Healthcare Global Enterprise Ltd Stock Research Report

Improving Operational Excellence; Well-Positioned to Ride the Upcycle…..

In this Company Update of Healthcare Global Enterprise (HCG), we recommend a BUY on the stock with a TP of Rs 575/share, implying an upside potential of 14% from the CMP. HCG is one of India’s leading cancer care providers, operating 21 comprehensive centers dedicated to advanced treatment. HCG’s tumour board specialists discuss each case, including diagnostic information, to create a treatment plan. The board’s assessment helps specialists provide a reliable second opinion. HCG’s multidisciplinary team uses evidence to create treatment plans that are likely to be successful. We expect Revenue/PAT CAGR of 16%/73% over the period FY24-27 along with improvement in RoIC to 20% (from 11%) in FY27E.

Investment Thesis

Excellent Performance:

In Q2FY25, HCG reported a strong set of results, in line with our expectations. Revenue grew by 13.7%, driven by a 7.5% YoY ARPOB increase and a 6.4% growth in the number of occupied days. The ARPOB of Rs 45,188 rose by 7.5% YoY and 1.9% QoQ, showing healthy growth, while occupancy at 65.6% remained nearly flat YoY/QoQ. EBITDA margins improved to 18.5%, up 109/118bps YoY/QoQ, meeting our expectation of 18%. Reported PAT stood at Rs 21 Cr, showing a growth of 91% YoY and 51% QoQ.

Operational Excellence:

Existing centers reported revenue of Rs 485 Cr, with EBITDA margins at 23.3% for the last quarter. The management has guided that, excluding MG, the company’s consolidated EBITDA margins could reach 20% in Q4FY25. Emerging centers currently comprise 163 beds, down from 532 beds six months ago. Revenue from emerging centers was Rs 53 Cr, compared to Rs 121 Cr YoY, reflecting that most centers have now matured and are contributing to profit at the operating level. These 163 beds in emerging centers are expected to reach EBITDA breakeven by the year-end.

Capacity Expansion:

HCG recently acquired MG Hospital in Vizag, a comprehensive care provider with 196 operational beds and healthy margins of 35%. This deal, valued at 9.8x EV/EBITDA, appears favorable for shareholders. Additionally, HCG inaugurated a 200-bed comprehensive cancer care center in Ahmedabad last quarter, and the company is adding 125 beds in North Bangalore through a brownfield capacity expansion. HCG’s digital initiatives have significantly boosted the patient funnel, raising digital channel revenue to 14% of overall revenue in Q2, up from 4% in the last year. The company aims to achieve 25% of revenue through digital platforms over the next 3-5 years.

Outlook & Valuation:

The cancer industry is growing at a CAGR of 17% and HCG is outpacing the industry growth. The company plans to add 900 incremental beds over the next 4-5 years to capture upcoming opportunities. We anticipate a 1,000bps improvement in RoIC for HCG over the next three years, driven by increased operating profitability. Currently, the stock trades at 13x and 11x EV/EBITDA for FY26E and FY27E, respectively. We recommend a BUY with a target price of Rs 575/share, implying an upside potential of 14% from the CMP.