Why is Vinit Bolinjkar bullish on this small hospital stock

“Shalby Hospitals can be a very good stock to look at, not only from the point of view of getting a tertiary care hospital at very reasonable valuations but as a company which has been growing at 17-18% CAGR despite the low occupancy levels,” says Vinit Bolinjkar, Head of Research, Ventura Securities





What is the big picture for hospitals? This is one sector where historically we have had return ratios which were compromised because of the capex they had to do. But these stocks are now coming back with renewed vigour. Is there merit in buying hospital stocks based on post Covid trends?

What has really happened is that almost all the hospitals finished their capex in 2021 and after that, we have seen the pandemic which gave them huge cash flows. Now post pandemic, normalisation of activities are taking place and hospitals are now throwing a lot of cash flow which is helping them become very strong on the balance sheet side.

Typically to set up a new hospital and make it a profitable venture, it takes nearly seven to 10 years. So there is a need for speed and expansion. With a large number of hospitals being available across the country, I believe there is scope for M&A activity to pick up steam and the balance sheets of the existing hospitals and their cash flows seem to suggest that there is substantial appetite for the same.

Within the hospital space, Shalby Hospitals has the largest capacity of close to 2,000 beds. Despite occupancies of less than 50%, they have the highest EBITDA margins and ROCE is more than 17%, which is best in class compared to the other established hospitals.

It can be a very good stock to look at, not only from the point of view of getting a tertiary care hospital at very reasonable valuations but as a company which has been growing at 17-18% CAGR despite the low occupancy levels.

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Isn’t Shalby too small and dependent on one large procedure, which is knee and hip replacement?

That is now under 40% of its entire procedures that take place. They have completely de-risked and one more upside that we have to look at is the implants business which is coming into its own. It is going to be another profitable line of revenue which should add close to Rs 800 crore over the next five to six years with 25% sustainable margins.


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