Q1FY24 Review: KIMS: Resilient performance in a seasonally weak quarter

9 Aug 2023 , 10:45 AM

KIMS’ Ebitda (pre Ind-AS) grew 18% YoY in Q1, 2% ahead of analysts of IIFL Capital Services estimates, driven by a robust 15% YoY revenue growth in KIMS’ Telangana/AP hospitals (ex-Sunshine, Nagpur). Despite its dominance in core markets, mgmt still sees opportunities to drive further growth in Telangana/AP cluster by adding Oncology/Mother & Childcare speciality across its hospitals and by adding 1,500 beds in these markets over the next 3-4 years. Additionally, KIMS’ expansion plans to add 1,350 beds in Bangalore, Nashik and Thane by H1FY25 will also help diversify presence across new markets. Scale-up in profitability of Sunshine, Nagpur and existing AP hospitals would enable KIMS to absorb the margin-drag from new hospitals. Hence, analysts of IIFL Capital Services expect Ebitda margins to largely hold steady at ~26% over the next 3 years. They forecast 18% Ebitda Cagr over FY23-26. Maintain BUY rating with a TP of Rs 2,150 (18% upside). 

Enough headroom to grow in Telangana/AP: 

KIMS’ IP volumes in existing hospitals (ex-Sunshine/Nagpur) grew 11% YoY in Q1 and analysts of IIFL Capital Services believe there is further scope to drive volume growth since the company intends to operate at 70-75% occupancies in these markets post addition of 1,500 beds as well over the next 3-4 years. While Ebitda margins in Telangana cluster at 31% in Q1 (vs 35% in Q4) were impacted by corporate overheads for expansion projects and Q1 seasonality, which should normalise, mgmt believes that margins in AP hospitals can improve to 25-27% vs 22% in Q1. 

Multiple levers of margin improvement in Sunshine/Nagpur over the next 2 years, driven by (a) Relocation of Sunshine to new Begumpet campus in Q2, which will enable KIMS to recruit additional doctors and improve occupancies from current levels of 44%. (b) 200-300bps margin improvement can accrue at Sunshine Gachibowli from insourcing of diagnostics business (c) 60-70% of new doctor onboarding at the Nagpur hospital will be completed over the next 3 quarters. KIMS believes Sunshine can clock 30% margins (vs 23% in Q1) driven by better case mix & improving occupancies, while Nagpur hospital can clock 25-27% margins (vs 6% in Q1) post expansion of the doctor team over the next 24 months. 

Capacity-addition plans well on track: 

2 new hospitals in Bangalore (750 beds) to be operationalised by H1FY25, Nashik hospital (300 beds) to be operationalised by Q4FY24/Q1FY25, and Thane hospital (300 beds) to be operationalised by Q2FY25. Analysts of IIFL Capital Services have assumed combined start-up Ebitda losses of Rs300mn from these 3 hospitals in FY25.