Indraprastha Medical - A short and sweet cure :: Centrum

Rating: Buy; Target Price: Rs56; CMP: Rs44; Upside: 26.2%



Moderate revenue growth



We maintain Buy rating on Indraprastha Medical Corporation (IMCL) with
a revised target price of Rs56 (earlier Rs60) based on 8xJune’16E EPS
of Rs7.0. IMCL’s EBIDTA and net profit for Q1FY15 were below our
expectations. The company reported moderate revenue growth of 8%,
210bps decline in EBIDTA margin and 13% decline in net profit.
Increase in consultation fees to the doctors and other expenses led to
a decline in margin during the quarter. The company commands better
return ratios and higher dividend yield than its peers. Key risks to
our assumptions include slowdown in the healthcare segment and
increased competition from large players.

$ Moderate revenue growth: IMCL reported moderate revenue growth of
8%YoY to Rs1.78bn from Rs1.66bn during the quarter. We expect revenues
to grow at 16% over the next two years in view of increased occupancy
at its Sarita Vihar hospital and increase in revenues from the
outpatient department.

$ Lower revenue growth results in fall in margins: IMCL’s EBIDTA
margin during the quarter fell by 210bpsYoY to 12.2% from 14.3% due to
an increase in consultation fees to doctors and other expenses. The
company’s material cost declined by 120bps to 21.7% from 22.9% due to
operational efficiencies. Consultation fees to doctors were up by
220bpsYoY to 27.7% from 25.5%. Other expenses grew by 160bps to 19.2%
from 17.6%. However, personnel expenses declined by 40bps to 19.2%
from 19.6%. We expect improvement in margin with higher occupancy at
Sarita Vihar and operational efficiencies.

$ Net profit declines by 13%YoY: IMCL’s net profit for the quarter
declined by 13%YoY to Rs83mn from Rs96mn due to 210bps drop in EBIDTA
margin. The company’s interest cost declined by 17%YoY to Rs20mn from
Rs25mn due to better management of working capital. Its depreciation
was up by 5%YoY to Rs73mn from Rs70mn.  IMCL’s tax rate came down to
32.8% from 33.3% of PBT.

$ Recommendation and key risks: We have revised our FY15E and FY16E
EPS downwards by 1% each. At the CMP of Rs44, the stock trades at 8.9x
FY15E EPS of Rs4.9 and 6.7x FY16E EPS of Rs6.6 and 5.5x FY17E EPS of
Rs8.0. Our target price of Rs56 is based on 8x June’16E EPS of Rs7.0
with an upside of 26.2% over CMP. Key risks to our assumptions include
slowdown in the healthcare segment and increased competition from the
large players.



Thanks & Regards

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