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Krishna Institute of Medical Sciences - Management Meet Update - Stepping up - BUY

Posted On: 2022-06-06 18:33:25 (Time Zone: IST)

Mr. Param Desai - Senior Research Analyst at Prabhudas Lilladher Pvt. Ltd.

We hosted Dr. Bhaskar Rao (MD), Dr. Abhinay (CEO) and Mr. Vikas (CFO) of Krishna Institute of Medical Sciences (KIMS), for 2 day NDR at Mumbai. Management indicated that KIMS will continue to grow at double digit. In near term Sunshine acquisition will aid growth. Further KIMS intends to create cluster based investment approach in Karnataka and Maharashtra region. KIMS have lean cost structure and given it is partnering with local doctors outside AP & Telangana region, management remains confident of achieving faster break even and +25% OPM across these new clusters over next 4-5 years. KIMS will be generating Rs8-10bn of operating cash flow over FY22-24 which will utilized to set up new units across Maharashtra and Karnataka region.

EBITDA has grown at 40% CAGR over FY18-22. Our FY23E & FY24E EBITDA stands marginally cut by 1-3%. We expect 20% EBIDTA CAGR over FY22-24E, with one of best in class return ratios at 22%/31% RoE/RoCE. Recommend Buy with target price of Rs1600/share, valuing at 20x EV/EBIDTA on FY24E.

- Sunshine acquisition to drive growth: KIMS recently acquired 51.07% stake in Sunshine Hospitals (600 bed capacity) at a total EV of Rs. 7.3bn, at 9.7x FY21 EV/EBITDA. Sunshine's current occupancy stands at 45% with ~70% of revenue comes from Ortho + Cardiac specialty. The objective of KIMS is to scale up other specialties which would aid occupancy. Further there will be synergies in consumables procurement and HR cost. The acquisition was done in Oct 2021- For Nov- March 2021, Sunshine has reported Rs. 1.9bn of revenues and pre IND AS EBITDA of Rs. 350mn.

Overall we expect Sunshine revenues to grow to Rs. 5.2bn and EBIDTA of Rs. 1.2bn by FY24E.

- New expansion - Will adopt cluster based approach: Management in its cluster based approached, looking forward to replicate AP and Telangana model in Maharashtra and Karnataka region. KIMS plan to commercialize ~1500 beds over next 4-5 years across Maharashtra and Karnataka region. The expansion will be combination of inorganic + greenfield expansion. More important company will partner with local doctors/consultant in specific micro market which will help to generate better footfalls and achieve faster break-even. KIMS will have full control of decision making in such partnership.

Overall we have factor in Rs. 8bn of capex over FY22-24E of which Rs. 5-6bn will be spent towards new units.

- Outlook for existing units (9 hospitals in AP and Telangana): KIMS intends to increase the current operational beds utilization from 2246 in FY22 to its optimal capacity to 3064 beds considering normalcy and demand environment continues to remain healthy going forward.

Overall we expect 6 % revenue and 8-10% EBIDTA CAGR over FY22-24E from its existing units.

Shares of Krishna Institute of Medical Sciences Limited was last trading in BSE at Rs. 1249.95 as compared to the previous close of Rs. 1251.80. The total number of shares traded during the day was 1245 in over 485 trades.

The stock hit an intraday high of Rs. 1257.95 and intraday low of 1234.55. The net turnover during the day was Rs. 1553275.00.

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