Company Report Industry: Healthcare
Surajit Pal ([email protected]) +91-22-66322259
Thyrocare Technologies Pathology and imaging businesses both at inflexion point
November 17, 2016 2
Thyrocare Technologies
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
Contents
Page No.
Executive Summary .................................................................................................... 4
Plenty of growth drivers to be realized in key verticals ............................................. 5
Pathology: Expansion of network, B-2-C, expansion remain key ...................................................... 5
Diagnostic being a sunrise sector, Thyrocare being a smallest among the top-4, its options are plenty for growth, margin expansion ................................................................................................ 6
Small is smart: Technology, logistics increase reach with minimum investment ........................ 6
Strategies of franchise, execution, preventive-care to drive sales .............................................. 8
Co-operation strategy expands market share in expanded pie of diagnostic sector .................. 9
Growing number of samples to facilitate lower Opex/test ....................................................... 10
Online offers, insurance, customised corporate deals led growth in B-2-C business ................ 10
Aarogyam to benefit from growing ecosystem with ASPs, RPLs ............................................... 11
Flexible partnerships agreement helps in faster addition of franchise network ....................... 12
Flexible strategy for new RPL to meet geographical, competitive requirements ...................... 13
DNA of low-cost structure remains key for large volume, B-2-C, corporate deals .................... 14
Minimal Employee growth with freshers contributing large part of headcount ....................... 17
Overseas operation to contribute 25% of pathology business by 2020 .................................... 18
Imaging Business: PET-CT to be crown Jewel of future ............................................ 19
Competitive pricing to be strong USP for network expansion, volume .......................................... 19
Targeting key cities to gain from concentrated cancer patients ..................................................... 20
Strong background work to ensure faster turnaround of new centres .......................................... 20
Infrastructure of cyclotron plant, logistics remain key for new centres ......................................... 21
Partnership with Franchisees, hospitals to be key for expansion ................................................... 22
Strategic deal with GE for critical machinery to be catalyst ............................................................ 22
Financials: Volume growth is the name of the game ............................................... 23
Pathology business growth to be led by B-2-C with at 42% CAGR .................................................. 23
New scan centres, volumes to drive imaging business ................................................................... 24
Pathology led in contribution, growth in EBITDA ............................................................................ 25
Asset optimising philosophy to limit annual capex at Rs300-350m ................................................ 25
ROE, ROCE, ROIC, Cash flow, tax rate .............................................................................................. 26
Valuation and Risk .................................................................................................... 27
Risk and concerns ..................................................................................................... 30
Brief Business, Management, IPO profile ................................................................. 32
Thyrocare Technologies
Company Report November 17, 2016
Rating BUY
Price Rs592
Target Price Rs1,067
Implied Upside 80.2%
Sensex 26,228
Nifty 8,080
(Prices as on November 17, 2016)
Trading data
Market Cap. (Rs m) 31,804.3
Shares o/s (m) 53.7
3M Avg. Daily value (Rs m) 65.9
Major shareholders
Promoters 63.96%
Foreign 4.75%
Domestic Inst. 11.18%
Public & Other 20.11%
Stock Performance
(%) 1M 6M 12M
Absolute (7.9) (5.3) 0.0
Relative (3.1) (7.1) 0.0
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2017 14.1 1.0 1311.8
2018 19.1 1.0 1805.8
Price Perf. (RIC: THYO.NS, BB: THYROCAR IN)
Source: Bloomberg
0100200300400500600700800
9/M
ay/1
6
30
/May
/16
20
/Ju
n/1
6
11
/Ju
l/1
6
1/A
ug/
16
22
/Au
g/1
6
12
/Se
p/1
6
3/O
ct/1
6
24
/Oct
/16
14
/No
v/1
6
(Rs)
Thyrocare Technologies operates in high growth segments of pathology and imaging business which are at an inflexion point. With strong growth visibility for the next decade, high free cash generation and high capital return ratios, Thyrocare offers a great opportunity for multi fold returns over the next few years. We initiate coverage with a BUY and a TP of Rs1,067.
Thyrocare operates in a segment which has strong growth potential as preventive health checkups and health awareness will continue to drive growth as the current penetration levels is low at 5%. While diagnostic segment is dominated by the unorganised players with a share of 85%, there is a consolidation and shift towards the organised sector resulting in growth in the organised diagnostic segment. The sector is expected to grow with a) improved healthcare services and awareness, b) accessibility with rising income (per capita income: 7.6% CAGR in 2014-19) and c) favourable demographic mix (elderly population to be 169m by 2026 from 98.9m in 2014). Being the smallest among the top-4 diagnostic players with core competency in costs, Thyrocare aspires to grow at 30% till CY30. With purported increase in lifestyle diseases, Thyrocare aims at 80% contribution from B-2-C segment and reaching out to unorganised segment for drawing B-2-B revenues.
We expect 32% CAGR in revenues which includes 29% and 79% CAGR in pathology and imaging respectively, in FY16-19E. While pathology business offers growth through bio-chemistry tests to new Aarogyam franchise (23% CAGR), corporate/insurance companies (1.15x CAGR) and online/DSA (45% CAGR) clients, its imaging business expands through partnership (PSP) model and vendor tie-ups. The daily PET-CT scans is expected to grow to 120-140 in FY19E from 91 in FY16 due to addition of 5-10 new centres and new patients in existing centres.
With increased shift from unorganised to the organised sector with strong growth potentials, the diagnostic business is a sunrise sector with high free cash generation. With strong profit growth of 34%, 39% and 40% CAGR in Gross profit, EBITDA and PAT respectively in FY16-19E, Thyrocare is in an enviable position. We value the company at an EV of Rs57.3bn and initiate coverage of Thyrocare with a “BUY” recommendation with a TP at Rs1,067.
Key financials (Y/e March) 2015 2016 2017E 2018E
Revenues (Rs m) 1,746 2,312 3,075 4,076
Growth (%) 16.4 32.4 33.0 32.6
EBITDA (Rs m) 640 838 1,238 1,649
PAT (Rs m) 452 518 758 1,024
EPS (Rs) 8.9 9.6 14.1 19.1
Growth (%) (78.8) 7.8 46.4 35.0
Net DPS (Rs) 3.8 9.6 10.0 10.0
Profitability & Valuation 2015 2016 2017E 2018E
EBITDA margin (%) 36.7 36.2 40.3 40.5
RoE (%) 18.7 16.1 20.4 25.9
RoCE (%) 15.7 14.8 19.7 25.0
EV / sales (x) 17.1 13.7 10.3 7.7
EV / EBITDA (x) 46.7 37.9 25.6 19.1
PE (x) 66.1 61.4 41.9 31.0
P / BV (x) 10.8 8.7 8.4 7.7
Net dividend yield (%) 0.6 1.6 1.7 1.7
Source: Company Data; PL Research
Thyrocare Technologies
November 17, 2016 4
Executive Summary
Thyrocare has three business verticals in the diagnostic sector: Pathology
contributed 89%, Nueclear imaging contributed 6% and others (including
diagnostic kits and FDG) contributed 5% of revenues in FY16.
In Pathology, retail (B-2-C) contributes 47% and B-2-B business (from
unorganised segment) contributes 42% of consolidated revenues. B-2-C business
is mainly contributed by Aarogyam franchisee with 35% revenues, while
Corporate/Insurance clients and online/DSA clients contribute only 5% and 7%
of revenues currently, we expect revenues from Corporate/Insurance to be the
medium-term growth driver and online/DSA to be the long-term growth driver.
To support its focus on B-2-C volume growth, management is aggressively
expanding its geographic reach across India with the set-up of four new RPLs
(Regional Path Lab) annually. With a target to set-up 20 RPLs by FY20E,
Thyrocare currently has one central Lab (CPL) in Mumbai and six operational
RPLs in Delhi, Kolkata, Hyderabad, Bhopal, Coimbatore and Bengaluru.
With addition of 5-10 new PET-CT scan centres, Thyrocare’s imaging business is
to contribute 15% of revenues in FY19E from 6% in FY16. While all the three
existing centres (5 scanners) are owned by Thyrocare, its future expansion plan
will be through partnership (PPS) model only. Surat commenced operation on
21st Sept 2016 and five new centres are expected to be operational in FY18E.
With offerings of 198 tests, Thyrocare focuses only on preventive care and
human body disorders which is one of the key differentiating factors vis-à-vis
large peers. This has helped in procuring specimens limited to longer stability
(48 hours) only and achieving higher level of mechanisation. Longer stability and
mechanisation also reduces operational costs and probability of errors in final
outcome of tests.
Selective choices of volume-driven preventive care and high mechanisation have
resulted in lower headcounts and manpower cost. Besides, the company
employs freshers from local medical colleges for lab operations in CPL and RPLs
resulting in higher revenues/employee and lower manpower cost v/s peers.
With 29% and 79% CAGR in pathology and imaging, respectively, Thyrocare is
likely to grow at 32% CAGR in FY16-19E. EBITDA and PAT to increase at 39% and
40% CAGR with EBITDA margin increases to 41.7% in FY19E from 36% in FY16.
Higher asset utilisation to increase ROE to 31% in FY19E from 16% in FY16.
With smaller revenue base among organised players and franchisee model,
Thyrocare’s growth is expected to be faster, while operational costs remain
lower than peers. Therefore, Thyrocare’s valuation is likely to reflect premium
for higher growth and sunrise sector. We value the company at Rs57bn in three-
tier FCFE model and initiate coverage with ‘BUY’ recommendation with TP of
Rs1,067.
Thyrocare Technologies
November 17, 2016 5
Plenty of growth drivers to be realized in key verticals
Exhibit 1: Bird’s eye view of revenue flow in Thyrocare
Source: Company Data, PL Research
Pathology: Expansion of network, B-2-C, expansion remain key
Pathology contributes 56% of Rs322bn diagnostic markets in India, of which,
organised diagnostic chains contributes only 8% of the industry. While Thyrocare
contributes only 14% of the organised diagnostic chain market, its co-operation
strategy also expands target market among the standalone labs and small/niche
healthcare centres those together contributes 85% of the market. With 89% revenue
contribution in FY16, Pathology will remain the key contributor of Thyrocare’s
diagnostic business. Management’s focus to expand revenue contribution from
Aarogyam brands to 80% by FY20E from 53% in FY16 are through a) expansion of B-
2-C franchisee, b) setting-up of new RPL and c) corporate deals (including insurance
companies).
Thyrocare
FY16 Revenue : Rs 2,312m
Pathology Serviceas
(89%)
B-2-B (42%)
B-2-C (47%)
Aarogyam (35%)
Corporates (5%)
Online / DSA (7%)
Imaging Services
(6%)
PET/CT Scan (6%)
Others/ Diagnostics Kits
(5%)
Glucose Strips,
Tubes, Kits
(4.5%)
FDG Sales
(0.5%)
Thyrocare Technologies
November 17, 2016 6
Exhibit 2: Broad break-up of major players in the Indian Diagnostic market
Single Lab, Mom & Pop centers
48%
Healthcentres,
Nursing homes,
Regional players37%
Multi-chain
diagnostic
8%
Pan-india
Hospitals
7%
Organised players
15%
Source: Company Data, PL Research
Diagnostic being a sunrise sector, Thyrocare being a smallest among the top-4, its options are plenty for growth, margin expansion
Small is smart: Technology, logistics increase reach with minimum investment
Thyrocare is the smallest among the top-4 organised sector players in the Indian
pathology market. Diagnostic being a sunrise sector has been a choice of the
management to remain asset-light in its pan-India presence and pursue strategy of
optimising asset class at its disposal. Thyrocare’s key fundamental decision of
restricting into one CPL and expand through RPL is one big differentiator with large
peers which helps to follow asset-light strategy and keep capex low. In comparison
to large peers (Metropolis, Dr Lal Pathlabs and SRL), Thyrocare has been growing at
24% CAGR and average asset-turnover (ATO) was at 2.7X in FY11-16 including yearly
ATO of 5.6X in FY12 before venturing into imaging business. With capex of Rs1,076m
for a large CPL (0.5mn tests/day), six RPLs (regional path lab), five PET-CT scanner (in
three centres) and one cyclotron-production facility in FY13-16, the company is
poised to optimise its investments in pathology and imaging business through
growth in revenues, EBITDA and margins. We expect 33%, 39% and 40% CAGR in
revenues, EBITDA and PAT with 550bps expansion of EBITDA margin to 41.7% in
FY16-19E.
Thyrocare Technologies
November 17, 2016 7
Exhibit 3: Break-up between Imaging and Pathology
Pathology Diagnostics
56%
Imaging Disgnostics
44%
Source: CRISIL, PL Research
Exhibit 4: Three broad categories of pathology testing service
Others
21%
Hematology18%
Immunology
22%
Sugar & Lipid
Profile
29-31%
Other Tests71-69%
Biochemistry
39%
Source: CRISIL, PL Research
Exhibit 5: Major industry contributors in diseases/disorders
Clinical Chemistry36%
Immuno-Chemistry21%
Hematology19%
Microbiology culture
8%
Infectious immunology
5%
Histology & Cytology
6%
Genetic Testing2%
Others3%
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 8
Exhibit 6: Hub-and-spoke model
Source: CRISIL, PL Research
To remain asset-light and mobile in execution, the company’s philosophy remains a)
maintain only one CPL, b) expansion through RPL/franchise/logistics and c) keep
minimum human intervention at its laboratories, especially in CPL. With only 850
employees, it creates standardised quality assurance and highest level of automation
including longest line of APTIO automation (conveyor belt system) in CPL and
enables RPL for voluminous basic/preliminary-level tests. This has increased capacity
to conduct more number of tests/day for CPL and RPL in comparison to similar
investment by peers. Further plan to add 14 more RPLs (total no. of target RPL is 20)
to add large headroom in CPL without capacity expansion has ensured no large
investment for pathology business in setting up another CPL till FY20E.
Strategies of franchise, execution, preventive-care to drive sales
With policy of accepting samples with 48-hours of stability and expanding franchise
model together with Aarogyam branding, Thyrocare has been persuading preventive
care in a big way. Management focuses on 80% contribution of preventive care by
FY20E from 53% in FY16. Its drive to ramp-up corporate deals in medium term and
expansion of Aarogyam brands along with new RPLs and addition of new tests in
long term to help management achieve robust contribution from preventive care.
Macro-economically, increasing income levels and penetration of awareness in Tier-
II and III class cities will also help in bigger contribution of preventive care in the pie
of pathology tests in India. Thyrocare’s Preventive care contribution in revenues has
been increasing from 20% in FY10 to 51% in FY15 and 53% in FY16 due to rapid
expansion of bouquet of tests, branded as Aarogyam.
National Reference
Lab
Regional Reference
Lab
Satellite Labs
CC
CC
Satellite Labs
CC
CC
Thyrocare Technologies
November 17, 2016 9
Exhibit 7: Preventive, Wellness tests in Indian diagnostic market
Rest of the market
92%
Wellness, Preventive
Mkt8%
FY13-14
Rest of the market
91%
Wellness, Preventive
Mkt9%
FY17-18E
Source: Crisil, PL Research
Co-operation strategy expands market share in expanded pie of diagnostic sector
With core competence of processing voluminous business that draws benefits of
economies of scale (lower operating costs/unit) and optimise assets utilisation, one
of Thyrocare’s key strategies is co-operation with standalone pathology centres.
Strategically, it offers expansion of target market into 48% of diagnostic business,
which is dominated by standalone pathology labs followed by small nursing homes,
healthcare centres and doctors with single laboratories. Thyrocare also leverages
lower operating cost-benefits with sizeable discount-offer of specialty tests to multi-
chain/small-chain regional hospitals, which contributes 37% of the diagnostic sector
revenues of Rs377bn. Unlike peers, Thyrocare focuses on these 85% of the sector pie
for sourcing its B-2-B business, which contributes 42% of revenues in FY16 and would
likely to grow at 11% CAGR in FY16-19E. Thyrocare’s 80% of volume is dominated by
B-2-B segment which is contributed by 70% from standalone laboratories, 15% by
small hospitals/health-centres and 15% contributed by Doctors with small
laboratories.
Exhibit 8: Thyrocare’s B-2-B revenues to grow at 11% CAGR
783
962
1,129 1,204
1,323 23%
17%
7%
10%
0
0.05
0.1
0.15
0.2
0.25
-
200
400
600
800
1,000
1,200
1,400
FY15 FY16 FY17E FY18E FY19E
B-2-B YoY Gr. (RHS)
Source: Company Data, PL Research
23-25% CAGR
Total Market Rs377bn
Total Market Rs585-616bn
Thyrocare Technologies
November 17, 2016 10
Growing number of samples to facilitate lower Opex/test
With reagent-suppliers agreement at lowest rate in the industry v/s the peers (due
to commitment of highest volume) and robust growth in samples/employees
through geographic expansion, the company is to benefit from increase in volume,
especially in its Aarogyam brand. Each RPL employs maximum headcount of 15
employees but release higher capacity for high value tests in CPL. Thyrocare’s focus
on automation of testing process and minimum human intervention will result in
higher operating leverage. With expansion of Aarogyam brand, online DSA/Internet
business and other corporate deals, Thyrocare’s B-2-C business contributed 53% of
revenues in pathology in FY16 from 51% in FY15 and is expected to grow at 42%
CAGR in FY16-19E.
Exhibit 9: Pathology—Operating costs/tests tends lower with higher volume
356 425 552 670
14.2 12.2 11.5 10.8
28.3
23.3 22.3 22.7
-
5.0
10.0
15.0
20.0
25.0
30.0
-
100
200
300
400
500
600
700
800
FY13 FY14 FY15 FY16
COGS (Rs m) Opex/Test (RHS) Total costs/Test (RHS)
Source: Company Data, PL Research
Online offers, insurance, customised corporate deals led growth in B-2-C business
Aarogyam, Corporate deals and Online business contribute in Thyrocare’s B-2-C
business, of which, revenues in corporate deals to grow at 1.2x CAGR in FY16-19E.
With average contribution of 50% in incremental revenues, corporate business is to
be led by customized offer for corporate in-house employees/clients and mandatory
medical test business of the insurance clients. Corporate deals are achieved with TCS
(large contribution in incremental revenues in Q1FY17) and Kotak as well as Royal
Sundaram and Star Health among insurance companies. While there are many deals
in the negotiation stage, we expect large clientele such as Big-Bazaar, Reliance JIO,
ICICI Bank and Infosys and insurance companies such as LIC, ICICI Life and Aegon Life
to be the game changers for pathology business and help to achieve company’s
aspiration of 80% revenue from B-2-C by 2020.
Thyrocare Technologies
November 17, 2016 11
Exhibit 10: B-2-C sub segments: All guns blazing
-
500
1,000
1,500
2,000
-
1,000
2,000
3,000
4,000
5,000
FY15 FY16 FY17E FY18E FY19E
Pathology Testing Services B-2-C
B-2-B Aarogyam (RHS)
Corporates (RHS) Online/Internets/DSAs (RHS)
Source: Company Data, PL Research
Thyrocare is also investing in future line of business through offer for online
customers on its site and other websites (including aggregators) with differentiating
discount offer. With savings of partnership fees in franchisee fees, the company has
headroom for offering discount in online selling of its services, while operating
margin remain similar to other B-2-C business. Thyrocare’s revenues in futuristic
business such as online business/internet-offers/aggregators/DSAs together
contributes 15% of B-2-C business (7% of consol rev.) in FY16 and are expected to
grow at 45% CAGR in FY16-19E.
Aarogyam to benefit from growing ecosystem with ASPs, RPLs
With strong focus on expansion of high-margin business of Aarogyam brand,
Thyrocare is strategically increasing its ecosystem across the country through ASPs,
RPLs and 22 collection hubs. Thyrocare’s ASP network increased from 782 in FY14 to
1,041 in FY16, comprising 30,000 sample collection centers, 687 TAGs (aggregators)
and 354 TSPs (service providers) across 466 cities in 29 states. With six RPLs
established till Q2FY17, management plans to set up total 20 RPLs (roughly four RPLs
in a year) by FY20E, which will create 40 hubs and each hub to manage operation of
30-40 franchisees. Hence, the plan of 20 RPLs to create ecosystem of 1,200
additional franchisee, which suggests setting up of one RPL equivalent to create an
ecosystem of two hubs and 80 franchisee network.
Thyrocare Technologies
November 17, 2016 12
Exhibit 11: Functioning of the hub-and-spoke model
Source: CRISIL, PL Research
To protect franchisee partners from cannibalising business of each other, the
company’s policy is to award partnership contract which has to be away from the
300 meters surroundings of the nearby franchise partner. Thyrocare source B-2-B
samples from TAG partners and their addition in the network are faster and
numerically higher as it requires no permanent establishment. The TAG partners are
aggregators in real terms as they collect specimens from institutional clients
(standalone labs, small hospitals/nursing homes, healthcare centres and doctors) to
deposits in collection hub/centre in return of collection fees. The TSP partners
source B-2-C business through promotion of Aarogyam brand in return of
partnership fees and require permanent establishment with safeguard of no other
TSPs in the surroundings of 300 meters.
Flexible partnerships agreement helps in faster addition of franchise network
With competitive edge of Aarogyam/Thyrocare brand and favourable sharing of
revenues with partners, Thyrocare also offers flexibility in franchisee agreement for
reference laboratories as per the choice of franchise. Like its B-2-B segment,
Thyrocare also offers option to its franchise on reference lab in case partner find
profitable proposition to send the specimens in other labs. Management is confident
about quality and cost leadership of Aarogyam’s bouquet of tests and shares 25% of
its revenues from walk-in clients which is also the highest in the industry standard of
sharing revenues with franchisee. As per management, around 60% of the franchisee
have tie ups with Thyrocare labs only, while 30% of franchises have 2-3 labs tie ups
and 10% franchise have tie ups with more than 3 laboratories.
Thyrocare Technologies
November 17, 2016 13
Exhibit 12: Decentralising 58% of tests to RPL benefits franchisee partners, cost leadership
Type of Thyroid Tests Performed
@CPL Performed @RPL
Thyroid Simulating Hormone P P
Total Triiodothyronine P P
Total Thyroxine P P
Non-Thyroid tests
CLIA P P
ELISA P
HPLC P P
Electrophoresis P
Flow cytometry P
Flourescence Flow cytometry P P
Nephelometry P
Photometry P P
Liquid Chromatography Mass Spectrometry P
ICP-MS P
Wellness and Preventive Tests
Aarogyam A P P
Thyroid Diabetic Screen, Iron deficiency, Kidney, Cholesterol, Pancreas, Liver, Complete Hemogram
All except Pancreas
Aarogyam B P P
Vitamin D & blood Elements & Aarogyam A excluding pancreas
All except Blood Elements
Aarogyam C P P
Aarogyam B & Cardiac, Arthritis, Vitamin B12, Folic Acid, Serum Ferritin, Testosterone, Electrolytes
Aarogyam B and Vitamin are done
Aarogyam D P P
Thyroid, Liver, Cardiac, Complete Hemogram, Diabetes, Iron Deficiency, Lipid, Renal
All except Cardiac and Renal
Mini Aarogyam P P
Thyroid, Diabetic, Complete Hemogram
All
Source: Company Data, PL Research
Flexible strategy for new RPL to meet geographical, competitive requirements
With priority of optimising assets, Thyrocare’s existing policy is to establish new RPL
in the geography only where it receives minimum 3,000-5,000 specimens daily.
Management policy is however subject to the adjustment with competitive density
and geographical remoteness. The flexibility in decision-making process with shorter
hierarchy helps the company establish stronger footprint across the country at faster
space. Thyrocare’s setting up of new RPL in Bengaluru in Q1FY17 with 2000
specimens/day and plans for a new RPL in Bhubaneshwar (due to logistic
remoteness) are a result of flexibility in management policy and will help in faster
ramp-up of market share in the expanded pie of diagnostic business.
Thyrocare Technologies
November 17, 2016 14
Exhibit 13: Large headroom for volume growth: Specimens per day and utilisation
RPL centers Capacity Utilisation Utilisation (%)
Kolkata 10,000 4,000 40
New Delhi 10,000 8,000 80
Coimbatore 7,000 3,500 50
Hyderabad 6,000 4,000 67
Bhopal 6,000 2,500 42
Bengaluru 5,000 2,000 40
Total Sample in RPL/day 44,000 24,000 55
Average Sample/day 7,333 4,000
Total Tests in RPL/day (1:5 sample:Test ratio) 220,000 120,000
Source: Company Data, PL Research
DNA of low-cost structure remains key for large volume, B-2-C, corporate deals
Thyrocare’s major philosophy of offering diagnostic services at affordable prices
remains the key for its growth since inception. It began operations in CY2000 with
offerings of Thyroid-profile tests at less than half the price in comparison to peers.
The foundation of its capability of offering highly cost competitive services has been
low-costs structure of its business. There are four areas where the cost effective
management are exercised:
Reagent costs: While reagent costs of the industry (mainly large peers) is 30-
35% (Crisil report), Thyrocare’s reagent costs has come down to 25% of sales in
FY16 from 27.5% in FY15. Despite 22% YoY increase in reagent costs in FY16, the
contribution of reagent costs has come down due to efficient procurement at
lower unit-costs and higher optimisation of assets with rapid rise in volume.
Thyrocare’s strength of large volume and its growth ensure significantly lowest
rate of reagent than the large peers, with a rider of minimum annual purchase
commitment. With 53% growth in volume to 200,000 tests/day in FY16, its
annual offtake of reagent is much higher than the minimum purchase
commitment, e.g. Thyrocare reagent expenses were Rs584m in comparison to
minimum purchase commitment of Rs449m in FY16. Thyrocare has Reagent
Rental Arrangement with major suppliers for 2-6 years including either annual
purchase commitment or rate commitments based on the workloads. Currently,
Thyrocare has purchase commitment of Rs3.1bn for 5-6 years.
Thyrocare Technologies
November 17, 2016 15
Exhibit 14: Focus on higher volume to reduce reagent costs further
22%24%
28% 27%
0%
5%
10%
15%
20%
25%
30%
FY13 FY14 FY15 FY16
Source: Company Data, PL Research
Limited menu of tests dominated by choice of Biochemistry test: Thyrocare’s
test-menu offers 198 tests including 59 profile tests (Aarogyam-16 profile tests),
which are dominated by Biochemistry tests. The universe of pathology is
contributed by 36% from biochemistry tests which aims at detection of chronic
disorder. Thyrocare’s strategic choice of biochemistry tests in menu requires at
least 48-hours of stability of specimens and helps in highest level of automation
to conduct tests. In comparison, its large peers offers 2,500-4,000 tests in menu
which entail a) time-bound diseases tests, b) acute-therapy tests, c) hospital-
patient tests and d) tests which require frequent human intervention. This has
resulted in large peers having 20-25% of employee costs v/s Thyrocare’s 11%
employee costs in FY16.
Exhibit 16: Prominence of Biochemistry tests in Pathology
Hematology19%
Immunology21%
Others24%
Sugar & Lipid profile
11%
Other Tests25%
Biochemistry36%
Source: Company Data, PL Research
Exhibit 15: Top-10 tests in pathology in India
1. Blood Sugar
2. CBC
3. Thyroid Profile tests
4. Hba1c
5. Vitamin-D profile test
6. HDL (Lipid profile)
7. Hep-B&C
8. HIV
9. HPV
10. Vit-B12 (B Complex)
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 16
Shifting of many tests to RPL to reduce unit costs/test: With 84% lower
power/fuel costs (1.13% of sales in RPL v/s 7% in CPL) and 73% lower HR costs
(3% of sales in RPL v/s 11% in CPL), Thyrocare strategically enhanced RPL’s
capability to reduce unit-cost of tests. Thyrocare has shifted 54% of overall tests
in menu to RPL including all thyroid profile tests and 40% of non-thyroid tests.
Increase in RPLs also will provide additional benefits of non-binding reagent
procurement as Thyrocare has already bought equipments for RPL centres. This
will result in lower unit-cost of reagent procured from existing large suppliers.
Exhibit 17: Thyrocare reduces unit costs by shifting 58% of tests in the menu to RPL
Relative Costs (CPL v/s RPL) CPL RPL
Raw Material 30% 30%
Employee Costs 11% 3%
Power Costs 7% 2%
Lease Costs - 3%
Source: Company Data, PL Research
Zero rental costs in setting up Aarogyam TSP centres: While large peers spend
5-7% in rental costs in the company-rented service centre for walk-in clients,
Thyrocare entirely sources its revenues from ASPs including 53% from Aarogyam
brands through franchise establishments. It spends rent only for RPL and hub
centres at local rate, which contributes 2.3% of sales in FY16 v/s 5% by peers
such as Dr Lal Pathlabs.
Exhibit 18: Franchisee model draws benefits for Thyrocare v/s peers
0.04% 0.05%
1.02%
2.34%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
-
10.00
20.00
30.00
40.00
50.00
60.00
FY13 FY14 FY15 FY16
Thyrocare % of Sales (RHS)
4.74%
4.47%
4.75%4.82%
4.20%
4.30%
4.40%
4.50%
4.60%
4.70%
4.80%
4.90%
0.0
100.0
200.0
300.0
400.0
500.0
FY13 FY14 FY15 FY16
Dr Lal Pathlabs % of Sales (RHS)
Source: Company Data, PL Research
Employee costs/lab assistant reduced with set up of RPL: With setting up of
new RPLs and selling Aarogyam brands through franchise, Thyrocare’s employee
costs per lab assistant has come down, while front office assistants and
executives are non-existent. Each RPL requires maximum 15 lab assistants
(when operating at full capacity) at local salary-level, which are lower than CPL
employee costs. Out of total headcount of 850 employees, there are 90 lab
assistants in six RPLs.
Thyrocare Technologies
November 17, 2016 17
Exhibit 19: Sizeable gap in employee costs to sales vs. peer
0%
5%
10%
15%
20%
25%
FY13 FY14 FY15 FY16
Thyrocare Dr Lal Pathlabs
Source: Company Data, PL Research
Headroom for rise in capacity/utility to keep away large investment in pathology
With aggressive strategy to set up 20 RPLs and 1,200 ASPs, Thyrocare will not require
any big investments for another CPL. While it process 120,000 specimens/day and
80,000 specimens/day in RPLs and CPL respectively, its CPL has capacity to process
500,000 specimens/day with addition of machineries in the large unutilised space of
the CPL. Besides, addition of 14 more RPLs and unutilised capacity in the existing six
RPLs will open up more capacity of CPL to process more number of specimens till
FY20.
Minimal Employee growth with freshers contributing large part of headcount
Thyrocare keeps the growth of workforce disproportionately lower due to higher
level of automation at laboratories and use of franchise network to promote its
brand Aarogyam and B-2-B sales. Hence, employee costs per tests are decreasing
with increase in collection of specimens. Besides, it focuses mainly on freshers for
lab assistant position as it sets up RPL only in place where medical colleges are
available in the local ecosystem. This has resulted in lower salary costs of employees
in comparison to its peers. Since FY15, the company is however focusing on
recruiting high-value marketing and sales team with strong focus to increase sales
from corporate deals and insurance companies by FY20E. With current marketing
and sales of 116 employees, Thyrocare will be able to convert large number of
corporate clients in medium term as is seen in customised deal for TCS and Kotak
Bank. We expect strong conversion of large corporate such as Infosys, Reliance JIO,
ICICI bank, Big Bazaar and large insurance companies such as LIC, ICICIPru Life Aegon,
Star Health in the near-to-medium term.
Thyrocare Technologies
November 17, 2016 18
Exhibit 20: Revenues v/s costs per employee
-
200
400
600
800
1,000
1,200
-
1,000
2,000
3,000
4,000
5,000
6,000
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Rev/ Employee (in Rs.'000) No. of Employees (RHS)
Emp.unit Costs (in Rs.'000) (RHS)
Source: Company Data, PL Research
Overseas operation to contribute 25% of pathology business by 2020
With aspiration of 25% of pathology revenues coming from overseas operation by
FY20E, Thyrocare has begun operation in Bahrain, Nepal and Bangladesh since FY13.
We believe that management is still in exploration mode in overseas operation and
are fully concentrated for pan-India growth. While Bangladesh venture is joint
venture with local partner, its operation in Bahrain and Nepal is a wholly-owned
business. Specimens from Bangladesh are processed in local partner’s Lab, while
Nepal sends specimens to CPL. Bahrain business owns one small lab locally which is
used for 15% of specimens in Gulf and sends remaining 85% of specimens to CPL,
Mumbai.
Thyrocare’s gains from processing fees of the specimens collected from Bahrain and
Nepal, while ownership of the three business units belong to a Mauritius-based
Holding company personally owned by promoter group. Thyrocare, however, has
9.9% stake in the holding company. Hence, business prospect in overseas operations
will not benefit Thyrocare’s shareholders directly except operating gain from
processing of specimens.
Exhibit 21: Overseas expansion among pan-India diagnostic chains
Diagnostic Chain Major tests Overseas presence Accreditations EBITDA margin (%) ROCE (%)
Metropolis Pathology USE, Sri Lanka, South Africa, (recently wind-up), Kenya, Mauritius, Ghana
NABL, ISO, CAP, CLIA (US) 29 26
Dr. Lal Pathlabs Pathology, Imaging Oman, Saudi Arabia, Kuwait, Nepal, Malaysia, Bangladesh, Qatar
NABL, ISO, CAP, CDC (US) 27 36
SRL Diagnostics Pathology, Imaging Dubai, Sri Lanka, Nepal, Africa, Middle-East, Hong Kong, Maldives, SAARC Countries
NABL, ISO, CAP, ICAL, APLAC 24 NA
Thyrocare Tech. Pathology, Imaging Nepal, Bangladesh, Gulf (Bahrain) NABL, NAGL, ISO, CAP 36 18
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 19
Imaging Business: PET-CT to be crown Jewel of future
With Radiology business contributing 44% in India’s Rs377bn diagnostic market,
Thyrocare’s foray into niche area of PET-CT scan is made with an aim to gain from
robust growth in oncology therapeutic area. Thyrocare currently has five scanners in
three PET-CT centres, supported by one cyclotron facility in Mumbai. While
constraint of highly priced PET-CT scan draws limited users, Thyrocare is poised to
gain from dormant potential of PET-CT scan market with its DNA of low-cost
offerings. The company aspires for opening 60 centres by FY20E though we find
visibility of 5-10 additional centres by FY19E. Thyrocare has 5% market share and
10% capacity-share of PET-CT business in India.
Competitive pricing to be strong USP for network expansion, volume
With high costs and sporadic presence of scan centres, PET-CT scan for cancer
patients is not yet a preferable option for medical practitioners. Thyrocare’s offer of
full body scan at Rs10,000 is 55% lower than average price of the competitors who
offers scan only for single body part. We believe that Thyrocare’s competitive pricing
will be key differentiating factor to expand market size of PET-CT scan and also help
to gain dominant market share. With replicating its success (in pathology) of
partnership franchise model in imaging business, the company plans to leverage
discount-offer deal with GE to expand in pan-India PET-CT scan market by FY20.
Exhibit 22: Survey in Mumbai—Competitive pricing to be key differentiator in PET-CT scan
Hospitals Costs of PET-CT
(Rs. Unit) Area of scan
Lilavati hospital 22,500 only single body part
Nanavati hospital 16,000-21,000 only single body part
Jaslok hospital 24,000 only single body part
Hinduja hospital 25,000 only single body part
Bombay hospital 22,000 only single body part
Tata Memorial Cancer hospital
17,000 7,000 (only, in case of special permission with average delay of 1 mth for scan); Only single body part
Hiranandani hospital Nil No PET-CT facility
Fortis hospital Nil No PET-CT facility
Global hospital Nil No PET-CT facility
S.L.Raheja Hospital Nil No PET-CT facility
Breach Candy hospital Nil No PET-CT facility
Thyrocare 10,000 Full body parts (also offer scan Rs.7,000 for cases recommended by Govt hospitals of Delhi)
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 20
Targeting key cities to gain from concentrated cancer patients
Thyrocare follows the concentration of Linear Accelerator (LINAC) and oncologists
for opening PET-CT centre across the country. LINAC is used as a preliminary
treatment for cancer patients to deliver high-energy X-Rays in the region of patient’s
tumour. Post opening of three PET-CT centres, Thyrocare also observes the patient-
flow across India and identifies latent need of scanners geographically. This has
resulted in its decision to open new centres in Pune and Nashik along with Surat,
Baroda, Borivili, Dadar and Raipur in FY17E-19E. Currently, Thyrocare has three PET-
CT centres in Delhi (2 scanners), Mumbai (2 scanners) and Hyderabad.
Exhibit 23: Progress in number of scans in three PET-CT centres since inception
34
2,348
11,173
15,903
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
FY13 FY14 FY15 FY16
Source: Company Data, PL Research
Strong background work to ensure faster turnaround of new centres
With 140 scanners in CY15 (90 scanners in CY10) in India and national average of
100-700 scan/day, Thyrocare conducted 90 scans/day with 6 scanners in four centres
(including recently opened Surat centre). Benchmarking 20 scans/day for achieving
break-even per scanner, Thyrocare’s achieves 15 scans/day-machine in Q1FY17,
including 20 scans/day-machine in Delhi, 15 scans/day-machine in Mumbai and 10
scans/day-machine each in Surat and Hyderabad. With commissioning of three
centres since FY14, we believe that high probability of faster ramp-up in volumes is
the key criterion for opening scan centres. With network among 2,000 medical
practitioners, management set additional criterion of competitive density analysis,
presence of niche health centres and small to medium hospitals which lacks PET-CT
scanners.
Thyrocare Technologies
November 17, 2016 21
Exhibit 24: Neuclear Imaging business maintains steady progress QoQ
Period Navi Mumbai New Delhi Hyderabad Surat Total
Apr-Jun 2014 936 1,092 22 NA 2,050
Jun-Sept 2014 1,016 1,465 204 NA 2,685
Oct-Dec 2014 1,164 1,505 215 NA 2,884
Jan-Mar 2015 1,501 1,778 275 NA 3,554
Total scans in FY15 4,617 5,840 716 NA 11,173
Apr-Jun 2015 1,585 2,016 344 NA 3,945
Jun-Sept 2015 1,661 1,866 425 NA 3,952
Oct-Dec 2015 1,724 1,723 460 NA 3,907
Jan-Mar 2016 1,683 1,879 537 NA 4,099
Total scans in FY16 6,653 7,484 1,766 NA 15,903
Apr-Jun 2016 1,731 2,101 530 NA 4,362
Jun-Sept 2016 1,891 2,305 580 49 4,825
Source: Company Data, PL Research
Infrastructure of cyclotron plant, logistics remain key for new centres
With capacity of supporting 12 PET-CT scanners, Thyrocare established one cyclotron
facility In Navi Mumbai to produce and supply FDG (Fludeoxyglucose) to operate
scanners in the three centres (Hyderabad centre uses local supply as cheaper
source). Air logistic infrastructure and distance from Cyclotron production plant are
also key criterion for opening new scan centres as the quantum of FDG reduced to
half in every 110 minutes post production. The company’s long term plan is to set up
four more cyclotron facilities (East, North, South and Central) across India. To
maximise the use of FDG for more number of scans, Thyrocare has integrated
production plan for FDG with air and road logistic infrastructure from Mumbai. It
uses air logistics for Delhi, while Surat, Navi Mumbai and upcoming Nashik centre
use road logistics for supply of FDG to PET-CT centre.
Exhibit 25: Proposed new PET-CT Centres across India
Centers Current status
Surat Commissioned in Q2FY17
Baroda (Q3FY17E) To be commissioned
Raipur (Q4FY17E) To be commissioned
Pune (FY18E) To be commissioned
Nashik (FY18E) To be commissioned
South Mumbai (FY18E) To set up with shifting of one machine from Navi Mumbai
Borivili Proposed
Dadar Proposed
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 22
Partnership with Franchisees, hospitals to be key for expansion
While the first three centres (Delhi, Mumbai, Hyderabad) are owned by the
company, Thyrocare plans to expand its PET-CT centres only through franchise
model (PPS agreement). We expect revenue (50:50) sharing franchisee-partnership
to quickly expand the network of scan centres as Thyrocare will buy PET-CT machine
and incur the cost of production and supply of FDG, while partners will build-up
infrastructure and will contribute 100% of operation expenditures (costs of power,
manpower etc). The first scan centre under PPS agreement is commissioned in Surat
in Q2FY17 and has plans to open four new centres in Baroda, Raipur, Nashik, Borivili,
Dadar and Pune.
With predominance of cancer among corporate work-force mainly due to sedentary
lifestyle, the management plans to replicate its successful strategy of corporate deal
(in pathology) for ramp-up in Radiology business. Currently, it is negotiating deals
with large companies as well as medium-to-large hospitals under religious or
community trusts. With strong possibility of deal conversion of religious/community
trust hospitals due to lowest price in the industry, there will be rapid increase in
traffic flow in its PET-CT scan business of Thyrocare and reduce break-even period
significantly shorter.
Strategic deal with GE for critical machinery to be catalyst
Thyrocare negotiated exclusive deal with GE for buying out PET-CT scanners and
Cyclotron production reactor. Thyrocare is likely to receive one scanner free in case
it places bulk order of four scanners. This results in reducing effective costs of
scanner to US$0.75m (Rs50m)/machine from US$1m/machine with approximate life-
span of 10 years. Similarly, Thyrocare receives preferable rate of US$2.2m
(Rs150m)/machine for buying out cyclotron reactor, which will have approximate
life-span of 20 years. With capacities of 40 scans/day for one PET-CT scanner and
supplying FDG for 12 machines from one cyclotron facility, management is aspired to
open 60 PET-CT centres across the country and set-up five cyclotron facilities
strategically at the heart of five different geographies in the country. Thyrocare’s
offer of bearing the cost of scanner and supply of FDG in return of 50% share of
revenues will require only 30% contribution of partner in opening new centre of
scanner along with bearing of operating expenditures to encourage more partners to
join PPS (partnership) programme. This will result in faster expansion of PET-CT scan
centres by FY20E.
Thyrocare Technologies
November 17, 2016 23
Financials: Volume growth is the name of the game
We expect 32% CAGR in revenues during FY16-19E led by 29%, 79% and 11% CAGR,
respectively in pathology, imaging and product sales. Gross profit and EBITDA grew
at 34% and 39% in FY16-19E. With growth in volume (specimens) resulting in faster
expansion of RPL and scan centres, Thyrocare to be benefitted from lower unit-costs
due to higher operating leverage. This has resulted in higher operating-profit growth
than revenue growth. This has also resulted in higher EBITDA margin of 41.7% in
FY19E from 36.2% in FY16. Maintaining tax rate at 35-37%, PAT is likely to grow at
40% CAGR in FY16-19E.
Exhibit 26: Consolidated revenue break-up (%)
-
20
40
60
80
100
FY15 FY16 FY17E FY18E FY19E FY20E
Diagnostic B-2-C B-2-B Imaging Services
Source: Company Data, PL Research
Pathology business growth to be led by B-2-C with at 42% CAGR
With average contribution of B-2-C from 42% in FY16 to 57% in FY19E, Thyrocare’s
focus in expanding franchise network will drive pathology business at 28%, 31% and
28% to Rs2.6bn, Rs3.4bn and Rs4.4bn of sales in FY17E, FY18E and FY19E
respectively. Setting-up of more RPLs will create favourable ecosystem and helps
faster expansion of B-2-C business through the sales of Aarogyam brand, corporate
deals and tie-up with insurance companies for mandatory tests of clients. Though
management identify revenues from online/internet offers to be future leading
business, we believe Aarogyam and customised bouquet of offers to
corporate/insurance companies to be major drivers of B-2-C revenues in medium
term.
Thyrocare Technologies
November 17, 2016 24
Exhibit 27: Revenue break-up of pathology tests
FY15 FY16 FY17E FY18E FY19E
Rev. from Pathology Tests 1,598 2,048 2,626 3,439 4,410
B-2-B 783 962 1,129 1,204 1,323
B-2-C 815 1,085 1,497 2,235 3,087
Aarogyam 652 814 928 984 1,513
Corporates 163 109 299 894 1,081
Online/Internets/DSAs - 163 269 358 494
Source: Company Data, PL Research
With more number of discount-offers in corporate/insurance deals and online sales
along with rapid rise in TAGs and TSPs, we assume specimens collection to grow at
35% CAGR in FY16-19E. Also, more customised bouquet of test-offers to increase
test-sample ratio by 2-3% to 5.7x in FY19E from 5.3x in FY16. These have resulted in
increase in number of tests by 38% CAGR in FY16-19E
New scan centres, volumes to drive imaging business
Assuming three and two new centres in FY17E and FY18E and growth in number of
scans/per day-centre at 13% CAGR in FY17E and FY18E, we expect revenue growth in
imaging business to be 121%, 56% and 67% in FY17E, FY18E and FY19E, respectively.
Revenues per scan also been assumed to grow at 3% CAGR in FY16-19E. New centres
at Surat, Baroda and Raipur in FY17E and Nashik and Pune in FY18E also result in
increase in number of scans/day by 74% CAGR in FY16-19E.
Exhibit 28: Imaging business growth path
-
2,000
4,000
6,000
8,000
10,000
-
5
10
15
20
25
FY15 FY16 FY17E FY18E FY19E
No. of scans perday/per center Rev. per scans (Rs. m) (RHS)
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 25
Pathology led in contribution, growth in EBITDA
Increasing volume from new sources of B-2-C business, the average contribution of
pathology is 91%, followed by imaging at 6% and products/kits at 3% in FY17-19E.
Sources of retail business from variety of sources at discounted-offer increases
volume and so is EBITDA of pathology business at 27.5% CAGR and EBITDA margin
increased to 41.7% in FY19E from 36.2% in FY16E. We, however, expect strong rise
in volume from insurance business to increase margin from pathology business to
45.4% in FY19E. With lower base, Imaging business EBITDA to increase at 92% CAGR
in FY16-19E as EBITDA margin is expected to be 18.5%, 22% and 25% in FY17E, FY18E
and FY19E.
Exhibit 29: EBITDA contribution Incl. other op. income (%)
96 94 92 91 89
3 5 6 9 4
4 3 3 2
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17E FY18E FY19E
Pathology Imaging Sale of prods
Source: Company Data, PL Research
Asset optimising philosophy to limit annual capex at Rs300-350m
With assumptions of four new RPLs per annum and eight PET-CT scan centres, we
expect Rs300-350m capital expenditure per annum in FY17E-19E. The set-up cost of
a RPL is Rs35m leading to total capex for pathology business is Rs140m per annum.
We assume outright buy of three, two and three PET-CT scanners in FY17E, FY18E,
and FY19E, respectively. With discount-offer of GE for PET-CT machine at
US$.75m/scanner, we expect total capex of Rs402m for imaging business in FY17E-
19E.
Thyrocare Technologies
November 17, 2016 26
Exhibit 30: Capex plan to limit within Rs300-350m
-
50
100
150
200
250
300
350
400
-
50
100
150
200
250
FY15 FY16 FY17E FY18E FY19E
Pathology biz Imaging biz Total capex (RHS)
Source: Company Data, PL Research
ROE, ROCE, ROIC, Cash flow, tax rate
With capex of Rs1,076m in FY13-16 for new CPL, six RPLs and five PET-CT scanners,
Thyrocare’s ROE, ROCE and ROIC fell to 14-16% in FY16. With renewed focus on
expansion of ecosystem in new markets, we expect all key return ratios to reach
between 30-35% in FY19E. Net operating cash flow is expected to grow to 34% of
sales in FY19E from 29% in FY16 and Free-cash-flow is expected to grow to 27% of
sales in FY19E from 23% in FY16. We continue to assume zero leverage ratio. Cash
and Investments of Rs1bn represent 3% of market cap. We assume Tax rate reduce
to 35% in FY19E from 37% in FY16 due to set-off of historical loss in nuclear imaging
business.
Exhibit 31: Steady improvement in key ratios, financial parameters
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
FY15 FY16 FY17E FY18E FY19E
ROE (%) ROIC (%) ROCE (%) Net OCF to sales Tax rate (%)
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 27
Valuation and Risk
We expect diagnostic industry to grow at 16%, organised diagnostic sector to grow at 20-22% and top-20 players to grow at 30% for next 10-15 years. We assume Thyrocare to grow at 32% CAGR in FY17E-19E, 25% CAGR in FY20E-26E, 15% CAGR in FY27E-36E and 3% terminal growth in revenues. With 1,041 authorised partners and
plans to add new ecosystem with yearly addition of four new RPLs, we expect Thyrocare has large headroom to increase franchise partners in many untapped territories in India.
Thyrocare’s average EBITDA margin is expected to be 40-41% in FY17E-19E despite only 6% contribution from imaging business. With cost leadership, lowest pricing and strong growth potential of PET-CT scan markets, we expect Thyrocare to expand scan centres across the country through its franchise partnership (PPS) model.
Average EBITDA margin is expected to be 40-41% despite assuming 22% EBITDA margin from imaging business in FY17E-19E. While there is strong probability of 40-60% EBITDA margin from imaging business, we, however, remain conservative and
assume 45% overall EBITDA margin in long term.
Exhibit 32: Revenues, FCFE
FY17E FY18E FY19E FY26E FY36E Terminal Value
Growth in Revenue 33% 33% 32% 25% 15% 3%
Revenue 3,075 4,076 5,379 25,647 103,756
EBIT (1-t) 645 895 1,267 7,386 16,601
+ Depreciation 214 250 294 573 1,485
- Capital Expenditures 310 355 355 500 891
- Change in WC 100 145 187 404 1,066
= FCFE 449 645 1,019 7,055 16,129
Source: Company Data, PL Research
Operating cash flow is expected to improve from 29% in FY16 to 34% in FY19E and generates cash significantly higher than yearly capex requirement of Rs300-350m. Net working capital remains 55-57 days or 7% of sales, mainly contributed by the storage of reagent chemicals. With high generation of cash and low requirement for
working capital, the company is expected to fund its capex from internal accruals and remain debt-free for long term. We expect 28% CAGR in cash and current investments in FY16-19E.
Exhibit 33: Basic assumptions and derivation of Cost of Equity
Risk free rate - Rf 6.9 Yield on 10-yr GOI bond
Market risk premium-(Rm - Rf) (%) 7.6 Rm calculated on the inverse of Risk-free rate
Beta (b) (x) 0.7
Cost of Equity - Ke (%) 12.2 Ke = Rf + b * (Rm - Rf)
Cost of Debt - Kd (%) 0.0 Estimated gross cost of debt
Tax rate (%) 37.0
Post - tax cost of Debt 0.0
Debt / Capital (%) 0.0
Equity / Capital (%) 100
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 28
With risk-free rate of 6.9%, risk-premium rate of 7.6% and assumptions of 36% tax
rate and 3% terminal growth rate, our DCF-based (FCFE) intrinsic value of the
company is Rs57.3bn and derive target price of Rs1,067. We initiate coverage of
Thyrocare with a ‘BUY’ recommendation.
Exhibit 34: Valuation under 3-tier FCFE methodology
(Rs m) % of EV
Value of the firm for 2017E-2026E 14,644 25.60% Assumed 25% CAGR in revenues between 2017E-2026E
Value of the firm for 2027E-2036E 16,615 29.00% Assumed 15% CAGR in revenues between 2027-2036E
Terminal Value 26,054 45.50% Assumed 3% CAGR for terminal years
E.V 57,313
Less: Value of Debt -
Value of Equity 57,313
No. of Equity Shares (in m) 53.7
Intrinsic Value per share 1,067
Source: Company Data, PL Research
Comparative Valuation
Thyrocare’s currently trades at a PER of 32.2x and 23.4x FY18E and FY19E with an
implied valuation to our target price at 53.3x and 38.7x FY18E and FY19E PER. The
company’s EV/EBITDA is 19.2x and 13.8x of FY18E and FY19E. Comparing PE
valuation together with other key parameters will be a better platform to verify the
justification of current and implied valuation of Thyrocare.
Exhibit 35: Key Financial Parameters
FY15 FY16 FY17E FY18E FY19E
ROE (%) 18.7 16.1 20.4 25.9 31.2
ROIC (%) 16.6 15.1 20.4 26.6 35.0
ROCE (%) 15.7 14.8 19.7 25.0 30.2
Net OCF to sales 19.7 29.3 28.9 29.9 33.9
Tax rate (%) 34.9 36.7 37.0 36.0 35.0
Capex (Rs. m) 99.2 143.5 309.8 355.0 355.0
Source: Company Data, PL Research
Thyrocare’s Asset-Turnover ratio (ATO) went as high as 5.6x FY12 when its capex was
around Rs20-50m per annum. With large capex of Rs690m for setting up CPL, its ATO
came down to 1.8 in FY13 and accumulated capex of Rs1,076m (in FY13-16) for RPL
and PET-CT centres, ATO has been in the 1.5-1.8X range during FY13-16. With
utilisation of only 55% in RPL, 40% in CPL and 34.5% average utilisation in PET-CT
centres, the asset turnover ratios is currently lower and expect to grow faster with
traction of volume. Thyrocare is poised to increase revenues from investments due
to strong geographic expansion, large headroom to accommodate rapid rise in
specimens and scans in matured PET-CT centres. Limiting capex at Rs300-350m per
annum, we expect ATO to rise to 2.5-3 in FY17E-19E.
Thyrocare Technologies
November 17, 2016 29
Exhibit 36: Key growth, margin, ratio
FY15 FY16 FY17E FY18E FY19E
Revenue gr (%) 16 32 33 33 32
Gross profit gr(%) 11 35 37 33 33
EBITDA gr (%) (7) 31 48 33 36
PAT gr (%) (2) 15 46 35 38
Gross profit margin (%) 68.0 69.6 71.6 71.7 72.3
EBITDA margin (%) 36.7 36.2 40.3 40.5 41.7
Asset-Turnover ratio (ATR) 0.9 1.1 1.3 1.5 1.7
Source: Company Data, PL Research
Thyrocare’s growth in headline numbers and margins is also another reason for
premium valuations in comparison to peers. With smaller base than the large peers
and benefits of high automation in specimens processing, Thyrocare’s growth in
revenues, EBITDA and margins were higher than peers. Revenues, gross profit,
EBITDA and PAT to grow at 33%, 34%, 39% and 40% CAGR, respectively, in FY16-19E.
With manifold increase in capex since FY13, Thyrocare’s first phase of large capex
are through and additions of RPL and PET-CT centres are to be on consistent basis of
yearly capex. With ramping-up of ASPs and franchisees, Thyrocare’s utilisation rate
of existing assets will be faster than the rate of addition of new assets. Hence, it’s
ROE and ROCE is likely to grow to 29% and 40% in FY19E from 14% and 18% in FY16,
respectively.
Exhibit 37: Revenue break-up (Rs m)
FY15 FY16 FY17E FY18E FY19E
Pathology Testing Services 1,598 2,048 2,626 3,439 4,410
B-2-C 815 1,085 1,497 2,235 3,087
B-2-B 783 962 1,129 1,204 1,323
Aarogyam 652 814 928 984 1,513
Corporates 163 109 299 894 1,081
Online/Internets/DSAs - 163 269 358 494
Imaging services 36 138 305 476 794
Sale of Products 112 127 144 161 174
Net Sales (core biz excl Other Op. income) 1,746 2,312 3,075 4,076 5,379
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 30
Risk and concerns
Concentration risk of thyroid-profile tests
While Thyroid test remains USP of Thyrocare brand since inception, we believe that
revenues from thyroid-profile tests are a concentration risk. Management has no
intention to discontinue the tests from its menu of tests despite being a low margin
business, as it has been the identity of the company since commissioning of its
operations. Instead, Thyrocare has enabled its RPLs and shifted all local
requirements of thyroid tests to RPL and reduces operation costs. With expansion in
Aarogyam brand and corporate business, we expect contribution of thyroid-profile
tests to come down further from 24% in FY16.
Exhibit 38: Thyrocare's revenue break-up of service category by value
Services (by value) FY13 FY14 FY15 FY16
Thyroid (%) (B-2-B) 27 21 16 17
Non-Thyroid (%) (B-2-B) 32 32 33 30
Aerogram (%) (B-2-C) 41 47 51 53
Source: Company Data, PL Research
Exhibit 39: Contribution of Thyroid tests by volume
FY13 FY14 FY15 FY16
No. of Thyroid Tests (m Unit) 9 11 14 15
Contribution in total Tests (%) 37 30 28 24
Source: Company Data, PL Research
Fragmented business, low entry barriers
The pathology segment (56% of the industry) of diagnostic sector being highly
fragmented with many competitors, there is a risk of low entry barrier for new
players or risk of conversion of regional player into a national player (with PE
funding). The nature of high price-sensitive competition and requirement of
minimum capital to set up laboratories for basic tests are the key features in the
industry. The competitive scenario may intensify with entry of new players and spoil
the market and profitability of the organised players. Thyrocare are, however,
strategically focussed on expansion of the Aarogyam brand, which offers bouquet of
tests to B-2-C clients at a competitive price, which seems to be tough to be
replicated by small lab/players due to their comparatively lower volume business.
Thyrocare also offers high discount for basic tests to small/single-lab players
including small hospitals/health centres/nursing homes and gain stake in the 48%
market share of single-lab players.
Thyrocare Technologies
November 17, 2016 31
Margins may come under pressure
While there are concerns on strong price competition from PE-funded new players,
we believe that Thyrocare’s USP of cost leadership provides large headroom to take
away competition on price front. Besides, high volume from network expansion and
high automation will ensure lowest costs of reagents and lower headcounts for
Thyrocare, which will lead to lowest employee expenditures among the organised
players. With focus on only through franchise partnership, the company has low
overhead expenditures.
Thyrocare Technologies
November 17, 2016 32
Brief Business, Management, IPO profile
Business profile
Thyrocare Technologies is one of the leading pan-India diagnostic chains which
conduct an array of in-vitro diagnostic tests and profiles of tests that centre on early
detection and management of disorders and diseases. The company offered 198
tests and 59 profiles of tests to detect a number of disorders, including thyroid
disorders, growth disorders, metabolism disorders, auto-immunity, diabetes,
anaemia, cardiovascular disorders, infertility and various infectious diseases.
Thyrocare’s profiles of tests include 16 profiles of tests administered under
“Aarogyam” brand, which offers patients a suite of wellness and preventive health
care tests.
Exhibit 40: Brands, services offered by Thyrocare across the country
Brand Name Type of Services Offered Examples of Tests Offered Brand Logo
Thyrocare Diagnostic Testing Thyroid Testing and Non-thyroid tests based on
different types of testing
Aarogyam Wellness & preventive care
Liver, cholesterol, kidney, thyroid, iron deficiency, testosterone, cardiac pancreas, electrolytes, arthritis, serum ferritin, folic acid and toxic
elements tests and profiles of tests
Diabetic Screens
Complete Hemogram
Vitamin Profile
NHL Cancer Monitoring Full body and brain scans
WHATERS Water Testing Physical & chemical, elements, microbiology,
pesticide and volatile organic compound testing
Sugar Scan Testing of Blood glucose levels Sugar scan blood glucose monitor
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 33
Thyrocare primarily operates testing services through a fully-automated CPL and has
recently expanded operations to include a network of RPLs. Since the opening of
RPLs in 2015, the company has seen an increase in the volume of tests that have
been conducted from a daily average of approximately 95,610 in Fiscal 2014 to
approximately 200,000 in FY16. Thyrocare conducts PET-CT scan business through a
wholly-owned subsidiary, NHL (Nueclear Healthcare), which operates a network of
molecular imaging centres in New Delhi, Navi Mumbai and Hyderabad, focused on
early and effective cancer monitoring.
Exhibit 41: Key milestones achieved by Thyrocare
Year Particulars
2000 Incorporation of 'TTL' and commencement of operations
2001 Received ISO 9001 certification
Acquisition of TDPL and TBPL
2005 Received NABL accreditation
2006 Issued fully convertible debentures to BCCL of Rs250m
2007 Received accreditation from College of American Pathologists
2010
Issued compulsory convertible debentures of Rs250m to Agalia
Agalia also acquired equity shares of Rs1,250m from Promoters & others
Launched wellness packages under brand 'Aarogyam'
2011 Migrated to 'total laboratory automation system' installed by Siemens
2012 NVP acquired Equity shares of Rs1,200m from certain entities
2013
EIF acquired equity shares from Agalia
Commenced operations at PET-CT centres at Navi Mumbai and conducted 1000 scans in the first year of operation
2014
Installed India's first and longest track automation system from Siemens Limited
Commissioned operations in Cyclotron facility in Navi Mumbai
Commenced operations at PET-CT centres at New Delhi and Hyderabad and conducted 1000 scans in the first year of operation
2015
Commenced RPLs in Delhi, Coimbatore, Hyderabad, Kolkata
Acquired equipments for testing of water samples and commenced operations under brand 'Whaters'
Completed 10,000 scans in PET-CT at New Delhi and Mumbai each, and over 1,000 scans in Hyderabad from the date of inception
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 34
Operating infrastructure profile
Pathology
Thyrocare’s CPL is located in Navi Mumbai and equipped with largest automated
pathology systems APTIO, diagnostic testing instruments and processes from leading
international and Indian healthcare brands. The CPL is fully automated and driven by
a bar-coded and bi-directionally-interfaced system and a LIS. The CPL meets
international standards of quality as it received global accreditations from CAP, the
NABTCL and the ISO.
Thyrocare commenced setting up RPLs since CY14 and opened four RPLs (New Delhi
Coimbatore, Hyderabad, and Kolkata) in CY15, opened one RPL in CY16 in Bhopal
and another one in Bangalore in CY17. The RPLs process samples sourced from their
respective catchment area. The pathology services offered at the RPLs process
primarily routine tests conducive to high volume testing, including thyroid tests,
profiles of tests offered under the Aarogyam brand, liver and kidney function tests.
Such samples are sent to the RPLs if they are collected near to an RPL, such that
directing the sample to the RPL requires less time and transportation costs than
directing the sample to the CPL. With routing these tests to nearby RPLs, the
resources of the CPL can be utilised to process the additional samples generated by
its pan-India network of ASPs that are not proximate to a RPL. In order to further
expand the offering of tests, Thyrocare is now using the CPL to test new technology
and develop innovative testing. For example, the company explored 52 new
specialized testing techniques in CY15, such as cytogenetic testing, water testing and
the development of new tests based on mass spectrometry.
Exhibit 42: Hub locations of Authorised service providers (ASPs)
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 35
Network of franchise partners
Thyrocare collects samples through a pan-India network of ASPs, comprising of TAGs
(Thyro aggregators, mainly for B-2-B) and TSPs (Thyro service providers, mainly for B-
2-C), which operate under franchise agreements. Currently, the company has a
network of 1,041 ASPs, comprising of 687 TAGs and 354 TSPs spread across 466
cities, 29 states and one union territory. The widespread network of ASPs has
enabled the reach of the CPL and RPLs, thereby, providing access to a larger
customer base. ASPs collect samples from local hospitals, standalone laboratories,
diagnostic centres, nursing homes, clinics and doctors. Besides, TSPs are also
authorized to draw samples directly from a) patients referred to them by doctors, b)
patients that are procured by them, c) referred to them by Thyrocare, d) direct sales
associates (DSAs) and e) from patients’ homes, as part of the company’s home
collection services. ASPs also receive samples through the company’s OLC network,
which allows persons or organizations with sample collection capabilities to
outsource the processing of specimens/samples by placing an order at
https://www.thyrocare.com/wellness/ and delivering samples to the nearest ASPs.
The ASPs either deliver samples directly to one of the RPLs or to one of the
company’s 22 hub locations (in case, the specimens are to be processed at the CPL),
where samples are aggregated and transported directly to the CPL.
Exhibit 43: India map of Franchisee partners
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 36
PET-CT Imaging
Through NHL, Thyrocare is developing an expanding network of molecular imaging
centres, which focuses primarily on early and effective cancer monitoring. Each of
the imaging centres use PET-CT scanners to assist in cancer diagnosis, staging,
monitoring of treatment and efficacy and evaluation of disease recurrence. The
company currently has six operating PET-CT scanners in four imaging centres: two in
Navi Mumbai, two in New Delhi and one each in Hyderabad and Surat, respectively.
The management intends to open imaging centres in Baroda, Nashik, Pune, Kolkata,
Raipur, Borivili, Dadar and Coimbatore. NHL also owns and operates a medical
cyclotron unit in Navi Mumbai, which produces the radioactive bio-marker FDG
required for PET-CT scanning. Thyrocare acquired NHL as a wholly-owned subsidiary
in March 2015 on a going concern basis, pursuant to a Slump Sale Agreement and
addendum slump sale letter agreement dated September 29, 2015. The cyclotron
unit generates FDG used by our PET-CT scanners in Navi Mumbai and New Delhi as
well by third-party PET-CT imaging centres. Currently, 60% of the production of FDGs
is used for owned/franchise PET-CT centres, while 40% are sold to third-party. The
Hyderabad PET-CT centre currently meets the FDG requirements from third parties
in Hyderabad in order to optimize cost and time efficiencies.
Exhibit 44: Operational, proposed NHL facilities
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 37
Niche diagnostic expansion: Water testing, Sugar scan
Post developing a platform for affordable diagnostic services, Thyrocare is now
poised to further develop services and enhance multiple automated test offerings.
For example, Thyrocare has acquired equipment for testing of water samples and is
operating such equipments under the brand “WHATERS”. The water testing division
currently conducts the following tests: physical and chemical testing, elements
testing, microbiology testing, pesticide testing and volatile organic compounds
testing. The company also offers niche/specialised offer through its new brand
“Sugar Scan”, where it offers a sugar scan of blood glucose, which is one of the
simplest ways for patients to instantly determine their blood glucose levels at an
affordable cost. We are also in the process of setting up TMC, which is intended to
be a nation-wide branded metabolic clinic for individuals with chronic illnesses or
who plan to undergo a healthcare procedure.
Key Management: Professional background
Dr. A. Velumani is the Chairman and Managing Director of Thyrocare. He is a first generation entrepreneur with more than 19 years
experience in the diagnostic industry. Previously he was with Bhabha Atomic Research Centre, for over 12 years, as a scientific officer.
Mr. A. Sundararaju is a Director and Chief Financial Officer of Thyrocare, responsible for the finance, legal, administrative and
franchisee departments for the company. He has 18 years of experience in the field of finance, legal and administration.
Dr. Caesar Sengupta is the Vice President-Operation of Thyrocare, responsible for overall quality management system in the
laboratory and liaison with external parties such as certification body and consultants. Previously he was with TDPL, Education and
Research Institutes and has 18 years of experience as a medical microbiologist. He has been with the company since January 1, 2006.
Exhibit 45: Management Organisation
Source: Company Data, PL Research
CEO
General Manager Business
Development
General Manager
Laboratory
Deputy GM
RPL
Deputy GM
Lab Processing
General Manager
Infrastructure
Sr. Officer
IT
CFO
Head Legal & Secertarial
General Manager Finance
Thyrocare Technologies
November 17, 2016 38
Issue detail of Thyrocare’s IPO in April 2016
Exhibit 46: Detail of Initial public offer (IPO)—100% offer for sale
Shares offered (no. of shares) 10.74m
Post issue equity (no. of shares) 53.72m
Price Band Rs 420-446
Amount proposed to be raised Rs 4.5-4.8bn
Pre-issue promoter holding 64.96%
Post-issue promoter holding 63.96%
Market cap post issue Rs 22.5-23.9bn
Source: Company Data, PL Research
Exhibit 47: Pre issue - Capital Structure
Category of Investors No. of Shares % of holding
Promoters and Promoter group 34,898,981 64.96
Dr. A Velumani 14,213,348 26.46
Thyrocare Properties 5,217,800 9.71
Thyrocare Publications 6,534,500 12.16
A. Velumani HUF 1,091,828 2.03
A. Sundararaju HUF 2,596,540 4.83
Anand Velumani 810,400 1.51
Others 4,434,565 8.26
Public Shareholding 18,689,952 34.79
Agalia 11,294,540 21.02
NVP 5,064,880 9.43
Samara Capital Partners Fund 1,089,052 2.03
Others 1,241,480 2.31
Employee Welfare Trust 134,600 0.25
TOTAL 53,723,533 100
Source: Company Data, PL Research
Exhibit 48: Post issue - Capital Structure
Post issue - Capital Structure No. of Shares % of holding
Promoters and Promoter group 34,361,745 63.97
Dr. A Velumani 14,213,348 26.46
Thyrocare Properties 5,217,800 9.71
Thyrocare Publications 6,534,500 12.16
A. Velumani HUF 911,828 1.7
A. Sundararaju HUF 2,416,540 4.5
Anand Velumani 633,164 1.18
Others 4,434,565 8.26
Public Shareholding 19,227,188 35.79
Agalia 1,087,068 2.02
NVP 5,064,880 9.43
Samara Capital Partners Fund 1,089,052 2.03
Others 11,986,188 22.31
Employee Welfare Trust 134,600 0.25
TOTAL 53,723,533 100
Source: Company Data, PL Research
Thyrocare Technologies
November 17, 2016 39
Income Statement (Rs m)
Y/e March 2015 2016 2017E 2018E
Net Revenue 1,746 2,312 3,075 4,076
Raw Material Expenses 558 704 874 1,156
Gross Profit 1,188 1,609 2,201 2,920
Employee Cost 175 257 323 432
Other Expenses 373 514 641 840
EBITDA 640 838 1,238 1,649
Depr. & Amortization 129 182 214 250
Net Interest — — — —
Other Income 165 163 180 201
Profit before Tax 676 818 1,204 1,600
Total Tax 236 300 445 576
Profit after Tax 440 518 758 1,024
Ex-Od items / Min. Int. (12) — — —
Adj. PAT 452 518 758 1,024
Avg. Shares O/S (m) 50.5 53.7 53.7 53.7
EPS (Rs.) 8.9 9.6 14.1 19.1
Cash Flow Abstract (Rs m)
Y/e March 2015 2016 2017E 2018E
C/F from Operations 345 678 889 1,220
C/F from Investing (180) (177) (353) (403)
C/F from Financing (228) (450) (488) (488)
Inc. / Dec. in Cash (63) 52 48 329
Opening Cash 114 51 103 —
Closing Cash 51 102 151 329
FCFF (513) 634 664 880
FCFE (746) 670 671 887
Key Financial Metrics
Y/e March 2015 2016 2017E 2018E
Growth
Revenue (%) 16.4 32.4 33.0 32.6
EBITDA (%) (6.8) 30.8 47.7 33.2
PAT (%) (2.0) 14.6 46.4 35.0
EPS (%) (78.8) 7.8 46.4 35.0
Profitability
EBITDA Margin (%) 36.7 36.2 40.3 40.5
PAT Margin (%) 25.9 22.4 24.7 25.1
RoCE (%) 15.7 14.8 19.7 25.0
RoE (%) 18.7 16.1 20.4 25.9
Balance Sheet
Net Debt : Equity — — — (0.1)
Net Wrkng Cap. (days) 53 57 57 57
Valuation
PER (x) 66.1 61.4 41.9 31.0
P / B (x) 10.8 8.7 8.4 7.7
EV / EBITDA (x) 46.7 37.9 25.6 19.1
EV / Sales (x) 17.1 13.7 10.3 7.7
Earnings Quality
Eff. Tax Rate 34.9 36.7 37.0 36.0
Other Inc / PBT 24.3 19.9 15.0 12.5
Eff. Depr. Rate (%) 6.7 8.6 8.9 9.0
FCFE / PAT (165.1) 129.4 88.4 86.6
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2015 2016 2017E 2018E
Shareholder's Funds 2,764 3,656 3,765 4,138
Total Debt 32 68 75 83
Other Liabilities 424 58 61 64
Total Liabilities 3,219 3,783 3,901 4,285
Net Fixed Assets 1,562 1,536 1,633 1,739
Goodwill 453 1,069 1,069 1,069
Investments 843 916 1,008 1,109
Net Current Assets 191 114 170 393
Cash & Equivalents 51 103 151 329
Other Current Assets 213 325 350 414
Current Liabilities 73 314 331 351
Other Assets 170 148 21 (23)
Total Assets 3,219 3,783 3,901 4,285
Quarterly Financials (Rs m)
Y/e March Q3FY16 Q4FY16 Q1FY17 Q2FY17
Net Revenue 540 622 668 762
EBITDA 199 217 248 280
% of revenue 36.8 35.0 37.1 36.7
Depr. & Amortization 46 50 41 43
Net Interest — — — —
Other Income 32 51 48 69
Profit before Tax 184 218 255 305
Total Tax 76 79 91 103
Profit after Tax 108 139 164 202
Adj. PAT 108 139 164 202
Key Operating Metrics
Y/e March 2015 2016 2017E 2018E
Diagnostic Testing Services 1,598 2,048 2,626 3,439
Imaging Services 36 138 305 476
Others 112 127 144 161
Source: Company Data, PL Research.
Thyrocare Technologies
November 17, 2016 40
Prabhudas Lilladher Pvt. Ltd.
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
25.6%
60.7%
13.7%
0.0%0%
10%
20%
30%
40%
50%
60%
70%
BUY Accumulate Reduce Sell
% o
f To
tal C
ove
rage
BUY : Over 15% Outperformance to Sensex over 12-months
Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months
Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month
Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. Surajit Pal (PGDBA, CFA, M.Com), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com
This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.
PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.
PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.
PL or its associates might have received compensation from the subject company in the past twelve months.
PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.
PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months
PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.
PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.
It is confirmed that Mr. Surajit Pal (PGDBA, CFA, M.Com), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company
Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest.
PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
DISCLAIMER/DISCLOSURES (FOR US CLIENTS)
ANALYST CERTIFICATION
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report
Terms & conditions and other disclosures:
This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").
Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.
Top Related