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Kredent_Indian Healthcare Sector

Kredent_Indian Healthcare Sector

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Equity Research

Indian Healthcare Industry:
11
th

Poised For Growth

January, 2010

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Table of Contents
Process Flow Chart ………………………………………………………………………………… 03 Business Model……………………………………………………………………………………… 04 Parameter Evaluation Chart……………………………………………………………………….. 06 Final Recommendations……………………………………………………………………………. 10 Overview of Indian Healthcare Sector Introduction………………………………………………………………………………………….. 11 Opportunities………………………………………………………………………………………... 11 The Niche Sector: Wellness Sector………………………………………………………………. 15 Swot Analysis………………………………………………………………………………………...19 Peer Comparison……………………..……………………………………………………………. .20 Zydus Wellness………………………………………………………………...………………….. .21 Kovai Medical centre And Hospital Ltd……………………………………………….………...25 Disclaimer…………………………………………………………………………………………….29

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Process Flow

Stage 1

We choose all companies that were listed on BSE and were there in the healthcare industry A total of 17 listed companies were selected in this industry

Stage 2

• •

In the next step, the various segments of this industry was identified The companies with maximum presence in this segments and those with niche presence were chosen We short listed 12 companies on the basis of their business models

Stage 3

In this stage we conducted a financial analysis of the above 12 companies and scored them according to their performance in the various ratios We also had a look at the market cap of the complete 17 companies

• •

Stage 4

In the financial analysis we chose 7 out of 12 companies while in the market cap category we chose 9 out of 17 companies Then we chose those companies which was found common in the above two categories Finally, after an extensive study of these companies we short listed four companies

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Stage 1: Study on business model and segmential presence

Multispeciality Hospitals

IT

Diagnostic Centers

Business Model

Wellness Centers

Biotech

Specialty Hospitals

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Stage 2:
The presence of the companies in the various segments of the industry is shown below:
Selection Grounds Companies Apollo Hospitals Enterprise Ltd. Chennai Meenakshi Multispeciality Hospital Ltd Dolphin Medical Services Ltd. Dr Agarwal's Eye Hospital Ltd. Fortis Healthcare Ltd. Indraprastha Medical Corpn. Ltd. Invicta Meditek Ltd. Kovai Medical Center & Hospital Ltd Lotus Eye Care Hospital Ltd Malar Hospitals Ltd. NG Industries Ltd. Noida Medicare Centre Ltd. Secunderabad Healthcare Ltd. Siemens Healthcare Diagnostics Ltd. Transgene Biotek Ltd. Zydus Wellness Marico
Source: Kredent Group

Multispecialty hospitals Y Y N N Y Y N Y N N Y Y N N N N N

Diagnostic Y Y Y N N N N N N N Y Y N Y N N N

Biotech N N Y N N N N N N N N N N N N N N

IT N N Y N N N N N N N N N N Y N N N

Specialty hospitals N N N Y N N N N Y Y N N N N N N Y

Wellness N N N N N N N N N N N N N N N Y Y

On the basis of business model study, 12 companies were short listed and were put through the financial analysis scanner.

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Stage 3:
The various ratios taken for evaluation were considered to get an estimate of the overall performance of the company’s health
RATIOS

Profitability Ratios • Pat margin • EBIT Margin • ROE • ROCE • Pat Growth • EPS Growth Valuation Ratios • PEG Ratio • P/B • PE Ratio • Mkt. cap/Sales

Solvency ratios • Interest Coverage • Debt-equity

Liquidity Ratios • Current Ratio • OCF Ratio • Quick Ratio

Other Ratios • Sales Growth • Retention ratio • Sales/Total Assets

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The above 17 companies were analyzed on the basis of financial ratios and were marked according to their performance in these various fields (ratios)

Zydus Wellness Ltd Siemens Healthcare Diagnostics Ltd. Noida Medicare Centre Ltd. Marico Ltd. Lotus Eye Care Hospital Ltd Kovai Medical Center & Hospital Ltd Indraprastha Medical Corpn. Ltd. Fortis Healthcare Ltd. Dr Agarwal'S Eye Hospital Ltd. Dolphin Medical Services Ltd. Chennai Meenakshi Multispeciality Hospital Ltd Apollo Hospitals Enterprise Ltd.

13 9 12 13 8 14 17 3 12 7 3 13 0 5 10 15 20

Note: Higher score means good performance while lower score means poor performance Source: Kredent Group

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The market cap of the companies was also considered in this stage. We selected a range in the market cap for which the companies were to be chosen. The market cap of the companies is given below:

The companies who had their market cap in the range of 1100 crores to15 crores were short listed

Name of the Company Marico Ltd. Apollo Hospitals Enterprise Ltd. Fortis Healthcare Ltd. Zydus Wellness Ltd Indraprastha Medical Corporation Ltd. Siemens Healthcare Diagnostics Ltd. Kovai Medical Center & Hospital Ltd Lotus Eye Care Hospital Ltd Transgene Biotek Ltd. Malar Hospitals Ltd. Dr Agarwal's Eye Hospital Ltd. Noida Medicare Centre Ltd. Dolphin Medical Services Ltd. Chennai Meenakshi Multispecialty Hospital Ltd Secunderabad Healthcare Ltd. Socrus Bio Sciences Ltd Invicta Meditek Ltd.
Source: Ace Equity

Market cap (in cr.) 6,314.97 3,456.86 2,669.10 1,070.58 372.19 163.84 110.41 73.1 71.5 52.81 22.73 15.23 7.46 6.72 6.35 4.7 2.68

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In the final step of stage 3 we selected the company’s which performed well in the financial analysis and also fell in the selected market cap range. The selection is represented below:
Financial Analysis Market cap

• • • • • • •

Apollo Hospitals Enterprise Ltd. Dr Agarwal's Eye Hospital Ltd. Indraprastha Medical Corporation. Ltd. Kovai Medical Center & Hospital Ltd Marico Ltd. Noida Medicare Centre Ltd. Zydus Wellness Ltd

• • • • • • • • •

Zydus Wellness Ltd Indraprastha Medical Corpn. Ltd. Siemens Healthcare Diagnostics Ltd. Kovai Medical Center & Hospital Ltd Lotus Eye Care Hospital Ltd Transgene Biotek Ltd. Malar Hospitals Ltd. Dr Agarwal'S Eye Hospital Ltd. Noida Medicare Centre Ltd.

Selected Companies

• • • • •

Zydus Wellness Dr. Agarwal s Eye Hospital Ltd. Noida Medicare centre Ltd. Kovai Medical Centre & Hospital Ltd. Indrapastha Medical Corpn. Ltd

Source: Kredent Analysis

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Recommendations
Finally, the above selected five companies were considered for detailed analysis. We went through the company’s annual reports and management discussion & analysis section. We also analyzed their sources of revenue, capex plans, individual risks, product range, etc. At the end, we came down to two companies, which are finally recommended.

Companies Zydus Wellness Ltd.

View Buy

Kovai Medical centre & Hospital Ltd.

Buy

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Introduction
• Healthcare industry is the world's largest industry with total revenues of approx US$ 2.8 Trillion (2005) • It constitutes 5.2% of India’s GDP and employs 4 million people • It is expected to grow at 15% per annum to US$78.6, reaching 6.1% of GDP and employing 9 million people by 2012 • The sector has registered a growth of 9.3% between 2000-2009, comparable to the sectoral growth rate of other emerging economies such as China, Brazil and Mexico • It is a US$ 35 billion industry in India, and is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017 (CII). This would include pharmaceuticals, hospitals and diagnostics, health insurance and medical tourism • According to the IRDA, the Indian healthcare industry has the potential to show the same exponential growth that the software industry showed in the past decade
Future of Healthcare in India 160 140 120 US $( in bn) 100 80 60 40 20 0 2009
Source: IBEF

150

75

35

2012E

2017E

Opportunities:
• Healthcare is a non settling business, where the growth is non-cyclic in nature • It has emerged as one of the most challenging as well as one of the largest service sector industries in India • The growth in the sector would be driven by healthcare facilities, both private and public sector, medical diagnostic and pathlabs and the medical insurance sector • Of the sum, diagnostic and pathology services would account for $2.5 billion in 2012, more than double its estimated current size of $1billion
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• The growth in the segment is expected to be driven by consolidation in the industry and increasing insurance penetration among the country’s population • Healthcare facilities, inclusive of public and private hospitals, the core sector, around which the healthcare sector is centered, would continue to contribute over 70% of the total sector and touch a figure of $54.7 billion by 2012. • The various opportunities in the healthcare are segmented below
Ø

Medical Tourism:

• According to the estimates of McKinsey and the CII, medical tourism in India could become a US$ 2 billion industry by 2012 • Medical tourism is predicted to grow at between 25-30 per cent annually ( Credit Suisse) • In 2007, India treated 450,000 foreign patients ranking it second in medical tourism • The advantage of this industry in India is many, like one of them being its cost effectiveness. It provides better and cheap healthcare services than most of the other countries • Treatment cost is lowest in India – 20 per cent of the average cost incurred in the US, Singapore, Thailand and South Africa • A number of private players including Max Healthcare, Apollo Hospitals, Fortis, Global Hospitals, Wockhardt, etc are already present in this sector • The number of such players may get larger in times to come • According to one estimate India's revenue from health care sector is expected to touch US$ 2.2 billion from health tourists • Government has also introduced many new schemes to promote medical tourism in India like: § A new category of visa "Medical Visa" ('M'-Visa) has been introduced which can be given for a specific purpose to foreign tourists coming into India § Reduction in custom tariffs on life saving medical equipments & clinical drugs § Depreciation rates have been increased for medical equipments under the Income Tax Laws § Health insurance schemes to the poor & increased FDI limit from 2.6% to 5.1%

Ø Health Insurance:
• Health Insurance another sub-section of health care is poised to emerge as a US$ 3 bn industry in the next three years
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• Currently, it is standing at an estimated current size of $1 billion and is growing at 50 per cent • Presently, there is a dismal health insurance penetration rate; only 10 per cent of the Indian population has health insurance, which means that there is tremendous scope for growth in this area • Large number of private players like Max New York life insurance and ICICI Prudential have entered the market to cash on the booming phase
Growth in health insurance based on collected premiums
5.75

7 6 US $ (Bn) 5 4 3 2 1 0

0.71

1

2006

2009

2010E

Source: PHD Chamber of Commerce and Industry

Ø Increase in Lifestyle Diseases:
• A shift from chronic diseases to lifestyle diseases like obesity, hypertension, diabetes and cardiac diseases have been on rise due to lifestyle problems • Problems like career challenges and the demand for long working hours are detrimental to the adult population while the middle-aged group is affected because of excess household comfort • The above reasons have a negative impact on confidence, productivity and self-esteem • Indians have a higher body fat percentage and high incidence of abdominal obesity • One in every five Mumbaikars is obese, and 50 per cent of urban women and 40 per cent of men are overweight (Kaya). One can have a very good idea about the % of Indians being obese from the table below:
Obese people under various age groups Children under five years Prevalence of adult male(>= 15 years) Prevalence of adults female (>= 15 years)
Source: WHO

(%) 1.9 1.3 2.8

• Another lifestyle disease which is on rise is diabetes
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• • • • India has a dubious distinction of having the largest number of people with diabetes Every year 6 million people develop diabetes In 1985, there were an estimated 30 million people but today, it affects more than 230 million people Recent studies have shown that for every person known to have diabetes, there are more than 2 people who have diabetes but are unaware of it • In fact, many persons with Type II diabetes already show the presence of the long term complications associated with diabetes at the time of diagnosis

Participation of PE’s
• The Indian healthcare industry, is attracting investment opportunities from private equity (PE) and venture capital (VC) firms • There is a huge demand supply gap in healthcare delivery business in India as there are few organized hospital chains. • Pharma, retail, medical equipment, diagnostics services are businesses where efficiency can be brought in by private investments • Private sector plays a significant role by contributing 4.3% of GDP and 80% share of healthcare provision • The medical technology market was worth about $2.7 billion in 2006 and is likely to cross $10 billion by 2012 with a growth rate of over 20 per cent • With the Indian software and hardware strengths, India will be a strong source for such products in emerging markets • Most MNCs are currently sourcing their products from China through OEM arrangements, joint ventures or own manufacturing facilities • Given the overall increase in prices in China, there are significant chances of India becoming a potential alternate sourcing centre for such MNCs • The different branches of healthcare where the private players are trying to make its foray are: • Diagnostic centers: The first investment of $6 million occurred in 2005, followed by another $4 million in 2007. VC firm Sequoia Capital India has so far invested $10 million in Dr Lal Path Labs for a minority stake. • Hospitals: When it comes to urban areas, it is the hospitals which receive the maximum chunk of funds. In 2006, hospitals attracted 18 per cent of the total Healthcare PE investments. • Other Areas of Investment: Some of the new targets and focus areas of PE funds would be pharmacy retail chains, health and wellness centers, spas, ayurvedic and herbal skin, slimming and beauty centers which are primarily consumer-oriented sectors. With Pantaloon Retail India planning to launch 'Health Village', and Reliance Retail launching Reliance Wellness, this sector is definitely forecasted to draw more PE funding. Corporate hospitals have shown how
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healthcare is a profitable business and thus the funds believe the other healthcare area to also follow the same trend

The New Wave In The Healthcare: Wellness
• Wellness is being heralded as the sunrise industry of the 21st century • Indian wellness services market is a US$ 2.26 billion industry • Evolving lifestyle trends have revolutionized the human mindset, and a great deal of importance is now attached to concepts such as Wellness • Currently, the approach to Wellness is proactive rather than reactive • While ayurveda, health foods and drinks and tonics have traditionally been integral to the Indian diet, Indians are now increasingly looking at new avenues of wellness, in line with their proactive approach • To maintain and improve their Wellness, they engage in activities such as regular exercise, massage therapies and counseling • On the supply side too, industry players are increasingly moving away from “curative wellbeing” to “preventive and lifestyle wellbeing” by providing services ranging from health-oriented hospitals, pharmacies to rejuvenation based spas and yoga centers and beauty-based salons, gyms and cosmetic procedures • Increased consumer focus, along with favorable supply dynamics, has put the Wellness industry in a sweet spot • At the same time, services such as ayurveda treatment, alternative treatment centers and salons require much lower investment and also have lower payback periods of up to three years Wellness can be segmented into two broad categories: physical and social Physical Wellness includes all activities related to fitness and the prevention of physical ailments.
• • Allopathy: Hospitals and pharmacies. Alternative therapies: Ayurvedic medicines, products and treatments.

Social Wellness encompasses elements of mental, emotional and lifestyle wellbeing, and social Wellness services primarily cater to needs such as esteem, aesthetics and self-realization. They can be classified into more sub-categories: • Nutrition: Dietary supplements and health and convenience foods • Rejuvenation: Spas and yoga centers • Exercise and fitness: Gyms and slimming centers
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• Beauty: Salons and cosmetic procedures (both surgical and nonsurgical) • Counselling: Professional counseling on nutrition, diet and emotional wellbeing • Holidays: Travel services

Factors affecting the wellness industry
• • • Indian wellness industry is poised to grow at a double-digit rate over the next five years, with certain sectors, such as spas and beauty treatments, projected to grow at more than 35–40% Moreover, given that few organized players currently exist in most Wellness segments, the opportunity for corporate and organized players is significant Wellness sector is poised to grow because of the following growth factors:

Demand Based Factors

Supply-Based Factors

• Enhanced awareness due to seamless international mobility • Increased disposable income and higher discretionary spending has led to conspicuous consumption • Need for more convenience being driven by changing lifestyle trends, with focus on health • People are increasingly working toward holistic wellness, which includes not only physical, but also emotional and social

• Multiple new channels being explored to offer a variety of Wellness-based products and services • Wellness-based programs being given more focus thereby, providing a platform to increase public awareness and also to showcase innovative products and services • With the entry of multiple international companies the Indian market will further expand leaving the customers with more choices

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Government Initiatives:
• Healthcare is one of the 7 thrust areas under the National Common Minimum Programme (NCMP) and improvement in health continues to be an important part in the overall strategy for socio-economic development over the planning period. • The special focus given to Health Sector in the NCMP has formed the core of the programmes formulated under both Health and Family Welfare. • The National Rural Health Mission (NRHM) is the key plank for giving effect to the mandate of the NCMP. • The Government launched the National Rural Health Mission (NRHM) in 2005 • It aims to provide quality healthcare for all and increase the expenditure on healthcare from 0.9 per cent of GDP to 2-3 per cent of GDP by 2012 • During the 2009 interim budget, the government allocated US$ 2.42 billion for NRHM • The government has prioritized the health sector in the Eleventh Five Year Plan, recognizing its significant potential and challenges • The Tenth Plan period witnessed a transition in health care policies and strategies with the effecting of an architectural correction in the healthcare delivery system at the primary and secondary level and the steps taken to set in motion regional balance in the availability of tertiary healthcare facilities. • Wide ranging reforms and policy initiatives have been taken for improving health infrastructure and addressing the healthcare needs of the population

Hurdles to be crossed……
• India has 16 per cent of the world’s population, 18 per cent of its mortality, 20 per cent of morbidity, yet the country’s healthcare expenditure is a miniscule one per cent of global expenditure • As one of the fastest growing economies, it cannot continue to be ranked 171 out of the 175 countries surveyed by WHO for percentage of GDP spent on public sector healthcare • According to WHO, India ranked 17th in terms of private sector health spending that is now at 4.3 per cent of GDP • The healthcare system has grown manifold over the past few years, but has not kept pace with the rapid rise in population • According to KPMG, against a world average of 4 beds per 1,000 people, India has just 0.7 • There is an acute shortage of doctors, nurses, and an additional 0.7 million doctors are needed to reach a doctor: population ratio of 1:1000 by 2025
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• Another major problem is that many companies in this sector like VLCC, Himalaya, Workhardt and Lifecare are not listed • Government’s expenditure on healthcare is not as much as compared to other nations. As a result, private spending accounts for most of the healthcare expenditure in the country • The table below provides a comparison of India with other countries under various parameters

Particulars Number of physicians Hospital beds (per 10 000 population) Per capita total expenditure on health (PPP int. $) Total expenditure on health as percentage of GDP
Source: WHO

USA 730801 32 6719 15.3

India 645825 9 86 3.6

China 1862630 22 216 4.6

Japan 270371 141 2581 8.1

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Strength
• • • • • Cost-Effectiveness Expanding Middle-class Increased awareness among masses Good Infrastructure One of the major drug suppliers

Threats: Weakness
• • • • Lack of Quality & Accreditation Absence of necessary infrastructures Lack of qualified professionals High advertising & promotion costs • • Competition from other countries Presence of more unorganized players compared to organized ones Absence of statutory & regulatory compliances

• •

Opportunities
• • • • • Shift of demand from preventive to curative approach Demand for personalized healthcare solutions Medical Tourism Emerging Health Insurance Market Growth of Telemedicine

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Peer Comparison:

Particulars

Zydus Wellness

Dr.Agarwal’s Eye Hospital

Noida Medicare centre

Kovai Medical Centre & Hospital

Net sales (Rs cr) EBITDA Margins (%) Net Profit (Rs cr) Net profit Margins (%) EPS BVPS CMP P/E P/B Dividend-Yield Market Cap/Sales
Source: Annual Report & Ace Equity

194.74 19.89 25.41 12.98 6.52 3.53 273.25 41.90 3.96 0.02 5.47

72.77 12.99 0.19 0.26 0.42 4.18 51 121.42 54.26 0.00 0.32

25.04 29.43 2.12 8.38 2.26 16 7.07 0.00 0.60

110.36 30.15 22.21 19.91 20.38 37.43 102.75 5.04 5.03 0.01 1.01

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Zydus Wellness Ltd.
BSE NSE Bloomberg CMP Sector View : : : : : : 531335 ZYDUSWELL ZYWL:IN 273.25 Healthcare Buy

Company Background: Zydus wellness forayed into the wellness sector by merging consumer healthcare business of Cadila healthcare Ltd. It provides wholesome options for healthy living through the best of healthcare, nutrition and cosmeceuticals and has strong brand presence in all these segments. Investment Rationale: § It has launched India’s first skincare designed for males called MENZ, thus having a first mover advantage § It has plans for setting up manufacturing facility for sugar-free and everyuth in sikkim § It has a strong presence in the cosmetic industry through brands like ‘everyuth’ and ‘menz’ § It is present in the health food segment with products like nutralite, sugar-free sweetener and low calorie health drinks (D’lite) § It has a market coverage of over 80% in the sugar substitutes segment § It has a strong, creative and innovative marketing and brand management strategies, forming the backbone of the consumer business § Dominant focus to accelerate the top line through increased manpower to rope in institutions and modern retail formats § It has a pan India presence through a distribution network of over 1 lakh outlets Key Risks: § Increase in prices of key inputs like refined vegetable oil and aspartame used in butter and sugar substitutes respectively has led to an increase in the raw material costs of the company § Fluctuations in foreign-exchange earnings
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Key Metrics as on 11th January, 2010
Listing Current Price (Rs) Market Cap (Rs Cr) Free Float (%) 52-WEEK HIGH (Rs) 52-WEEK LOW (Rs) BETA P/B (x) Current P/E (x) PEG Ratio Dividend Yield (%) BSE 262.40 1023.36 27.49 301.65 52.00 0.63 14.86 40.24 19.11 0.02

Price Performance
Period 1M 3M 1 Year Stock -3.95 51.07 274.86 BSE 1.74 4.06 86.33

Shareholders Pattern as on 30th Sep 2009
PROMOTER FII DII PUBLIC OTHERS www.kredent.com 72.51 1.94 16.66 6.66 2.23

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ECONOMIC ACTIVITIES
The key product of the company includes: • • • • Everyuth Menz Nutralite Sugarfree : § Sugarfree Gold § Sugarfree Natura § Sugarfree D’lite: Ready to drink and powder drink

Management Personnel:
Ø Chairman: Mukesh M.Patel; Also in the board of directors of Hitachi Home % Life Solutions, Sandesh Ltd., FICCI, German Remedies Ltd. Ø Managing Director: Jitendra R. Patel Ø Board of directors: • • • • Pankaj R. Patel H. Dhanrajgir Ganesh N. Nayek Dr. Sharvil P. Patel

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Financial Analysis
Annual:

Key Ratios

Sales (Rs. Cr) Net Profit (Rs. Cr) EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) ROCE Sales Growth % (YoY) EPS growth (YoY) Retention Ratio OCF Growth (%) Debt-Equity ROE Current Ratio
Source: Annual report

2006 30.91 2.48 16.25 13.87 7.86 13.84 8.43 -37.32 0.77 151.88 0 19.71
10.6

2007 42.7 2.41 10.53 9.54 5.5 10.75 38.18 -38.05 0.77 -24.32 0 12.81
5.96

2008 56.33 4.57 11.7 10.42 7.89 17.3 32.09 89.63 0.88 -194.1 0 20.25
2.4

2009 194.74 25.41 19.89 19.04 12.98 32.87 244.06 -20.16 0.75 -1694.08 0 54.37
2.05

Analysis: • The company’s pat margin has increased to 12.98% in FY 09 from 7.89 in FY08 mainly because of growth in sales • EBIT & EBITDA Margins have increased over the last three years because the raw material costs and the employee cost as % of sales have decreased substantially over the last three years which was partially offset by an increase in the S&A expenses as % of sales over the same period • Depreciation and amortization expenses doubled since majority of capital expenditure was capitalized in Jan’08, thus, depreciation on this additional capital was charged on full year in FY09 • Higher sales growth was achieved due to higher sales of product in cosmetic segment like Everyuth • Retention ratio has been almost constant while OCF growth is positive in FY09 standing at 45.75 cr. from -2.87 cr. in FY08
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• The company is a debt free company and its ROE has increased by more than double because of the increase in its paid-up capital • Current Ratio has decreased in FY09 compared to FY06 because of huge increase in the current liabilities of the company due to increase in provisions and advances from customers

Quarterly:
Key Ratios

EBIT Margin (%) Net Profit Margin (%) Sales Growth (YoY) EPS growth (YoY)
Source: BSE

2006 17.05 11.51 579 26.28

2007 24.02 15.64 -62.07 -48.55

2008 10.09 7.83 44.16 -28.09

2009 17.8 13.12 1.12 70.31

Analysis: • The companies EBIT margin had increased in the last two quarters of FY08 but again fell in the first quarter of FY09 because of high depreciation and amortization expenses • The Pat margins have also followed the same pattern of EBIT margin standing at 13.12% in the second quarter of FY09 higher than 7.83 of the first quarter of FY09 on account of low expenses • The sales growth of the company have been very fluctuating in the last few quarters which is a matter of concern • EPS growth has turned positive from the negative figures reported in the last quarters

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Kovai Medical Centre & Hospital Ltd.
BSE NSE Bloomberg CMP Sector View : : : : : : 523323 N.A. KMC:IN 102.75 Healthcare Neutral

Company Background: Kovai Medical Centre & Hospital Ltd.is a 500 bed multidisciplinary hospital with more than 50 medical disciplines managed by highly qualified and skilled doctors and nurses. It is equipped with 11 operation theatres and treats over 1000 patients everyday. Investment Rationale: § The company is focused on increasing its top line growth and thus has strategically planned a Rs.200 crore expansion plan around its present location in Coimbatore § It is recognized by the Royal College of Surgeons, Edinburgh to train AFRCS candidates. Under its research & educational trust it offers graduate & post graduate paramedical courses in various fields like in physiotherapy, nursing pharmacy, physiotherapy, occupational therapy and nursing. It is also set to open its own medical college in Coimbatore § It is recognized for organ transplant programmes by the Govt. of Tamilnadu. It is one of the few centers in India to introduce new techniques in the treatment of various specialized diseases. § The company has forayed into the treatment of various lifestyle based diseases and is expected to reap profit in the light of the increasing trend in it. It has specialized clinics comprising of slim & diabetic centre and also provides services related to cardiac, neuro and other fields § It has been consistently paying dividends to its shareholders Key Risks: • Mammoth investments required for expansion and modernization programmes which may affect the financial health of the company in the initial years • The company is using a part of its internal funds for the expansion of its campus
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Key Metrics as on 11th January, 2010
Listing Current Price (Rs) Market Cap (Rs Cr) Free Float (%) 52-WEEK HIGH (Rs) 52-WEEK LOW (Rs) BETA P/B (x) Current P/E (x) PEG Ratio Dividend Yield (%) BSE 123.05 134.12 54.69 140 43.00 0.41 22.25 6.04 0.01

Price Performance
Period 1M 3M 1 Year Stock 28.31 47.19 115.5 BSE 1.74 4.06 86.33

Shareholders Pattern as on 30th Sep 2009
PROMOTER FII DII PUBLIC OTHERS www.kredent.com 45.31 17.18 19.76 17.75

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ECONOMIC ACTIVITIES
The company provides all the facilities listed below: • • • • • • Laboratory Services Pharmacy Blood Bank Artificial Limb Centre Immunization for Adults and Children Spech Therapy

Management Personnel:
Ø Chairman & M.D: Dr. Nalla G Palaniswami Ø Vice Chairman & Joint Managing Director: Dr. Thavamani Devi Palaniswami Ø Board of Directors: • Dr. Mohan S. Gounder • Dr. Kasi K. Goundan • Dr. M. Manickam

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Financial Analysis
Annual:

Key Ratios

Sales (Rs. Cr) Net Profit (Rs. Cr) EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) ROCE Sales Growth % (YoY) EPS growth (YoY) Debt-Equity Interest Coverage Current-Ratio
Source: Annual Report

2006 51.17 40.91 90.6 84.6 79.22 106.64 26.19 2260.6 0.27 50.34 1.57

2007 64.66 51.06 90.98 85.54 78.29 79.15 26.36 24.81 2.91 49.38 2.99

2008 87.54 18.38 30.67 26.27 20.67 28.12 35.39 -64 2.54 7.4 2.61

2009 110.36 22.21 30.15 26.6 19.91 22.95 26.07 20.84 3.45 6.63 4.64

Analysis: • EBITDA Margins has decreased in the last two years because of higher operating expenses like S&A, raw-materials and employee cost • EBIT & PAT Margins have also decreased in the last two years because of falling EBITDA • Sales growth has almost been consistent standing at 110.36 cr except in FY08 when the growth was 35.39% • Debt-Equity ratio has increased significantly from 1.57 in FY06 to 3.45 in FY09 because of increase in the secured loans • Current-ratio has increased over the 4 years because of significant increase in cash and bank balances • Interest-coverage has decreased over the years which is not a good sign for the company
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Quarterly:

Key Ratios

EBIT Margin (%) Net Profit Margin (%) Sales Growth (YoY) EPS growth (YoY)
Source: BSE

2006 28.28 7.21 2.39 73.15

2007 28.78 7.61 1.77 7.49

2008 30.09 9.41 4.55 28.36

2009 32.4 10.31 7.68 18.22

Analysis: • THE EBIT Margin of the company has increased marginally in the last two years standing at 32.4 cr. in the second quarter of FY09 • Pat Margin has increased in the last two years standing at 10.31 cr in the first quarter of FY09 compared to 9.41 cr in the second quarter of FY09 • Sales has gradually started increasing in the last few quarters and the growth had touched 4.55% in the first quarter of FY09 against 7.68% in the second quarter of FY09 • EPS growth has been very fluctuative over the last 4 years standing at 18.22 in the second quarter of FY09

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