Healthcare Global Enterprises Research Reports

Cancer treatment focused business model…

We met the management of Healthcare Global Enterprises (HCG), a leading cancer care hospital chain, to understand its unique model of single speciality focus (cancer care) and its future plans. HCG was started by Dr BS Ajaikumar in 2005. The company initially established 10 cancer centres with private funding. Currently, it operates 24 HCG facilities (18 cancer centres, two multi-speciality hospitals, three diagnostics and one-day care chemotherapy centre). HCG owns 1364 beds and a team of 200+ oncologists (FY17).

Currently, Karnataka, Gujarat regions comprise ~75% of overall revenues. However, going ahead, with growth in the new centres (currently contribute 9% of revenues), the management expects the geographical mix to change.

Average revenue per operating bed (ARPOB) per day for HCG centre was at Rs 29122 in FY17. In 2013, the company entered the fertility segment by acquiring a 50.1% stake in BACC Healthcare, founded by Dr Kamini Rao, which operates seven fertility centres under the Milann brand in Bangalore. Cancer care, fertility segment accounted for 92%, 8% of FY17 revenues, respectively.

Follows local tie-up to set up new centre

Cancer treatment requires multiple patient visits to centres. Its treatment tenure is generally longer than other major therapies. Over the years, the company has followed a strategy of tapping local oncologists to set up a cancer centre. Each cancer centre offers comprehensive cancer diagnosis and treatment services including radiation, medical oncology & surgical treatment.

It follows a partnership model (with HCG holding majority stake). This also helps it achieve faster ramp up in newer centres. As per management, a new HCG centre requires Rs 45-60 crore of capex of which 45-60% account for equipment costs, which is leased by the vendor and is paid by the centre after three years of equipment purchase. Hence, upfront outgo is only Rs 15-20 crore to put up a HCG centre. Each centre typically has eight to nine doctors and two to three physicians. HCG plans to increase its cancer centres to 25 (from 18 in FY17).

Margins to improve further, going ahead

HCG’s centre of excellence at Bangalore (32% of overall revenues) registered EBITDA margins of 26.5% in FY17 (HCG blended FY17 margins- 15%) mainly due to its focus on high end healthcare services (robotics, tomography, etc) higher maturity vis-à-vis other HCG centres and better patient mix (medical tourists comprise 20% of overall centre of excellence patients at Bangalore). Going ahead, the management expects new hospitals to move to 22-24% EBITDA margins due to operational efficiencies.

Management to focus on asset light model

Focus on a single speciality and opening of newer centres on a partnership model with reputed doctors, typically leads to a breakeven of ~12-18 months for each HCG centre.

HCG also owns and operates two cyclotrons, which are used to produce nuclear medicine to cater to its own 13+ CT-PET scanners (FY17) as well as supplying the same to third party scanners.

Going ahead, the management is keen on setting up new HCG and Milann centres in high growth markets and also, expand into Africa through its existing collaboration with CDC, UK.

The management has guided for a capex of Rs 200 crore in FY18. Gross debt was at Rs 442 crore in FY17 of which vendor debt is Rs 196 crore.

The stock is currently trading at ~24x FY17 EV/EBITDA and 3.6x FY17 EV/sales.”