ICICI Securities Retains Buy On This Multibagger Small Cap Stock, Sees 24% Robust Gains

Leading brokerage firm ICICI Securities has placed a buy call on HealthCare Global Enterprises Limited (HCG) with a target price of Rs 360 per share to get a decent return of up to 24% on the investments. The brokerage recently met the management of HCG in Bengaluru to discuss the company's performance and strategy.

HCG is engaged in setting up and managing hospitals and medical diagnostic services including scientific testing and consultancy services in the pharmaceutical and medical sector. It is a small-cap company with a market capitalisation of Rs 4,079.24 crore.

Stock outlook & Returns On Investments

The Current Market Price (CMP) of HCG's stock on the NSE is Rs 240.40 per share, trading 1.57% up from its previous close. The stock's 52-week high level is Rs 318 recorded on 21 November 2022, while its 52-week low level is Rs 214.90 recorded on 25 February 2022.

The stock has given 0.53% in the past 1 week, whereas, in the last 1 month it has fallen 3.19%. It has given 8.46% in the last 3 months. Over the past 1 year, it gave 15.94% positive returns. In 3 years, it gave 217.54% multibagger returns. In the last 5 years, it gave 5.18% positive returns. 

The key highlights from the discussion include:

• Company reiterates its focus on i) cost rationalisation, ii) talent upgrade and iii) digital transformation activities. It intends to stick to its core competency of oncology and does not intend to venture into other areas.
• Margin expansion levers: i) Operating leverage driven by mature hospitals, ii) improvement in margins of new hospitals, iii) increase in revenue contribution from international patients.
• Mumbai hospital - a star doctor from the UK is expected to head the hospital in coming months. Moreover, HCG expects to leverage its brand to acquire customers.
• Inorganic acquisitions - it is looking for inorganic acquisition to further strengthen its foothold. It intends to look at standalone oncology hospital which has a small revenue base and is available at reasonable valuations.
• HCG targets 18-20% RoCE over medium term driven by i) ramp up of emerging centres, ii) ongoing value creation projects in digitalisation and cost optimisation measures, iii) asset-light expansion through day care beds, hub and spoke operations and pay per use for equipment, iv) margin expansion led by operating leverage.
• Doctors in the company are incentivised by academic research and prominence in their specific fields.
• Company is currently in the process of streamlining its data collection processes, for improved artificial intelligence (AI) outcomes and efficiency in operations.
• HCG recently launched Ethos Therapy, the first of its kind in India, and an artificial intelligence (AI) driven holistic solution designed to increase capability, flexibility and efficiency of radiotherapy. This new solution is designed to deliver an entire adaptive treatment in a typical 15-minute timeslot (significantly shorter compared with other treatment systems that take more than 40 minutes).
• Cancer cases in the future are expected to shift at being more organ specific with treatments based on genomics.
• Company believes its singular focus on oncology gives it a better advantage over multispecialty hospitals.

Valuations and risks

Comfortable debt levels with negligible capex plans provide room to explore additional growth opportunities. "We remain positive on the stock as the company is poised for growth with focus on improving the utilisation of its assets and strengthening the balance sheet. Retain BUY with target price of Rs360/share based on 15xSep'24E EV/EBITDA," the brokerage has said.

According to the brokerage, the key downside risks are: Higher competition in oncology, and delay in operational turnaround of new centres.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.