KIMS: Doctor equity model will mitigate expansion risk

20 Jun 2023 , 10:37 AM

Recommendation: Buy

Target Price: Rs. 1,880

KIMS plans to add 500 beds in MH (Thane + Nashik) and 750 beds in KA (Bangalore) by H1FY25. Additionally, KIMS intends to add 1,500 beds in its stronghold of AP/Telangana over the next 4-5 years. While key queries from investors center on KIMS’ ability to succeed in new markets, analysts at IIFL Capital Services believe its strategy of equity partnership with local doctors mitigates the expansion risk in new markets. KIMS has identified a leadership team of senior doctors who have considerable experience of managing hospitals in Bangalore for the past 2 decades while KIMS also targets to onboard a financial investor in its Thane hospital. Management’s long-term target is to drive consistent 18-20% EBITDA CAGR over the next 8-10 years. KIMS is one of IIFL’s preferred picks in the mid-cap hospital space.

AP/Telangana EBITDA to clock 11-12% CAGR on bed expansions and new specialties

Despite high competitive intensity in South India, KIMS has maintained its market-leading position and has lost only 1 doctor to Yashoda’s new 2,000 bed hospital in Hitec City, Hyderabad. KIMS intends to add 1,500 beds in AP/Telangana over the next 4-5 years (Kondapur 500 beds, Secunderabad 100 beds, Dilsukhnagar 300 beds). KIMS will also add Oncology and Mother-Childcare across all its hospitals, which will enable it to drive 11-12% EBITDA CAGR in AP/Telangana over the next 7-8 year period.

Bangalore hospitals to be managed by a leadership team of senior doctors

This team will have 20% equity ownership in the 2 hospitals to be commissioned by KIMS. KIMS will commission a 450-bed hospital in East Bangalore in Q1FY25, which will be an owned-asset with an investment of Rs. 4.5-5 billion. Separately, KIMS will invest Rs. 1 billion in South Bangalore for medical equipment and will manage a 300-bed hospital at PES University on an O&M basis, where it will give 5% revenue share to the partner (PES).

Targeting to on-board a financial investor in Thane hospital

KIMS intends to operationalize a 280-bed hospital in Thane in H1FY25 at a total capex of Rs. 4.75 billion, of which 80% costs (land, building & start-up losses) could be funded by a financial investor while KIMS will be investing 20% for medical equipment. Since Thane market already operates at ARPOB of Rs. 55K per day, KIMS’ Thane hospital could potentially garner Rs. 5 billion revenue and 20-25% margins at maturity within 5-7 years of commissioning.