BSE: 523323 | NSE: KOVAI
Kovai Medical Centre and Hospital (KMCH) is a 691 bed multi-disciplinary super speciality hospital located in Coimbatore. The company has two satellite centres at Ramnagar, Coimbatore (10 beds) and Erode (65 beds). In addition the company through its subsidiary “Idhayam Hospital” operates another speciality hospital (58 beds) in Erode. Coimbatore has emerged as one of the major medical centre in South and is attracting a lot of medical tourism.
KMCH had undertaken a major capex of Rs 269 Cr for increasing the number of beds from 320 in 2008 to 691 beds, completed in phases till Aug, 2012. The company has been reporting very good results in recent quarters. Healthcare industry is an evergreen industry and due to health insurance and medical tourism, the sector should see consistent growth.
- In a period of just 2 decades, the promoters have built one of the biggest and renowned hospital of Coimbatore, specializing in over 50 medical disciplines
- The company has had a very good consistent growth – the company has grown from just 34 Cr turnover in 2003 to 300 Cr expected this year
- The last phase of the project involving addition of 210 beds in the dedicated cancer block was made available from March, 12. Since then, the company has been delivering good growth along with significant improvement in margins
- The company has some excellent figures on capacity utilization and patient handling. The hospital has had bed utilization of 90% and has treated more than 2.61 Lac patients during FY 2012.
- The hospital also has a pharmacy division which is also quite profitable. In 2012, the division did a turnover of 45 Cr and contributed 10 Cr towards profits.
- The company has excellent cash flows.
- Promoters regularly buy from open market to increase stake.
To undertake the above expansion, the company had to take a significant debt of 225 Cr. The debt equity ratio shot upto 3.40 as on March, 2012. With the successful completion of expansion and no significant expansion announced as of now, there is a chance that the cash flows might be utilized to bring down debt to comfortable levels. If done, there could be a significant saving in the interest costs (currently 35% of operating profits) and hence a quicker improvement in bottom-line.
Hospital is a highly capital intensive and competitive business. If the company again plans a major expansion without bringing down the current debt, then the bottomline may not grow for few years and with high debt, it will be a risky company.
Call Auction Trading from tomorrow:
We discussed the company about 3-4 months back. The stock has been one of the best performer in these challenging markets and has doubled from our discussion levels.
New Ideas and the outlook:
Given the sharp correction in the mid/small cap space, we feel these are the best times for stock picking. Many good companies are available at multi-year lows, at single digit PE multiples, low P/BV ratio and with high dividend yields, just because of the short term negatives and uncertainties. Investors with a longer term horizon of at least 2-3 years should be able to get a very good compounding. At the same time, given the uncertainty and actual slowdown, and the problems in economy, we have to be choosy and study several ideas.
Another good thing of such sharp corrections is that – one can wash away one’s sins. Many good stocks are also beaten down like most of the poor stocks. Like it is important to get rid of the dead woods, it is equally important to get rid of bad stocks too. Invest only in the companies in which you have some conviction or intuition. Stick with the good options and gradually sell the illogical or bad options. This is a painful job that must be done from time to time to get handsome returns.