Q4FY23 Review: KIMS: Robust quarter; expansion plans on track

22 May 2023 , 12:58 PM

KIMS’ Q4 Ebitda was ~4% ahead of analysts of IIFL Securities estimates as overall operating Ebitda margins expanded ~100bps QoQ to ~27%, on the back of margin improvement in mature hospitals. While KIMS’ existing hospitals are expected to grow at 10-11% Cagr, FY24 growth will also be aided by revenue and profitability ramp-up in acquired hospitals of Sunshine and Nagpur, as KIMS expands the doctor team and the specialties offered at these acquired hospitals over next 2-3 quarters. Thereafter, growth momentum will be supported by significant capacity additions in FY25/26, with 800 beds are expected to be added through brownfield expansions in existing markets (Vizag, Kondapur, Anantapur) and another 1,000 beds to be added in greenfield markets (Nashik, Bangalore, Thane). Given robust Ebitda-to-OCF generation of 80%, the expansion will be largely funded through internal accruals.

Improving occupancies and capacity expansions to support growth in existing markets: 

KIMS’ IP volumes in existing hospitals (exSunshine/Nagpur) grew 8% YoY in FY23 and we see scope for consistent volume growth, given that overall occupancies in its base hospitals stands at 64%. Also, tripling of bed capacity in Kondapur by FY25 and addition of new specialities like Oncology, M&C care & Gastro should enable KIMS to deliver ~11% revenue Cagr in its existing hospitals over FY23-26.

Strengthening of clinical team at Sunshine/Nagpur should drive revenue & Ebitda margin ramp-up over the next 2 years. Nagpur’s margins are expected to improve from 5% currently to 10-11% over the next 6-8 months on existing revenue base. While planned hiring of 12-15 new doctors and revenue scale-up will expand margins to 18-20% by FY25. Relocation of Sunshine’s Secunderabad hospital to new campus by Q2FY24 will also enable KIMS to recruit doctor talent and improve Sunshine’s margins from 19% to 24-25% over next 2 years.

Greenfield hospitals at Nashik, Bangalore & Thane to be commissioned in H1FY25, thereby strengthening KIMS’ presence in new markets. KIMS will operationalise 150 beds each (out of 350 capacity beds) during P-1 at Nashik & Bangalore. Thane will add capacity of 300 beds at a capex cost of either Rs2.5bn (asset-light) or Rs4.5bn (asset-heavy model).