Thyrocar 9 2 18 PL PDF

Thyrocare Technologies

Seasonality impact diagnostics volume growth

February 09, 2018  Headline matrices missed on seasonal headwinds: Thyrocare’s sales, EBITDA
and Adj. PAT grew 19%, 35% and 33.5% YoY respectively in Q3FY18 with growth
Q3FY18 Result Update
Surajit Pal rate in sick and preventive care segments at 31% and 11% respectively. Tepid
surajitpal@plindia.com growth in preventive care segment is due to seasonally lean business period in
+91‐22‐66322259 Q2 and Q3 of the fiscal and reduced promotional costs vs. Q3FY17. Thyrocare
conducts special camps across geographies in India during this period, which has

delayed this year to Q4FY18E. EBITDA increased 35% YoY with EBITDA margin at
42.2% in Q3FY18 vs. 37.3% in Q3FY17
 Pathology grew 19% with margin expansion: Thyrocare’s diagnostic business

Rating BUY
grew 19% YoY with 530bps expansion in EBITDA margin at 43.4% in Q3FY18.
Price Rs655
With planned healthcare camps across India as well as network expansion of
Target Price Rs967
DSA and franchisees, the management guided for more than 25% revenue
Implied Upside 47.6%
growth and 37‐38% EBITDA margin in Q4FY18E. Aarogyam business grew by 11%
Sensex 34,006
YoY and contributed 47% of pathology revenues and 11% of volume. Thyrocare
Nifty 10,455
improved its Nuclear imaging business by 29% YoY in Q3FY18
(Prices as on February 09, 2018)
 Valuation‐Maintain ‘Buy’, TP at Rs967: The stock trades at PER of 29x and 24x
Trading data
FY19E and FY20E respectively. We expect Thyrocare to achieve 19% growth in
Market Cap. (Rs bn) 35.2
revenue and 41% EBITDA margins in FY18E. With a) strong free cash flow and b)
Shares o/s (m) 53.7
guidance of 25% (+/‐2%) sustainable annual growth with 40% EBITDA margin,
3M Avg. Daily value (Rs m) 58.8
we expect diagnostic companies to trade at premium valuations. We have
Major shareholders
revised the FY19 earnings estimates to be lower by 10% from our earlier
Promoters 63.96%
estimates(at Rs1215mn Vs Rs1346mn), expect the earnings growth to be slower
Foreign 7.14%
in FY20 at 22.2% Vs 29%( earlier estimates) and consequently we have reduced
Domestic Inst. 21.51%
the target PER to 35X form 42X earlier. We roll forward our earnings estimate to
Public & Other 7.39%
FY20E and maintain ‘BUY’ recommendation with a revised TP of Rs967
Stock Performance
(previously Rs1,067) at a target PER of 35x FY20E
(%) 1M 6M 12M
Absolute (5.1) (7.4) (9.9)
Key financials (Y/e March) 2017 2018E 2019E 2020E
Relative (3.9) (14.3) (29.9)
Revenues (Rs m) 3,068 3,635 4,465 5,429
How we differ from Consensus
Growth (%)
27.3 18.5 22.8 21.6
EPS (Rs) PL Cons. % Diff.
EBITDA (Rs m) 1,184 1,499 1,862 2,280
2019 22.6 NA NA
PAT (Rs m) 710 939 1,215 1,484
2020 27.6 NA NA
EPS (Rs) 13.2 17.5 22.6 27.6
Growth (%) 37.0 32.3 29.4 22.2
Price Perf. (RIC: THYO.NS, BB: THYROCAR IN) Net DPS (Rs) 10.0 10.0 10.0 10.0
(Rs)
800 Profitability & Valuation 2017 2018E 2019E 2020E
750 EBITDA margin (%) 38.6 41.2 41.7 42.0
700 RoE (%) 18.4 22.3 26.2 27.8
650
RoCE (%) 17.8 21.7 25.4 27.1
EV / sales (x) 11.4 9.6 7.7 6.2
600
EV / EBITDA (x) 29.7 23.2 18.5 14.8
550
PE (x) 49.6 37.5 29.0 23.7
Feb‐17
Feb‐18
Dec‐17
Jun‐17
Aug‐17
Oct‐17
Apr‐17
P / BV (x) 8.6 8.1 7.1 6.1

Net dividend yield (%) 1.5 1.5 1.5 1.5

Source: Bloomberg Source: Company Data; PL Research
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that

the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Conference call takeaways;
 Management guided that the diagnostic industry is growing at 15%, while the
number of competitors are growing at 25%. Thyrocare’s growth rate in sick and
preventive care segments is 31% and 11% respectively in Q3FY18. Management
guided that aggressive growth in preventive care segment has slowed down due
to seasonal variations, and there has been no material tailwinds from
promotional expenses incurred in previous quarters
 B‐2‐C and B‐2‐B businesses contributed 19% and 75% of revenues of pathology
in Q3FY18. Management expects Aarogyam to contribute 75% of total
diagnostic revenues by FY20E
 Management guided that the customer shift from unorganised to organised
players will be gradual and not as quick as expected earlier
 Thyrocare has forayed into testing for Tuberculosis and believes it to be a
sizeable opportunity in foreseeable future
 Management guided that scale up of revenues at new PET‐CT centres have been
faster due to deployment of local marketing staff at these locations and absence
of competition in Surat and Raipur.
 In its nuclear imaging business, Thyrocare has achieved 9.1 scans per‐day per‐
machine with 8 PET‐CT scanners. The first five scanners recorded 4,204 scans
(10.8 scans per machine/day) and three new scanners added 1,288 scans (5.5
scans per machine/day) in Q3FY18. Management expects to add four further
scanners and achieve 7‐8 scans per machine/day in FY18E‐19E. Management
guided to add centres at the following locations: Aurangabad, Prabhadevi
(Mumbai), Nashik, Jaipur and Pune
 Going forward, the company would expand its imaging business through a
franchisee model with aspirational target of setting up 80 PET‐CT scanners and 4
Cyclotron (Mumbai, Delhi & Coimbatore) facilities across India
 Expect to achieve 60% EBITDA margin from imaging business once it achieves
annual revenues of Rs1,000m with 30 scans per‐day per‐machine from its
network of 60 scanners by FY22E
 Expect increasing competition in diagnostics business from the smaller players
aided with funding from Private Equity, but see minimal impact on Thyrocare as
its volume leadership keeps raw material (reagent) costs lowest among the large
peers. Management believes that any regulations in pricing by the Government
will be beneficial for Thyrocare and have a negative impact on its competitors
 Management guided for a capex of Rs65‐70m per PET‐CT for 4‐5 PET CT centres
per annum

February 09, 2018 2
Exhibit 1: Change in Estimates
Sales (Rs m) EBITDA (Rs m) PAT (Rs m)
Year
Old New Diff (%) Old New Diff (%) Old New Diff (%)
FY18E 3,944 3,635 (7.8) 1,595 1,499 (6.0) 1,020 939 (8.0)
FY19E 5,123 4,465 (12.9) 2,136 1,862 (12.8) 1,346 1,215 (9.7)
Source: PL Research
Exhibit 2: Q3FY18 Result Overview (Rs m)
Y/e March Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 9MFY18 9MFY17 YoY gr. (%)
Net Sales 839 704 19.2 880 2,597 2,173 19.5
Raw Material 208 182 14.1 259 690 578 19.4
% of Net Sales 24.8 25.9 29.4 26.6 26.6
Personnel Cost 95 76 24.5 72 240 223 7.7
% of Net Sales 11.3 10.8 8.2 9.3 10.3
Others 183 183 (0.2) 192 591 536 10.3
% of Net Sales 21.8 26.0 21.8 22.8 24.7
Total Expenditure 485 441 9.9 523 1,521 1,337 13.8
EBITDA 354 263 34.7 357 1,075 836 28.6
Margin (%) 42.2 37.3 40.6 41.4 38.5
Depreciation 51 47 10.3 49 145 131 10.5
EBIT 302 216 39.9 308 930 705 32.0
Other Income 37 39 (6.0) 37 121 101 20.2
Interest 1 1 1 3 2
PBT 338 254 32.9 344 1,048 804 30.5
Extra‐Ord. Inc./Exps. ‐ (69) (1) (22) (234)
Total Taxes 123 94 31.6 95 345 295 16.8
ETR (%) 36.5 36.9 27.8 32.9 36.8
Reported PAT 215 92 133.8 247 681 274 148.4
Source: Company Data, PL Research
Exhibit 3: Major sources of Revenues (Rs m)
Y/e March Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 9MFY18 9MFY17 YoY gr. (%)
Diagnostic Services 770 650 18.5 810 2,396 2,015 18.9
% of Net Sales 91.8% 92.4% 92.0% 92.3% 92.7%
Imaging Services 60 47 28.8 63 179 137 31.1
% of Net Sales 7.2% 6.7% 7.1% 6.9% 6.3%
Sale of products/Others 8 7 21.6 8 22 21 4.9
% of Net Sales 1.0% 1.0% 0.9% 0.9% 1.0%
Total 839 704 19.2 880 2,597 2,173 19.5

February 09, 2018 3
Exhibit 4: Net Sales
1,000
900
800
700
600
500
400
300
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Exhibit 5: Diagnostic Revenues
900
800
700
600
500
400
300
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Exhibit 6: Imaging Revenues
65
60
55
50
45
40
35
30
25
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

February 09, 2018 4
Exhibit 7: Sale of products
50
45
40
35
30
25
20
15
10
5
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Exhibit 8: EBIT margins ‐ Diagnostic
46%
43% 43%
44% 43% 43%
42%
42% 41% 41%
40% 39%
40%
38%
38% 37%
36%
34%
32%
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Exhibit 9: EBIT Margin ‐ Imaging
10%
5%
0%
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
‐5%
‐10%
‐15%
‐20%
‐25%

February 09, 2018 5

February 09, 2018 6
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e March 2017 2018E
2019E 2020E Y/e March 2017 2018E 2019E 2020E
Net Revenue 3,068 3,635 4,465 5,429 Shareholder's Funds 4,068 4,357 4,921 5,756
Raw Material Expenses 893 962 1,237 1,504 Total Debt 52 57 58 59
Gross Profit 2,175 2,673 3,228 3,925 Other Liabilities 75 78 82 86
Employee Cost 311 344 460 543 Total Liabilities 4,194 4,491 5,061 5,901
Other Expenses 680 830 906 1,102 Net Fixed Assets 1,690 1,693 1,804 1,854
EBITDA 1,184 1,499 1,862 2,280 Goodwill 1,069 1,069 1,069 1,069
Depr. & Amortization 180 197 244 300 Investments 1,015 1,116 1,228 1,351
Net Interest — 4 — — Net Current Assets 284 569 991 1,746
Other Income 91 159 224 235 Cash & Equivalents 116 469 869 1,598
Profit before Tax 1,094 1,457 1,841 2,215 Other Current Assets 333 289 322 360
Total Tax 385 496 626 731 Current Liabilities 164 189 200 213
Profit after Tax 710 961 1,215 1,484 Other Assets 134 44 (30) (118)
Ex‐Od items / Min. Int. — (22) — — Total Assets 4,191 4,492 5,061 5,901
Adj. PAT 710 939 1,215 1,484
Avg. Shares O/S (m) 53.7 53.7 53.7 53.7
EPS (Rs.) 13.2 17.5 22.6 27.6

Cash Flow Abstract (Rs m) Quarterly Financials (Rs m)
Y/e March 2017 2018E 2019E 2020E Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18
C/F from Operations 894 1,365 1,924 2,653 Net Revenue 877 878 880 839
C/F from Investing (415) (246) (405) (405) EBITDA 332 364 357 354
C/F from Financing (485) (650) (650) (650) % of revenue 37.8 41.5 40.6 42.2
Inc. / Dec. in Cash (6) 469 869 1,598 Depr. & Amortization 49 44 49 51
Opening Cash 103 — — — Net Interest — 1 1 1
Closing Cash 97 469 869 1,598 Other Income 6 48 37 37
FCFF 559 854 1,088 1,408 Profit before Tax 288 367 344 338
FCFE 543 859 1,089 1,409 Total Tax 99 126 95 123
Profit after Tax 190 220 247 215
Adj. PAT 190 220 247 215

Key Financial Metrics Key Operating Metrics (Rs m)
Y/e March 2017 2018E 2019E 2020E Y/e March 2017 2018E 2019E 2020E
Growth Diagnostic Testing Services 2,732 3,364 4,100 4,974
Revenue (%) 27.3 18.5 22.8 21.6 Imaging Services 183 221 312 399
EBITDA (%) 26.6 26.6 24.2 22.5 Others 153 50 53 56
PAT (%) 37.0 32.3 29.4 22.2 Source: Company Data, PL Research.

EPS (%) 37.0 32.3 29.4 22.2
Profitability
EBITDA Margin (%) 38.6 41.2 41.7 42.0
PAT Margin (%) 23.1 25.8 27.2 27.3
RoCE (%) 17.8 21.7 25.4 27.1
RoE (%) 18.4 22.3 26.2 27.8
Balance Sheet
Net Debt : Equity — (0.1) (0.2) (0.3)
Net Wrkng Cap. (days) 64 55 56 54
Valuation
PER (x) 49.6 37.5 29.0 23.7
P / B (x) 8.6 8.1 7.1 6.1
EV / EBITDA (x) 29.7 23.2 18.5 14.8
EV / Sales (x) 11.4 9.6 7.7 6.2
Earnings Quality
Eff. Tax Rate 35.1 34.1 34.0 33.0
Other Inc / PBT 8.3 10.9 12.1 10.6
Eff. Depr. Rate (%) 7.9 7.5 8.2 9.0
FCFE / PAT 76.4 91.5 89.6 95.0
Source: Company Data, PL Research.

February 09, 2018 7
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3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
50% BUY : Over 15% Outperformance to Sensex over 12‐months

43.4% 43.4%
Accumulate : Outperformance to Sensex over 12‐months
40%
% of Total Coverage
Reduce : Underperformance to Sensex over 12‐months
30% Sell : Over 15% underperformance to Sensex over 12‐months
20% 13.2% Trading Buy : Over 10% absolute upside in 1‐month
10% Trading Sell : Over 10% absolute decline in 1‐month

0.0% Not Rated (NR) : No specific call on the stock
0%
BUY Accumulate Reduce Sell Under Review (UR) : Rating likely to change shortly

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February 09, 2018 SREESANKAR
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Thyrocare Technologies

 Pathology grew 19% with margin expansion: Thyrocare’s diagnostic business

P / BV (x) 8.6 8.1 7.1 6.1

50% BUY : Over 15% Outperformance to Sensex over 12‐months

10% Trading Sell : Over 10% absolute decline in 1‐month

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