Hospitals –
Disclosure :
Hospitals entered my investment universe currently with improvement of ROIC at the company level across the board mainly because of the increase in “mature cohort” as compared to the “new cohort”. Off course I missed large wealth creation opportunity when ROIC moved from single digit to ~ 25% but as I keep mentioning on this thread, that’s not my playing field. I believe the runway for growth is large and if I enter at right valuations, i can find a suitable long term investment candidate
Also, i find this sector easy to analyse as compared to other sectors where I can apply my mind and curate my own investments thesis from large amount of material already available on the topic
Having said that, i am not looking to take any positions in near term but be ready with my thesis if opportunity comes in future
Chapter 1 – The Starting Point
To understand the business strategy across various hospital chains I was looking for a starting point which is simple yet very powerful to accommodate all nuances of the business. Something very fundamental where I can feed all information I read at one end and formulate investment thesis from the other end. Thanks to Jana Vembunarayan (author of the blog – Seeking Wisdom), i think I have found a starting point which I can use to understand business strategy across listed universe. My starting point is a group of 3 formula which are at the heart of the hospital business
- ROIC =
( ARPOB/ Cost per Operating bed) * ( Profit per operating bed / ARPOB )
- Operational REVENUE =
ARPOB * No of beds * utilisation
- ARPOB = f ( price, patient profile, case mix, throughout/ALOS )
In the next part, I will expand on these 3 equations and try to detail my thoughts on the strategy of one of the hospitals using them. Also, in coming days, i am planning to go through transcripts of all listed hospitals and see if I can build any meaningful investment thesisx keeping these 3 anchors
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