Buy Kovai Medical: Mehta Equities

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Buy Kovai Medical: Mehta Equities

Mehta Equities is bullish on Kovai Medical and has recommended buy rating on the stock, in its May 11, 2011 research report.

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Mehta Equities is bullish on Kovai Medical and has recommended buy rating on the stock, in its May 11, 2011 research report.

"Kovai Medical Centre & Hospital (Kovai) a leading south Indian 800 bed city-based hospital reported better-than-expected results, led by healthcare industrial growth. Topline for the quarter grew by 38% from Rs 34.6 Cr to Rs 47.9 Cr. For full year March 2011 Topline witnessed a growth of 34% from Rs 130.4 to Rs 175 Cr."

"On operating profits Kovai has out performed it performance for the quarter ended March 2011. EBIDTA witnessed a growth of 33% on yoy basis and 42% for full year 2011. Margins for the quarter witnessed the highest ever at 21.6% vs 18.6% when compared for the same quarter last year. On consolidated basis EBIDTA margins stood at 21.2% vs 20%. Kovai's profitability witnessed pressure mainly on the back of higher than expected interest cost from Rs 4.84 Cr in 2010 to Rs 11.11 Cr in 2011. In the year 2011 Kovai has invested ` Rs 200 Cr for expansion plans, equipment and providing specialty services. As per the planed expansion by the next year, it will start medical college so as to provide all paramedical courses for post graduation programmes. With the above plan under implementation the loan book has grown to Rs 192 Cr up by 78% on comparison to last year. Insurance service is a potential area for growth with regard to healthcare services. In South India, Tamil Nadu has done well in this area, only second to Andhra Pradesh. In terms of insurance, both private insurance and government funded insurance schemes have shown rapid growth. Each year, there is 20- 30% growth in private insurance claims. The insurance scheme has made a positive impact and effectively reduced the cost of healthcare services. Currently 20-25% of revenue is reported from the Insurance segment which is expected to go around 40-50% in coming years."

"We believe Kovai will soon turn into a full-fledged medical college & hospital with all medical facilities available inside one campus. In comparison with other states in the country, Tamil Nadu is the frontrunner in providing proper healthcare facilities in the rural areas. On valuation parse at the current market price the stock is trading at a P/E multiple of about 8.5x considering FY12 earnings, which seems to be cheap in the healthcare space. We believe in long term story & expansion plans inline as expected, which makes Kovai an opportunity to add into the portfolio. We foresee Indian hospital industry has a bright future & will see significant investment from foreign firms, private equity & domestic players. Investors with medium-term Investment perspective can consider buying the stock," says Mehta Equities research report.

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