Metropolis Healthcare - Decent performance in difficult times - ICICI Securities

Metropolis Healthcare (Metropolis) has reported decent performance during difficult times aided by COVID-19 tests. Ex-COVID volumes (no. of patients) dropped 44.7% and average realisation (revenue/patient) dropped 5.2% YoY. Overall, revenue declined 29.6% YoY to Rs1.4bn (I-Sec: Rs1.3bn). Decline in number of tests stood at 41.7%, lower than patients drop. EBITDA margin dropped 1,860bps to 8.5% due to lower revenue despite sharp reduction in S,G&A expenses. Volumes are likely to remain muted in H1FY21 due to lockdown but would improve Q3FY21 onwards as situation normalises. Aggressive network expansion with B2C focus over the past few years would help Metropolis to improve volume growth going forward. Retain ADD.

- Revenues impacted due to lockdown: Metropolis witnessed revenue decline of 29.6% and ex-COVID tests, the decline was 49.6% YoY during Q1FY21 due to significant business impact in Apr-May'20 on account of COVID-19 related lockdown. The business recovered well in Jun'20 and supported by increasing contribution from COVID-19 tests in absolute terms. Management expects revenue from COVID-19 tests to support the business in near term. Realisation per patient dropped 5.2% to Rs820. The number of tests per patient (ex-COVID) improved to 2.02 vs 1.92 YoY. We believe volumes would remain subdued in Q2FY21 and growth would normalise Q3FY21 onwards as situation normalises and also benefit from the shift of unorganised to organised.

- Lower revenue impacted profitability despite cost rationalisation: Metropolis reported an EBITDA margin of 8.5%, a decline of 1,860bps YoY and 1,630bps QoQ primarily on account of lower revenue which resulted in deleveraging at the operating level. The company has undertaken cost rationalisation program which helped in reducing fixed, semi-variable and variable costs by 9%, 12% and 21% respectively and management expects 25-50% of the reduction in fixed and semi-variable costs to be sustainable. We expect EBITDA margin to gradually improve in coming quarters and to reach 29.0% in FY22E.

- Outlook: We expect Metropolis to register revenue, EBITDA and PAT growth at CAGRs of 12.4%, 16.1% and 17.9%, respectively, over FY20-FY22E. RoE and RoCE would remain strong at 31.3% and 28.7%, respectively, in FY22E whereas RoIC would move to 54.9%. We are positive on the long-term outlook given strong brand franchise with sustainable growth, healthy FCF and potential shift of unorganised market to organised players.

- Valuation: We raise our revenue/EPS estimates by 1-5/3-16% to factor in revenue from COVID-19 tests and cost savings. We maintain ADD on the stock with a revised DCF-based target price of Rs1,726/share (earlier: Rs1,545/share) implying 43.1xFY22E EPS and 26.7xFY22E EV/EBITDA. Key downside risks: Higher-than- expected competition and pricing pressures.

Source : Equity Bulls

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