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Healthcare Global Enterprises Limited IPO Views - 15th Mar 2016

Pharmaceutical | Published on Mar 15th 2016

IT

Healthcare Global Enterprises Ltd( HCG) is one of the largest cancer care network in India in terms of the total number of private cancer treatment centers licensed by the AERB as of May 31, 2015. The HCG network was ranked second in India and first in the South India region and Bengaluru in the oncology segment in the Times Health All India Critical Care Hospital Ranking Survey 2016 while the Milann network was ranked first in India, the South India region and Bengaluru in the fertility segment in the same survey. Dominant player in the Cancer Care industry: Despite high demand for comprehensive cancer care centres, India has only 200-250 comprehensive cancer centres, which represent just 1 per 6mn people V/s 1 per 0.2mn people in the US. Also, ~40% of these centres are located in the 8 metropolitan cities and fewer than 15% of these centres are government operated, which limits access to advanced and multimodal treatment options available to cancer patients. As a consequence, the majority of cancer care is expected to be provided by the private/for-profit sector in India. The HCG network is the largest provider of cancer care in India in terms of total number of private cancer treatment centres. As of December 31, 2015, HCG operated 18 HCG cancer centres, including 14 comprehensive cancer centres, 3 freestanding diagnostic centres and 1 day-care chemotherapy centre in India. Cancer centres contribute a major part of the overall revenues of the company. Outlook and Valuation: HCG’s sales have grown at a CAGR of 24.7% over FY2011-2015 and EBITDA grew by 19% during same period. However, HCG has exhibited a loss in FY2013-2014 primarily due to higher interest cost and depreciation. Currently the capacity utilisation of the hospitals at around 50% is lower and has some room for improvement. Thus an improvement in margins along with improvement in capacity utilisation are key to achieve a high ROE and for the business to sustain. In terms of valuations, on EV/sales, the company are trading at 3.4x-3.6x FY2015 V/s 3.9x FY2015 for Apollo Hospitals. Given the company has strong growth potential and would continue to enjoy pricing power in the long run, only long term investors should subscribe to the issues.

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