Outlook remains promising despite quarterly gyrations…
About the stock: Started by renowned orthopaedic surgeon Dr Vikram Shah, Shalby is a multi-specialty hospitals chain with expertise in joint replacement.
• Revenue-wise breakup Q2FY25: Arthroplasty / Orthopaedic: 43%, Critical care & General medicine: 12%, Cardiac science: 10%, Oncology: 10%, Neurology: 6%, Nephrology: 6%, Others: 13%
• Shalby registered a blended ARPOB of ₹ 38,779 and ALOS of 3.6 days (without day care procedures) in Q2FY25.
• Implant-focused business under the Consensus franchise is based out of US and caters to the geographies of US, India and other countries.
Investment Rationale:
• Q2FY25- Weak results impacted by subdued hospitals performance – Revenues grew ~12% YoY to ₹ 268 crore, driven by Implant segment business and acquisition of Sanar Hospital in Gurugram. However, existing hospitals sales (standalone) declined ~2% YoY to ₹ 212 crore. Implants (Shalby Consensus) sales grew ~90% YoY to ₹ 28 crore with contributions from the US and Out of US (OUS) at 30% and 70% respectively. EBITDA declined ~38% YoY to ₹ 33 crore and EBITDA margins declined 995 bps to ~12%. Lower EBITDA growth was attributable lower Hospitals sales besides higher RM and other expenses. Hospitals margins stood at ~13% while Implant business reported loss of ₹ 73 Lakh at EBITDA level. The performance was impacted by reduction in surgeries by 7%, an outcome of heavy rains and flooding in Rajasthan and Gujarat resulting in postponement of voluntary surgeries. This was despite 7% ARPOB growth.
• Calibrated expansion plans with franchisee focus and asset selection – Weak numbers during the quarter notwithstanding, Shalby is making right strides with calibrated growth based on a select big ticket expansion in metros and tier I cities and asset-light franchisee-based expansion in tier II-VI towns. It recently acquired Gurugram based Sanar International Hospital which has better payor and ARPOB profile. Under its asset-light franchisee Shalby Centre for Orthopaedic Excellence (SOCE), it has already established six such models across India and expects to add 40 such models. For Implants, the company is transitioning sales mix more towards retail customers (in the US), enhancing operational efficiency, expanding product pipeline through extensive R&D efforts and reducing procurement costs by sourcing from more than one vendor.
Rating and Target price
• Our SOTP valuation of ₹ 310 is based on 14xFY26E hospitals EBITDA and 2x FY26E Consensus Sales.
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