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Thyrocare Technologies – Multibagger Stock For the Month of October 2018

Price – Rs. 660

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About the Company

Thyrocare Technologies Limited (“Thyrocare” or the “Company”) is a chain of diagnostic and preventive care laboratories, based in Navi Mumbai.

The Company is India’s first and most advanced totally automated laboratory having its strong presence in more than 2000 cities / towns in India and internationally.

Thyrocare operates with a Centralized Processing Laboratory (CPL) in Mumbai – India for esoteric tests; and eight fully equipped Regional Processing Laboratories (RPLs) across New Delhi, Bhopal, Kolkata, Hyderabad, Coimbatore, Bengaluru, Patna and Mumbai.

The Company caters to:

  • Wellness to customers (B2C – Patients)
  • Sustained business to partners (B2B-laboratories and hospitals)

BUSINESS MODEL

  • Collect and Aggregate test samples from B2C and B2B customers
  • Transport the samples either to the CPL or the RPL via air, road modes
  • Conduct tests overnight at its laboratories
  • Deliver test results the next day online and through mail

Thyrocare

Thyrocare got listed on May 09, 2016 at Rs. 662, a 48.43% premium to its issue price of Rs 446.

In the last one year, the stock price has fallen 7%, from Rs. 706.60 to Rs. 660

Financial Position

Particulars

FY15

FY16

FY17

FY18

Revenue (In Rs. Cr.)

182.96

240.97

304.39

356.32

Growth

31.71%

26.32%

17.06%

EBITDA (In Rs. Cr.)

72.38

93.50

115.19

144.74

EBITDA Margin

39.56%

38.80%

37.84%

40.62%

EBIT (In Rs. Cr.)

59.51

75.26

189.47

124.64

EBIT Margin

32.53%

31.23%

62.25%

34.98%

PBT (In Rs. Cr.)

67.62

81.80

109.11

147.19

PAT (In Rs. Cr.)

45.22

51.80

42.85

93.28

PAT Margin

24.72%

21.50%

14.08%

26.18%

EPS (In Rs.)

9.00

9.64

7.98

17.36

Historic P/E (Closing Price of 31st March)

64.18

89.99

34.37

CURRENT P/E (based on price of 3rd October – Rs. 652.55)

37.58

EV/EBITDA

0.00

32.31

32.85

24.14

D/E

0.00

0.00

0.00

0.00

Interest Coverage

NA

ROCE

19.05%

20.58%

46.46%

28.12%

ROE

24.47%

22.37%

26.76%

33.20%

Quarterly Results

Q1 FY 2018

Q2 FY 2018

Q3 FY 2018

Q4 FY 2018

Q1 FY 2019

Q-o-Q %

Y-o-Y %

Revenue

87.76

88.04

83.87

96.66

97.15

0.51%

10.70%

EBITDA

36.43

35.71

35.38

37.21

41.20

10.72%

13.09%

EBITDA Margin

41.51%

40.56%

42.18%

38.50%

42.41%

PAT

22.02

24.66

21.47

25.13

23.40

-6.88%

6.27%

PAT Margin

25.09%

28.01%

25.60%

26.00%

24.09%

EPS

4.09

4.58

4.02

4.66

4.35

-6.65%

6.36%

Peer Comparison

INVESTMENT RATIONALE

Strong Balance Sheet Position

Consistently Debt Free.

Low Pricing Strategy

The diagnostic sector has relatively very low entry barriers and hence main differentiating factor remains the branding and the pricing power for any diagnostic player. The price of various medical tests undertaken by Thyrocare is amongst lowest in the industry. As per the management, the price of a Thyroid test in Thyrocare is ~Rs. 300 as compared to other players charging in the range of Rs. 600-1200. Similarly, other players charge Rs. 2000 for Vitamin-D tests as compared to ~Rs.400 charged by the Company.

Expected Shift From Unorganized To Organized likely to create huge opportunity

Diagnostic services play the role of an information intermediary, providing useful information for the accurate diagnosis and treatment of patients’ diseases. In India, the industry is highly fragmented and largely unorganized, with standalone centres having approximately 47% market share, 37% for hospital-based diagnostic centres and remaining 16% for organized diagnostic players.

It is expected that there will be a shift from the unorganized providers to organized providers in the diagnostics market due to increasing trend of patients’ reliance on organized diagnostic providers for quality services and unavailability of complex tests with standalone centres.

Pan-India Network Of Authorized Service Providers (ASPs)

Thyrocare has a pan-India network of authorized service providers (ASPs) comprising of Thyrocare Aggregators (TAGs) and Thyrocare Service Provider (TSPs) and Online Clients (OLCs) which operate under franchise agreements with the Company.

Role of ASPs – Collect samples from local hospitals, laboratories, diagnostic centers, nursing homes, clinics and doctors. Then, they either deliver samples directly to one of the RPLs, or to its hub locations, where samples are aggregated and transported directly to the CPL for the processing.

As of March 31, 2018, Thyrocare has more than 3,779 service providers comprised of 332 TAGs, 335 TSPs and 3312 OLCs spread across 551 cities and 29 states and 6 union territories. The Company’s wide spread network of authorized service providers has enabled it to expand the reach of the CPL and RPLs, thereby providing the access to a larger customer base.

Management Commentary – Q1 FY 2019

  • B-2-C and B-2-B businesses contributed 21% and 79% of revenues of pathology in Q1FY19. The Management expects Aarogyam to contribute 70% of total diagnostic revenues by FY25E.
  • Management guided that customer shift from unorganised to organised players will be gradual and not as quick as expected earlier.
  • Thyrocare has forayed into testing for Tuberculosis and believes it to be a sizeable opportunity in foreseeable future.
  • Management guided for a capex of Rs. 6.5- 7 Cr. per PET-CT for 4-5 PET CT centres per annum and maintenance capex of Rs. 10-15 Cr. in pathology business.

INVESTMENT CONCERNS

High Competition

The diagnostics industry is highly competitive with the presence of standalone centers, hospital-based laboratories and diagnostic chains.

  • 4 major chains of diagnostic players with a pan-India presence – Dr. Lal PathLabs Limited, Thyrocare Technologies Limited, SRL Diagnostics and Metropolis (filed its DRHP with SEBI on 28th September, 2018).
  • There are a few regional players who have a strong footprint in a particular region such as Quest Diagnostics (North India), Suraksha Diagnostic (East India), Suburban Diagnostics (West India) and Medall Healthcare (South India), among others.

Delay or interruption in transportation of samples to the laboratory and regional processing laboratories.

Changing Technology & New Product Introductions

The industry faces risk with changing technology and new product introductions. Advancement in technology may lead to the development of more cost-effective tests that can be performed outside of a diagnostic laboratory, such as point-of-care tests that can be performed by physicians in their offices. The developments of such technology and its use by customers would reduce the demand for laboratory testing services and negatively affect revenues.