Tejnaksh Healthcare Ltd (THL) (BSE: 539428) is a focused player in urology. The company runs an ISO certified urology hospital (of international level), located in the heart of Dhule city, Maharashtra, India. The 24000 Sq. Ft. hospital complex has a four-storey building which houses the complete Urology setup. It provides a comprehensive range of services from consultations and investigations to treatment for Urology. The institute boasts of 150 research publications and 23 innovations. The institute is recognized by National board of examinations for DNB (Urology). The company has formed one subsidiary (75% stake) named Tej Vedaant Healthcare Private Limited in FY17.
THL came out with an IPO in 2015 to raise funds for business expansion plans and achieve the benefits of listing on the SME platform of BSE Ltd. The company raised an amount close to INR 2.4 Cr., out of which INR 1.5 Cr. was planned to modernize and develop the present Hospital.
The company’s operations are divided across four key vertical streams in healthcare delivery, namely: “Pediatric Urology”, “Adult Urology (Male/Female)”, “Andrology and Sexual Dysfunction” and “Nephrology, Dialysis and Renal Transplant”. More than 65 healthcare services are offered under these streams.
For various achievements and innovations in urology, Dr Ashish Patil, the director & promoter of the institute is listed in Guinness World Records (twice), Ripley’s believe it or not, Limca book of records, India book of records (multiple records), Asia book of records, World amazing records and World record academy.
Indian Healthcare Scenario
India's existing infrastructure is just not enough to cater to the growing demand.
While the private sector dominates healthcare delivery across the country, a majority of the population living below the poverty line (BPL) continues to rely on the under-financed and short-staffed public sector for its healthcare needs, as a result of which these remain unmet. Moreover, the majority of healthcare professionals happen to be concentrated in urban areas where consumers have higher paying power, leaving rural areas underserved.
India compares unfavourably with China and the US in the number of hospital beds and nurses. The country is short of 81 % of specialists in rural areas while the private sector accounts for 63 % of hospital beds, according to government health and family welfare statistics.
With increasing life expectancy and prevalence of life style diseases, India has seen a significant increase in prevalence of Chronic Kidney Disease (CKD). It is currently one of the most commonly occurring non-communicable diseases in India. The most common cause of CKD in population-based studies is diabetes. Recent studies have also shown that even rising air pollution is a factor in increasing risk of CKD.
With increasing incidence of CKD, the number of patients undergoing dialysis in India is also increasing by 10-15% every year. This percentage includes many children as well. Unfortunately, despite its steadily increasing incidence, kidney disorders are still not a high priority condition in India. The condition is further worsened by a shortage of operational beds in hospitals and shortage of doctors and paramedics. The economic factor of treatment and management of CKDs is also a major concern for patients and their families.
Studies have pegged the burden of CKDs in India to 800 per million people - which is a significant number considering our population. Treatment and management of CKDs is a long process made painful by long admissions to the hospitals which leads to mental, physical and economical discomfort to patients and their families.
Single Specialty Hospitals
The evolving financial and quality regulations, informed and empowered consumers, innovative treatment methods and technologies, and a significant rise in real estate costs, especially in emerging economies like India, are shaping a new healthcare delivery segment. The $160 billion Indian healthcare sector is poised to grow to $372 billion by 2022. And the hospital sector, currently valued at $62 billion, is growing at a CAGR of 16-17 per cent and is poised to reach $133 billion by 2023.
The inherent complexity of large-format and tertiary-care multi-speciality hospitals is that they operate on an asset-heavy model. The increasing cost structures and consistent capex requirements with late teens EBITDA margins have also pushed back the RoCE of large hospital chains to less than 10 per cent. Prices of procedures and consumables are being capped, pushing the payback period to more than seven years. For any sector to grow, the companies that constitute it must continue to evolve their business models. But the current trajectory of upward costs is having a significant impact on the return ratios of the stakeholders in the sector. The demographic, financial, operational and regulatory considerations have given rise to a new era of single-speciality healthcare delivery.
The underlying principle behind the single-speciality healthcare delivery is that these networks are scalable, replicable and capex-light. Single-speciality providers are able to demonstrate more value to their consumers while simultaneously delivering attractive returns to shareholders.
Financial Analysis
Operating revenue has been growing at a CAGR of 40% in the past 9 years. Operating profits and net profits have been growing at a CAGR of 33% and 32% respectively in the same period. Health care inflation in India prevails at high levels, therefore the company might be able to pass on costs to its customers (patients).
|
Mar-11 |
Mar-12 |
Mar-13 |
Mar-14 |
Mar-15 |
Mar-16 |
Mar-17 |
Mar-18 |
Mar-19 |
|
|
Operating Revenue (INR Cr.) |
1.36 |
1.30 |
1.14 |
1.44 |
2.01 |
4.75 |
7.28 |
14.14 |
19.76 |
|
YOY Growth (%) |
-4.41 |
-12.31 |
26.32 |
39.58 |
136.32 |
53.26 |
94.23 |
39.75 |
|
|
Operating Margin (%) |
42.78 |
41.39 |
55.46 |
66.95 |
50.33 |
49.05 |
46.48 |
40.52 |
29.00 |
|
Net Margin (%) |
24.82 |
22.74 |
31.38 |
39.42 |
29.07 |
27.63 |
25.53 |
21.91 |
14.72 |
|
ROCE (%) |
46.74 |
36.10 |
34.30 |
41.98 |
36.00 |
48.62 |
29.35 |
32.66 |
27.59 |
|
ROE (%) |
48.52 |
35.04 |
30.84 |
35.66 |
27.30 |
30.28 |
26.68 |
34.98 |
26.93 |
|
Cash Flow from Operating Activities (INR Cr.) |
0.62 |
0.09 |
0.11 |
0.08 |
1.71 |
3.67 |
2.25 |
4.49 |
3.15 |
|
Asset Turnover |
0.84 |
0.79 |
0.62 |
0.58 |
0.62 |
0.92 |
0.65 |
0.80 |
0.94 |
The company has total debt of INR 6.33 Cr. and a cash balance of INR 1.24 Cr. Cash flow from operating activities has been greater than net profits in 6 out of the last 9 years. Cumulative CFO and cumulative net profit for the past 9 years have been INR 16.17 and INR 11.72 respectively.
Running a hospital is a cost-intensive business. Employee costs and hospital operational expenses are the two major expenses that the company is incurring. Employee costs as a % of operating revenue has come down from 32% in FY11 to 15% in FY19. However, hospital operational expenses as a % of operating revenue has increased from 6% in FY11 to 17% in FY19. Being a capital-intensive industry, THL requires continuous investment on account of new technology making way into medical treatment processes evident from the low asset turnover over the years.
Conclusion
While India has significant supply-demand gap, the unmet demand is outside the top cities and at affordable pricing. With the government’s focus on increasing affordability necessitates a change in business model.
Tejnaksh comes out as a company that is well placed to tackle this supply-demand gap. The company is one of the niche players in an area that is still not considered a high priority condition in India. While not much information is available on the company’s future plans, an investor could add this small company in their watchlist for future study.
The company is currently available at a CMP of INR 45 (as on May 29, 2020) at a PE of 14.74, which is well below its 3-year median PE of 26.78. Promoters held 73.67% stake in the company as of Dec 2019. Promoter stake has been steadily increasing over the past quarters.
Team 3C Capitals
Sources
