Buy Accentia Tech; target of Rs 106: Greshma Research

“Incorporated in 1991, ATL provides Business Process Outsourcing (BPO) services for the Healthcare sector primarily in the USA. The company is present in all four stages of Healthcare Receivables Cycle Management (HRCM) outsourcing viz. Medical Transcription, Medical Coding, Medical Billing and Receivables Collection.  With its 24x7 offshore model, it helps clients reduce cost and turnaround time. It currently derives over 93% of its total revenue from USA alone, while the balance 7% is contributed by UK, Canada and to a small extent by Australia.”

“During Q4 FY11 the operating income for the company stood at Rs717 mn which is a 13.2% decline as compared to Q3 FY11 and Revenue for FY11 stood at Rs3,349mn which is a growth of 27% as compared to FY10 revenue of Rs2,647mn. The Company posted the net income of Rs105mn in Q4 FY11 which is decline of 46% as compared to PAT of Rs193mn in Q3 FY11 and PAT for FY11 stood at Rs758 mn, an increase of 1.7% over the corresponding 12 months of the previous year. The Profit for the quarter was impacted by the ongoing reforms in the healthcare segment in US where healthcare bill makes it mandatory for physicians to transition to Electronic Medical Record (EMR)-base. During FY11 Company posted an EBITDA margin of 33.4% and PAT margin for the company stood at 22.6%. Over the period of FY07 to FY11 the company’s Revenues have grown at a CAGR of ~26%. The company has a strong Balance Sheet with Reserves of Rs331cr as on 31st March 2011.”

“We maintain our earlier recommendation of buy with downgrading the target price to Rs106 due to impact on margins going forward. At CMP of Rs75 the stock is trading at P/E multiple of 1.4x at its FY13E EPS of Rs53 and 0.3x of its FY11 book value of Rs236. The company will face challenges in the near term due to ongoing reform in US healthcare sector requiring to convert to EMR. We expect margins to come down significantly because of the increase in tax rate from FY12 onwards and the employees re-training and skills enhancement to deliver services in the new system. However the change in reforms will open the tremendous opportunities for the company to grow on a large scale due to the experience of more than a decade in the healthcare segment,” says Greshma Research report.  

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