As valuation corrections hit strong small-caps, investors are pivoting from, low-visibility stocks toward companies with proven growth and management confidence. It makes sense!
Shalby is a strong brand in Gujarat and runs its hospitals in Tier 2 cities / state capitals (Ahemdabad / Jaipur / Bhopal etc). My views on the company below based on what I have studied till now
- Leader in Orthoplasty / Joint replacement - Shalby is national leader in Orthoplasty and its brand is able to attract customers. This segment is the cash cow for the company, however, management is taking steps to diversify into other segments as well, so that they can sweat there assets.
- Operating leverage - Entire hospital business is upfront capex, where as revenues / profitibility follows as the hospital start getting the footfalls. Shalby has a Bed Capacity of 1400+, extendable to 2200+ with minimal capex. As of now only 800 beds are operational. If they are able to get incremental customers, the impact on bottomline will be disproportionate.
What matters is how much assets they are able to sweat. Number of surgeries is one of the good matrix to track on this front. Last year the count was 30,000 surgeries for the year. - Future expansions - They have plans to start hospitals in Mumbai and Nashik. For Mumbai they will get the land from trust , so capex per bed will be limited (1.5 Cr per bed), and for Nashik they are into revenue sharing model. The problem is they are talking about these projects since long, but nothing seems to be moving on ground.
- Turnaround of Sanmar - They are trying to revive the hospital they bought is Delhi, time will tell if it will work out well or not.
- Conservatively run hospital chain - Past record shows they have expanded very conservatively, they buy/invest in new assets when balance sheet has strength to allow it. And they take time to stablize it before venturing into new projects.
- Backward integration - They have ventured into orthopaedic implants, which may make strategic sense, since they can use lot of the supplies into their own hospitals. Time will tell if they will be able to sell the implants outside or not.
- Jockey/Management - I think this is the most important piece of the thesis. Vikram Shah (the founder and the controlling shareholder) is the jockey who is driving the company. The entire strength of the assets (hospitals) is driven by who is running it and how.
- Valuations - The hospital business has sales of 1000 Cr and generating 100 cr cash on yearly basis Implant business currently is hardly breaking even, but requires lot of working captial. At 1500 Cr Market Cap the valuations dont look demanding.
- Market Apathy - Market is giving cold shoulder to the company since long, probably for the right reasons. While management execution may be in directionally right, but business performance is lacking.
Disclosure - Hold Tracking position. The post is not intented to influence anyone to buy/sell the stock.
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