Q2FY24 Review: KIMS: In-line quarter, barring minor delays in projects

9 Nov 2023 , 11:08 AM

KIMS’ Q2 performance was in-line with analysts of IIFL Capital Services expectations, with IP volume/ARPOB growth of 10/6% YoY, driving 16/15% YoY revenue/Ebitda growth during the quarter. Aided by seasonal benefit, occupancies improved across all clusters including Sunshine and Nagpur, with overall occupancies expanding YoY/QoQ from 73/70% to 76% in Q2 (on census beds). While few of KIMS’ expansion projects seem delayed by 6-9 months, analysts of IIFL Capital Services note that KIMS will still be adding 1,000 beds (25% incremental capacity) across Nashik, Thane and Bangalore by the end of Q4FY25 and 700 beds (15% incremental capacity) in Kondapur and Anantapur by early FY27, which would help to drive medium-term growth. Near-term growth drivers include further improvement in occupancies of Telangana, Sunshine and Nagpur hospitals. Analysts of IIFL Capital Services maintain their estimate of 18% Ebitda Cagr over FY23-26. Reiterate BUY, with their TP of Rs2140 being pegged at 22.5x 2YF Ebitda. 

Ramp-up at Sunshine and Nagpur progressing well: 

Occupancies in Sunshine/Nagpur hospitals improved QoQ from 44/63% to 53/80% resp. in Q2, partly aided by the seasonal business. Mgmt indicated that growth has sustained for both Sunshine and Nagpur in Oct/Nov’23. With Sunshine’s new Begumpet facility commencing operations from Nov’23 and 50% new doctor hirings completed in Nagpur, occupancies and margins in both these hospitals will continue to improve. Analysts of IIFL Capital Services expect Sunshine’s margins to expand from 23% in H1FY24 to 28% in FY25 led by rental cost savings of 450bps, while Nagpur’s margins will likely improve from 12% to 17% in FY25. 

40% incremental capacity will be added by early FY27: 

KIMS intends to add 1,000 beds across Nashik (300), Thane (300) & Bangalore (400) by the end of 4QFY25 and 700 beds in Kondapur & Anantapur by early FY27. Thane will be either an O&M hospital (KIMS Rs1.2bn investment + investor Rs3bn) or entirely owned by KIMS (Rs4.3bn investment). Bangalore will likely see commissioning of 2 hospitals (700 beds in total), with the deal for the 2nd hospital (300 beds) expected to be signed by Jan/Feb’24. Analysts of IIFL Capital Services assume Rs150m Ebitda drag from these new hospitals in FY25ii. 

Analysts of IIFL Capital Services expect KIMS overall revenue/Ebitda to clock 17/18% Cagr over FY23-26, driven by 10/14% revenue Cagr in Telangana/AP hospitals, ramp-up in Sunshine/Nagpur hospitals, and aided by capacity additions from FY25. Margin improvement in Sunshine/Nagpur will help the company to absorb the Ebitda drag from the new hospitals in FY25.