Private Client Research

Rating

Buy

Sector

Healthcare Services - Diagnostic

Company

Thyrocare Technologies Ltd

Healthcare Services - Diagnostic

July 28, 2020

Sensex: 38492.95

CNX Nifty: 11300.55

NSE: THYROCARE

BSE: 539871

Reco Price

Rs. 677

3 years to get optimum return

Date

July 28, 2020

Sensex

38492.95

CNX Nifty

11300.55

Exchange

Code

NSE

THYROCARE

BSE

539871

Stock Data

CMP (Rs)

722.35

Face value (Rs)

52 Week Range (Rs)

723.00 - 407.15

Market cap (Rs Crores)

3818.48

Price To Book Value (x)

10.07

P/E Ratio (x)

60.45

EV/EBIDTA (x)

26.00

One Year indexed Stock Performance

Thyrocare Technologies Ltd Sensex

Return (%)

12m

36m

Absolute

44.19

39.19

65.72

0.03

Sensex

10.10

19.86

2.14

19.14

Shareholders

(in %)

30-Jun

Promoter

66.04

Public

33.96

Others

Total

100

+91 22 6639 3000

research@stockaxis.com

Profile

Incorporated in 2000, Thyrocare Technologies Ltd (Thyrocare) is India's first fully automated diagnostic laboratory with a focus on providing quality at affordable costs to laboratories and hospitals in India and other countries. Thyrocare is a Pan-India diagnostic chain conducting an array of medical diagnostic investigations that focus on early detection and management of disorders. Thyrocare operates with a Centralized Processing Laboratory (CPL) in Mumbai - India for esoteric tests; and Regional Processing Laboratories (RPL) in major metro cities of India and other parts of Asia. Thyrocare’s focus is on using robust technologies, and building a strong brand and systems that enable the company’s laboratories to give their clients the best of science and technology at an affordable cost. The company has a wholly owned subsidiary Nueclear Healthcare Ltd (NHL) which is engaged in cancer related diagnostic testing through fusion imaging technology viz. PET-CT scans, nuclear scanning, etc.

The company’s pan India network with affordable pricing and best-in-class automation infrastructure provides competitive edge

Affordable testing with emphasis on wellness and preventive healthcare
The company’s diagnostic tests are offered at one of the lowest prices in the industry. It has a portfolio of specialised tests with major focus on growing its wellness and preventive offerings and bolstering test offerings through aggressive price rationalisation. The company is a leader in preventive care diagnostic test offerings with ‘Aarogyam’ brand providing multiple profiles of 30-40 metabolic tests at economical prices, facilitating early detection of lifestyle-related disorders, thus ensuring wellness of individuals. It is making significant marketing efforts to promote its preventive diagnostic and wellness offerings.

Network expansion will boost volume growth
The company plans to strengthen and grow its coverage across India by growing its network of authorised service providers. With this, it plans to simultaneously increase its customer base, generate higher volume of samples for processing, improve turnaround time and optimise logistic costs. The company has a well-spread presence covering all states; it is now targeting an untapped client base by penetrating deeper into the regions by offering on-door services to smaller clinics, dispensaries, laboratories and hospitals.

Widening revenue channels to provide significant growth opportunities
The company intends to expand its diagnostic test offerings through the acquisition of new technologies, including both instruments and processes. The company entered into two strategic segments of tuberculosis and non-invasive pregnancy testing, by offering disruptive pricing and high quality. Both these segments are largely populated by unorganised players and offer significant opportunities for growth.

Fully automated and IT enabled lab provides efficient operations
Thyrocare is the only diagnostic laboratory to have introduced barcoding system across the company’s collection points nationwide. The output data is synchronized with the software to generate and upload the reports on the website, making the entire process agile and error-free. These systems ensure that right tests are done on the right specimen, and right results are dispatched to the right people at the right time and right cost. Further these systems help in curtailing the time consumed or lost in pre-analytical procedures and offers a smooth, hassle free and effective operation.

Covid-19 impact:
Due to the pandemic, business operations will have an adverse impact in the near term, but we expect the company’s performance to stabilize as it is engaged in providing essential medical services, supported by providing COVID19 tests using RT-PCR technology.

Risks
Increasing competition: In addition to established players in the market, a number of new start-ups have forayed into the market which may be detrimental to the company’s growth in the future.

Industry

India’s diagnostic market is small when compared to that in developed countries; it is amongst the fastest-growing segments in the pharma sector. The industry is dominated by small and regional unorganised diagnostic laboratories, that control more than 70% of the total diagnostic market. Due to significant latent demand emerging on the back of improving economic conditions in the country and a rapidly emerging urban population, a significant chunk of unorganised players converting to organised. According to industry estimates, the diagnostic market is anticipated to grow at 16-17%, with the general expectation of organised chains delivering stronger growth. In India’s healthcare industry, diagnostic services play the role of an information intermediary, providing useful information for the accurate diagnosis and treatment of patients’ diseases. India’s diagnostic industry is classified into pathology testing and imaging diagnostic services. Pathology testing involves sample collection (blood, urine, stool, etc.) and analysing them using laboratory equipment and technology to arrive at useful clinical information for assisting in the treatment of patients’ diseases. Imaging diagnosis or radiology involves imaging procedures such as X-rays and ultrasounds as well as complex tests such as CT scans, MRIs and highly specialised PET-CT scans.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars	Mar-18	Mar-19	Mar-20	Mar-21E	Mar-22E
Net Sales	356.32	402.91	433.20	371.23	427.49
Cost of materials consumed	94.98	110.53	117.09	113.55	114.34
Gross Profits	261.34	292.38	316.11	257.68	313.15
Employee Cost	35.34	43.35	48.92	44.20	46.30
Other expenses	81.37	94.87	94.67	82.34	91.67
EBITDA	144.63	154.16	172.52	131.14	175.18
Margins%	41.00%	38.00%	40.00%	35.00%	41.00%
Depreciation	20.10	26.17	31.91	34.20	38.80
EBIT	124.53	127.99	140.61	96.94	136.38
Other Income	23.26	10.13	7.73	8.10	10.20
Interest	0.44	0.61	1.85	1.80	1.80
Profit Before Taxation & Exceptional Items	147.35	137.51	146.49	103.24	144.78
Exceptional Income / Expenses	-2.19	0.00	-6.58
Profit Before Tax	145.16	137.51	139.91	103.24	144.78
Provision for Tax	51.71	52.92	52.01	25.81	36.20
PAT	93.45	84.59	87.90	77.40	108.60
EPS	17.40	15.91	16.71	14.66	20.57

Source: Stockaxis Research, Company Data

Valuation

We expect the company to capture incremental growth opportunities driven by an increase in healthcare spending by an aging population, rising awareness for preventive testing and advanced healthcare diagnostics tests. Further, we believe the company’s focus on expanding its product portfolio and its commitment to scale up operations to greater capacity utilisation will propel its growth. The stock is currently trading at 32.9x FY22E EPS and we expect 80-100% upmove in 2-3 years.

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Opulent Investment Adviser Private Limited (hereinafter referred to as 'Opulent') is a SEBI Registered Research Analyst (Registration No. INH000007669) and Investment Adviser (Registration No INA000011644) registered under the SEBI (Research Analysts) Regulations, 2014 and SEBI (Investment Advisers) Regulations, 2013 respectively. Opulent prepares and shares research data and reports with clients and investors in compliance with SEBI (Research Analysts) Regulations, 2014. Opulent also offers investment advisory services in compliance with SEBI (Investment Advisers) Regulations, 2013. Opulent also ensures compliance with other applicable directives, instructions or guidelines issued by the SEBI from time to time.

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