing a lasting harmful effect, because of unpleasant experience from wound or injury.

Road Traffic Accident is one of the common causes of trauma.

Apart from road traffic accidents and other accidents, trauma is also caused by heart attacks (myocardial infraction), poisoning, burns,snakebites, etc.

Death due to these causes can be avoided by providing immediate medical attention.

In practice most death cases are prevented in the first hour of the accident, which is also known as the “GOLDEN HOUR” in the medical parlance.

Prevention of death is possible by providing careful handling of the victim at the accident spot, providing first aid treatment, transporting the patient to the nearest hospital and providing proper medical treatment.

KMCH has extensive medical expertise, facilities and infra-structure to treat all kinds of trauma patients.

KMCH is recognized as one of the best Trauma care centers in the country.

KMCH has organized an expert trauma care team consisting of very senior medical consultants in the departments like Orthopedics, Neuro surgery, General surgery, plastic surgery, Cardiothoracic surgery and rehabilitation and physical medicine.

They are assisted by trained paramedical staff like nurses, Physiotherapists and Occupational Therapists.

The Trauma care centers are primarily intended to provide first aid to the accident and emergency victims.

All the trauma care centers have been provided with 24-hour ambulance services with mobile telephone communication facilities.

The ambulance facility can be utilised from any of the trauma care centers at a very short notice by contacting the emergency control room facility at KMCH.

The Hospital offers free transportation of road accident victims from the accident spot to any hospital of their choice up to 20 KM radius from the accident spot.

newbie_007 · August 22, 2020, 5:30am

Their main campus is on Avinashi Road, Coimbatore. Do they have 25 acres or a little more there?
So, just their land holdings will form a huge portion of their market cap.

Here is a link to news from 2009 regarding their then expansion plan mentioning the land holding.

Here is a link to a Magicbricks search for plots for sale there. However KMCH main campus is on the main road and is close to the city’s airport.

Disc: Invested

MohitJain · August 28, 2020, 1:40am

Annual report for FY20 is out:

ayushmit · August 28, 2020, 2:21am

Good to read the latest annual report of Kovai. This single page was the best highlight, I feel there would be hardly any standalone hospital with such a good track record of consistent growth with high profitability and cash flows

Sharing link of my copy of annual report with highlights - Dropbox - Kovai Medical AR 2020.pdf - Simplify your life

This annual report was more detailed than before and it was good to see company continue to do several “firsts” in the industry.

The concerns might remain over the possible revenues from the recent expansion of 750 beds however If one is patient, it should work out over 2-3 years.Also, from near term perspective the hospital income may get hit due to Covid as most of the hospitals had very low occupancy due to Covid fear, though things must have gradually improved.

Disc: Continue to be invested since last few years. Also invested in PMS.

aga.ayush11 · August 28, 2020, 10:05am

Sharing notes from AR20:

The greatest event that has taken place in the history of the company is the inauguration of the new Medical College in Coimbatore
This has been my dream to set up a world class educational and research institution in Coimbatore to ensure the quality of medical education which would match with the best centers across the globe.
Like @ayushmit mentioned, the management talks about a lot of “first” and “world-class” infrastructure.
Listing a few of them-

Asia’s first hyper arc system thus allowing them to treat double the number of patients and further enabling them to perform extremely complex stereotactic radio surgeries and body treatments
The only Intensive Care Unit in South India, which has been recognized for the Fellowship Program.
First successful transplant in the world in a patient with deadly bleeding disorder (Haemophilia).
KMCH brought the first Comprehensive Stroke Center in the region to ensure all patients with stroke could receive treatment in par the best in the country.

“Best Multi Specialty Hospital in South India – 2020 from “The Economic Times”.
One of the divisions of KMCH – its Molecular Biology Department was recent accredited by NABL for Testing of COVID-19 Virus
KMCH endeavors to set up a world class educational and research institution in Coimbatore to ensure the quality of medical education would match with the best centers across the globe
Construction of 750 Bedded Medical College Teaching Hospital is complete, to be commissioned in August 2020.
Long Term Borrowings- 505cr (PY 336cr) (These are mainly 12 year loans). Repayment of majority portion, 380cr, of this LTB starts in and after Sept’21.
Net OCF- 166cr (PY 126cr)
RPT- Purchase from RP- 48.4cr (PY 40.85cr)

Segment revenue and results-

  *Healthcare-  Revenue- 697cr (PY 626cr)
                Results- 133cr (PY 112cr)
  *Education-   Revenue- 14.57cr (PY 2.82cr)
                Results: -6.43cr (PY -6.77cr)

I had done an exercise a while ago to see the valuation across the hospital sector. I found something very interesting. Sharing a snippet-

Kovai fares better in all aspect and yet is trading at a cheap valuation when compared to its peers. The 750-bed medical college hospital should commence operations by the end of this month as mentioned in the AR, pushing the mcap/beds valuation to the cheapest in the industry. It is yet to be seen how that investment turns out, but given the current hospital’s history and cheap valuation, there definitely is some margin of safety.

Disc: Tracking and not invested.

SlownSteady · August 28, 2020, 10:59am

I have personal experience in a big hospital in Coimbatore where they insist on getting a part of the money in cash. This was a big hospital but not KMCH. So hospitals itself is a business which runs in part on black money. Many know medical colleges and capitation fees. That’s how colleges make most of their money all of which is black money. I am not accusing KMCH as I do not have any proof, but the education business is run that way at least in Tamil Nadu. So my biggest worry here is how much of their money is black and goes unaccounted from which shareholders will not have any benefit.

rampuria · August 28, 2020, 3:31pm

Biggest worry is the growth plan going forward plus few years ago, there were concerns on related party transactions especially related to drugs and consumables procurement I think

dineshssairam · September 14, 2020, 4:46pm

Dr. Nalla G. Palaniswamy, MD/CEO, has contracted COVID-19. Let’s pray for a swift and healthy recovery. Joint MD is running the operations meanwhile (Although I’m fairly sure it’s his son who’s actually running it now).

brijeshmahawar · September 21, 2020, 4:06am

Can anyone share AGM notes if possible. Thanks.

dineshssairam · September 24, 2020, 9:51pm

KMCH AGM Q&A Session

This is not an exact transcript, but I have tried to maintain the gist of the questions and answers. I received the audio from one of the shareholders who attended the meeting. I didn’t attend the AGM myself, so I don’t know anything else that went on before the Q&A session.

Q1: We pay a little less (Salary) to Doctors when compared to other hospitals in Metros. Do other hospitals in Coimbatore also pay the same Salary as well?

A1: We are one of the largest corporate hospitals in Coimbatore and we have a lot of Doctors who have been with us for more than 20-25 years. We have retained them by virtue of paying them decent market rates. If we didn’t, they would have left us. That’s why we are one of the best in the city.

Q2: In terms of competition, why are there more hospitals not coming up aggressively in this city, considering the attractive nature of Margins compared to other hospitals? Who are the current competitors?

A2: There is still competition around us. There’s no doubt about that. We still thrive with the competition. That’s all I would like to say.

Q3: Is there any regulation that says that the Medical College should be run on a Non-profit basis? Can it be a profit-generating entity in its own right?

A3: The Medical Council of India governs the operations of the Medical College and the beds related to the Medical College. While both the College and the Hospitals cater to different segments, both of them will be run for profit motive and will be considered as separate profit centers.

Q4: What is the kind of Revenue we are expecting from the Medical College in the first year? When will we Break-even? How much Capex did we do overall for the Medical College?

A4: The Medical College and related beds cost around Rs. 600 Crores. We expect to add Rs. 60-70 Crores more from Debt. That is the entire Medical College project.

First year of operations for the Medical College has already started with an intake of 150 Students. The income from the fees is already given in the Annual Report (Snip below for reference).

The break-even will happen at the end of the second year.

Q5: Our Debt is now Rs. 550 Crores. What is the Cost of Debt? Our Cash profit is Rs. 146 Crores. Are we going to repay the Borrowings?

A5: The Borrowings are on MCLR. The repayments are structured in such a way that we do not have any big impact on our Cashflows. Our loans have a 3 year Moratorium and an extended repayment period of upto 12 years.

Q6: What is the rationale for entering into the Medical College business? I received a mail from CS saying that we can generate up to Rs. 1,000 Crores in Revenues at full capacity. At 10-15% Margins and Rs. 150 Crores in Profit, we will be left with Rs. 40-50 Crores after expenses, interest, Depreciation and Taxes.

A6: Please send me an e-mail. I will respond to you separately.

Q7: Are the Revenues from the 350 beds built along with the Medical College included in the Rs. 1,000 Crores Revenue projection or not?

A7: Yes, it is included.

Q8: You said we will breakeven in 2 years. Can you give the timelines?

A8: We expect to break-even by FY21. Perhaps considering the circumstances, we can add 6 months more.

Q9: How much Revenue will we get at full capacity from the Medical College alone and what kind of Margins will we see in that?

A9: Medical College segment will see a higher Margin than the Hospital. Going forward, we will disclose the exact segment reporting numbers.

Q10: What are the long term benefits of the Medical College?

A10: There is a dearth of supply of good Doctors. Hence, the vision to start a College where we can train and nurture good Doctors who can run our own hospitals. If we look at some of our Consultants, they have been with us for more than 20-25 years. This is because of the good reputation we have in the market place.

Q11: When we start a Capex, is there a financial goal before starting it? Like, do we plan to maintain Debt/Equity at a certain level?

A11: We are not looking at any further Capex as of now. First step is to ensure Medical College is running smoothly, the interest payments are made properly and then we need to look at our ability to repay the Debt. But if an opportunity presents itself, we need to sit on it and think. I will look at a Capex so long as the returns are good.

brijeshmahawar · September 25, 2020, 7:36am

Many thanks @dineshssairam…much appreciate your effort.

Rajesh1975 · September 25, 2020, 10:49am

dineshssairam · September 25, 2020, 11:21am

Thanks. The full news is not accessible for some reason. Here’s the same news covered recently (Fully accessible):

Chandragupta · September 30, 2020, 12:01pm

CRISIL webinar on the hospital sector:

https://youtu.be/w0VJYnB0bQs

anupnarayan · October 14, 2020, 6:17pm

Hi Dinesh, just to understand the economics of medical college business -

Revenue increased by 11-12cr for first year intake of students (FY20 revenue was ~13 cr). Assuming 5 year MBBS course, this will be ~60 cr revenue, even if we pad this up little bit to include other courses we get to say 100 cr, but how are we getting to 1000 cr revenue per year?
With a capex of 660 crores invested, and assuming a 25% margin on medical college business (to be tested), thats 25 crores EBITDA and if we bake in some actual up-keep costs (depreciation), thats single digit ROCE at best. So the revenue puzzle (gap between 100 cr and 1000 cr) needs to be solved clearly
How do we value the medical college business? What are the risks - regulation, low intake
What happened to expanding to chennai location?

sivaramtvl · October 15, 2020, 4:51am

KMCH had decided to invest in Medical College rather than expanding to Chennai. AFAIK, there is no expansion plan as of now. They need to repay the dept they have taken for medical college and improve their return ratios before planning expansions.