ICICI Securities has given a hold rating to Thyrocare Technologies with a discounted cash flow-based target price of Rs 541, implying 23 times FY22E earnings and 14.2 times FY22E EBITDA.
Thyrocare Technologies’ reported a weak performance in Q4FY20 with results below our estimates affected severely by Covid-19. Consolidated revenue declined 3.9 per cent year on year to Rs 1 billion against the brokerage estimate of Rs 1.2 billion). EBITDA margin dropped 220 bps year on year and 1090 bps quarter on quarter to 30.5 per cent against the brokerage estimate of 38.5 per cent). The decline of 7.1 per cent in the number of samples came as a negative surprise, though realisation per sample increased 3.4 per cent year on year. The company’s model of low pricing/high volume strategy was severely affected by the nationwide lockdown initiated in Mar’20. Thyrocare’s business remains more vulnerable to Covid-19 as preventive and wellness care form a large part of revenue which would take longer to recover as compared to disease specific tests.
Investment Rationale
The brokerage has reduced the revenue and earnings estimates of the company by 9-26 per cent and 14- 47 per cent for FY21-FY22 given high exposure to preventive and wellness care which would take longer to recover. Overall, it expects 7.8 per cent revenue and 14.5 per cent EPS CAGRs over FY20-FY22E. It has assumed growth recovery from the second half of FY21 in our estimates. Growth would be driven mainly by ~7 per cent volume CAGR with improving realisation mix. Imaging business would continue to remain under pressure and we expect it to continue to negatively affect profitability. Given the likely delay in recovery of wellness business even after lifting of lock-down and limited upside to the target price, the brokerage has downgraded the stock to hold from add rating.
Key upside risks: Faster recovery in preventive care business and incremental tie-ups with standalone labs for sample processing.
Key downside risks: Competitive and regulatory hurdles.
Financials
For the quarter ended March 31, 2020, the company reported a consolidated sales of Rs 101.44 crore, down -4.11 per cent from last quarter sales of Rs 105.79 crore and down -3.93 per cent from last year’s same quarter sales of Rs 105.59 crore. The company reported net profit after tax of Rs -1.58 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 66.01 per cent stake in the company as of March 31, 2020, while FIIs held 16.16 per cent, DIIs 8.64 per cent and public and others 8.52 per cent.
