Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Equity Bottom-Up

Thyrocare Technologies / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/thyrocare-technologies-ltd" target="_blank" data-smartkarma-citation="entities:22694:1" rel="noopener">Thyrocare Technologies (THYROCAR IN)</a> has come a long way in the Indian diagnostics industry. In many ways, it has been a pioneer of the space especially in certain niches like the Wellness segment and in leveraging hub and spoke model with the pioneering of test samples logistics through air transportation.
In its around 25 years of existence, it has charted new paths. The first couple of decades saw strong growth. Over the past 5 years, the growth profile has been decelerating. The space has become increasingly competitive and listed players like <a href="https://www.smartkarma.com/entities/dr-lal-pathlabs-ltd" target="_blank" data-smartkarma-citation="entities:26927:1" rel="noopener">Dr Lal PathLabs Ltd (DLPL IN)</a> and <a href="https://www.smartkarma.com/entities/metropolis-health-services-limited" target="_blank" data-smartkarma-citation="entities:27829:1" rel="noopener">Metropolis Health Services Limited (METROHL IN)</a> have been expanding aggressively. Each player has been penetrating into each other's geographies and product niches, limiting differentiation among them.
Thyrocare seems to be adjusting its strategy in response to competition. It has been on an expansion spree in terms of its labs presence and exclusive franchisees. After being fixated on achieving scale with minimal centralized labs, Thyrocare seems to be shifting to a more broader and deeper distribution strategy. It seems to have realized that providing the best quality service may not be achievable with just a handful of centralized labs.
While this shift in strategy seems prudent and bulls would argue that Thyrocare is taking the next leap, the bears would argue that Thyrocare is late to the game and in its desperation to catch up to the competition, it may lose its USP of being the lowest cost producer. Should you be bullish or bearish on Thyrocare? Read on to find out.

Thyrocare Technologies (THYROCAR IN) has come a long way in the Indian diagnostics industry. In many ways, it has been a pioneer of the space especially in certain niches like the Wellness segment and in leveraging hub and spoke model with the pioneering of test samples logistics through air transportation.
In its around 25 years of existence, it has charted new paths. The first couple of decades saw strong growth. Over the past 5 years, the growth profile has been decelerating. The space has become increasingly competitive and listed players like Dr Lal PathLabs Ltd (DLPL IN) and Metropolis Health Services Limited (METROHL IN) have been expanding aggressively. Each player has been penetrating into each other's geographies and product niches, limiting differentiation among them.
Thyrocare seems to be adjusting its strategy in response to competition. It has been on an expansion spree in terms of its labs presence and exclusive franchisees. After being fixated on achieving scale with minimal centralized labs, Thyrocare seems to be shifting to a more broader and deeper distribution strategy. It seems to have realized that providing the best quality service may not be achievable with just a handful of centralized labs.
While this shift in strategy seems prudent and bulls would argue that Thyrocare is taking the next leap, the bears would argue that Thyrocare is late to the game and in its desperation to catch up to the competition, it may lose its USP of being the lowest cost producer. Should you be bullish or bearish on Thyrocare? Read on to find out.

Thyrocare: Taking the Next Leap or Late to the Game?

Indian Accounting Research Analyst, Trudence Capital Advisors

Nitin Mangal

Indian Accounting Research Analyst

Thematic (Sector/Industry)

COVID-19 pandemic has dug its roots in India and the situation has warmed up good. The country is still in the early-mid phase of the exponential path which the virus beholds, hence the toxicity is likely to aggravate. The honorable P.M declared the 21-day lockdown two weeks ago to battle the pandemic, however, what's important is how far the purpose of lockdown was achieved regarding the testing and infections and what is there in store for the immediate future.

COVID-19 pandemic has dug its roots in India and the situation has warmed up good. The country is still in the early-mid phase of the exponential path which the virus beholds, hence the toxicity is likely to aggravate. The honorable P.M declared the 21-day lockdown two weeks ago to battle the pandemic, however, what's important is how far the purpose of lockdown was achieved regarding the testing and infections and what is there in store for the immediate future.

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Metropolis Healthcare Limited / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/27829" target="_blank" data-smartkarma-citation="entities:27829:1">Metropolis Health Services Limited (MHL IN)</a> raised US$175m in its IPO, making it the third listed diagnostics chain in India.
In my previous insights I've covered the company background, its projected growth and compared it to its main listed peers:
<ul>
<li><a href="https://www.smartkarma.com/insights/metropolis-healthcare-pre-ipo-quick-take-steady-performance-but-growth-lagged-network-expansion" target="_blank">Metropolis Healthcare Pre-IPO Quick Take - Steady Performance but Growth Lagged Network Expansion</a></li>
<li><a href="https://www.smartkarma.com/insights/metropolis-healthcare-ipo-fairly-valued-at-best" target="_blank">Metropolis Healthcare IPO - Fairly Valued, at Best</a></li>
</ul>
In this insight, I will re-visit some of the deal dynamics and provide a table with implied valuations.

Metropolis Health Services Limited (MHL IN) raised US$175m in its IPO, making it the third listed diagnostics chain in India.
In my previous insights I've covered the company background, its projected growth and compared it to its main listed peers:

Metropolis Healthcare Pre-IPO Quick Take - Steady Performance but Growth Lagged Network Expansion
Metropolis Healthcare IPO - Fairly Valued, at Best

In this insight, I will re-visit some of the deal dynamics and provide a table with implied valuations.

Metropolis Healthcare IPO Trading Update - Trading at Par with Dr Lal, Despite Its Smaller Size

<a href="https://www.smartkarma.com/entities/27829" target="_blank" data-smartkarma-citation="entities:27829:1">Metropolis Health Services Limited (MHL IN)</a> (MHL) plans to raise around US$175m in its Indian IPO via a sell down of shares by the promoter and private equity owners. MHL is one of the largest diagnostic chains in the country.
In my previous insight, <a href="https://www.smartkarma.com/insights/metropolis-healthcare-pre-ipo-quick-take-steady-performance-but-growth-lagged-network-expansion" target="_blank">Metropolis Healthcare Pre-IPO Quick Take - Steady Performance but Growth Lagged Network Expansion</a>, I analyzed MHL's recent financial performance and compared it with its listed peers, <a href="https://www.smartkarma.com/entities/26927" target="_blank" data-smartkarma-citation="entities:26927:1">Dr Lal Pathlabs (DLPL IN)</a> and <a href="https://www.smartkarma.com/entities/22694" target="_blank" data-smartkarma-citation="entities:22694:1">Thyrocare Technologies (THYROCAR IN)</a>.
In this insight, I'll run the deal through our IPO framework and comment on valuation.

Metropolis Health Services Limited (MHL IN) (MHL) plans to raise around US$175m in its Indian IPO via a sell down of shares by the promoter and private equity owners. MHL is one of the largest diagnostic chains in the country.
In my previous insight, Metropolis Healthcare Pre-IPO Quick Take - Steady Performance but Growth Lagged Network Expansion, I analyzed MHL's recent financial performance and compared it with its listed peers, Dr Lal Pathlabs (DLPL IN) and Thyrocare Technologies (THYROCAR IN).
In this insight, I'll run the deal through our IPO framework and comment on valuation.

Metropolis Healthcare IPO - Fairly Valued, at Best

Value investor- India mid & small caps

Bhaskar Chakraborty

<ul>
<li>
<a href="https://www.smartkarma.com/entities/22694" target="_blank" data-smartkarma-citation="entities:22694:1">Thyrocare Technologies (THYROCAR IN)</a> is the fourth largest pathology chain in India and derives 54% of revenues from the wellness/preventive segment (Rs60bn market growing at 20% Cagr). Margins in wellness are ~2x that of illness segment.</li>
<li>It is positioned as the lowest price provider in the market with some of its tests priced at 50-70% discount to peers.</li>
<li>It enjoys the highest operating margin in the industry with excellent control of reagent and manpower costs.</li>
<li>However, hyper competition in the wellness segment is pushing down pricing. Pullback in adspends is leading to loss of market share over FY18-1HFY19.</li>
<li>Two-thirds of its capital is invested in the radiology business that does not have economies of scale. Business is loss-making and a drag on return ratios.</li>
<li>We expect Revenue and PAT Cagr of 15% and 12% respectively over FY18-21 in the face of intensified competition against 24% and 19% respectively delivered over FY14-18.</li>
<li>Softer growth coupled with utilization of free-cash from the clinical pathology business into the capital intensive and loss-making radiology business will weigh on stock performance. We value the stock at 22.5x FY20 EPS- at 25% discount to the industry leader <a href="https://www.smartkarma.com/entities/26927" target="_blank" data-smartkarma-citation="entities:26927:1">Dr Lal Pathlabs (DLPL IN)</a> . Our target price is Rs 494 implying 10% downside.</li>
</ul>



Thyrocare Technologies (THYROCAR IN) is the fourth largest pathology chain in India and derives 54% of revenues from the wellness/preventive segment (Rs60bn market growing at 20% Cagr). Margins in wellness are ~2x that of illness segment.
It is positioned as the lowest price provider in the market with some of its tests priced at 50-70% discount to peers.
It enjoys the highest operating margin in the industry with excellent control of reagent and manpower costs.
However, hyper competition in the wellness segment is pushing down pricing. Pullback in adspends is leading to loss of market share over FY18-1HFY19.
Two-thirds of its capital is invested in the radiology business that does not have economies of scale. Business is loss-making and a drag on return ratios.
We expect Revenue and PAT Cagr of 15% and 12% respectively over FY18-21 in the face of intensified competition against 24% and 19% respectively delivered over FY14-18.
Softer growth coupled with utilization of free-cash from the clinical pathology business into the capital intensive and loss-making radiology business will weigh on stock performance. We value the stock at 22.5x FY20 EPS- at 25% discount to the industry leader Dr Lal Pathlabs (DLPL IN) . Our target price is Rs 494 implying 10% downside.


Thyrocare Technologies: All’s Not Well with This Wellness Pathology Leader

India

Thyrocare Technologies Limited provides healthcare testing services. The Company offers fasting blood sugar, cancer, cardiovascular disorders, diabetes, and thyroid testing services. Thyrocare Technologies conducts its business worldwide.

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Thyrocare Technologies (THYROCAR IN)

Thyrocare: Taking the Next Leap or Late to the Game?

Thyrocare seems to be following competition and shifting its strategy towards more decentralization vs its original strategy of heavy...

Ankit Agrawal, CFA

COVID-19: How Does India Fare Currently?

COVID-19 pandemic has dug its roots in India and the situation has warmed up good. The country is still in the early-mid phase of the exponential...

Nitin Mangal

Metropolis Healthcare IPO Trading Update - Trading at Par with Dr Lal, Despite Its Smaller Size

Metropolis Health Services Limited (MHL IN) raised US$175m in its IPO, making it the third listed diagnostics chain in India. In my previous...

Sumeet Singh

Metropolis Healthcare IPO - Fairly Valued, at Best

Metropolis Health Services Limited (MHL IN) (MHL) plans to raise around US$175m in its Indian IPO via a sell down of shares by the promoter and...

Sumeet Singh

Thyrocare Technologies: All’s Not Well with This Wellness Pathology Leader

Thyrocare Technologies (THYROCAR IN) is the fourth largest pathology chain in India and derives 54% of revenues from the wellness/preventive...

Bhaskar Chakraborty

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