This is my first post on this forum. I will post a bio in the introductions thread later.
I have invested in a few hospital stocks overseas and this one does look cheap on the face of it but there are a few reasons not to get carried away too, some thoughts for what it is worth:
1). A well run and profitable hospital is a good cash cow in the same way a good restaurant is however the business only become interesting if the model is scalable, a single hospital’s profitability is constrained by the number of outpatient turns /utilization of its beds (for e.g. optimal bed utilization is around 75% for Singapore hospitals). I could not find such metrics for this hospital in its AR, if anyone has them please do share.
2). To scale nationally one needs a good brand as locals generally tend to patronize well regarded local hospitals, Apollo to some extent has achieved this hence its high PEs. This can be a major stumbling block for hospitals and needs strong marketing muscle and cash.
2). Based on above points PE is not the best metric for valuing single non scalable hospitals so single digit PE might not necessarily mean cheap.
3). A good way to value such businesses in my view is through replacement cost and dividend yield. Their fixed assets are currently stated around 280 cr. in the books, can a similar hospital be constructed for this amount in a comparable area ? is it easy to get the number and quality of doctors this hospital has readily from the market? if the answer is no to both questions then this will likely become an attractive acquisition candidate for the major players at a good premium.
4). Hospital businesses with no intention of expanding aggressively would do well to return cash to shareholders in the form of dividends, (Religare hospitals has listed such a high dividend paying hospital trust in Singapore) that could boost valuations as yield investors buy the stock.
net net, I do think at a valuation of ~ 40k usd per bed, track record of profitability, good location and reputation the business certainly looks to offer value given the demand for high quality hospitals in India by global funds. I also agree with the views of Ayush and others that reducing debt over the coming qtrs will give a good boost to profits.
For this one to be re-rated though the mgmt has to come clean on its future plans on expansion and how it plans to create value for shareholders. The AR also needs to be more transparent on operational metrics of the hospitals.
Would be great to meet the mgmt if someone has a lead.
Thanks for reading.