Indraprastha Medical Corporation

HEALTHCARE firm Indraprastha Medical Corporation's (IMCL) stock could be an attractive investment opportunity on account of its growth-oriented business, sound financials and high dividend yield.

BUSINESS:

Rs 400 crore IMCL is one of the group hospitals of Apollo Hospitals, the market leader in private healthcare. Apollo Hospitals owns 19% stake in the company and runs the company's hospitals under management contract. The company has two hospitals—each in New Delhi and Noida. The two hospitals have a combined capacity of around 700 beds with 70% occupancy rate.

GROWTH STRATEGY:

Being part of the Apollo Hospitals group, IMCL enjoys strong brand equity. Growth continues to be buoyant and there is robust demand from domestic as well as international segments. The hospital also earns foreign exchange through servicing high number of foreign patients who mainly visit the hospital for taking high-end treatment. For this reason, the hospital has empanelled eminent international insurance companies and has appointed healthcare facilitators in various countries to attract international patients.
   With the Commonwealth games around the corner in 2010, infrastructure in New Delhi is getting a big push which could benefit its hospitals in terms of giving access to more international patients.

FINANCIALS:

The company's net sales have grown at a modest compounded annual growth rate (CAGR) of 19% over the last five fiscal years to stand at Rs 391.2 crore in FY09. The net profit has grown at a much slower CAGR of 9% during the same period to Rs 24 crore at the end of FY09. At a 3-year average payout ratio of 82%, the company's dividends have grown at CAGR of 8.4%, similar to the growth witnessed in net profit. IMCL's Noida Hospital, in its third year of operation has been steadily witnessed growth in its income. The hospital made a marginal loss of half a crore during FY09, significantly less than the Rs 2 crore loss made in the previous year. For the four trailing quarters-ended Sep '09, the company's net sales are up by 21% over the previous year. The net profit has witnessed a y-o-y jump of 60% to Rs 30 crore during the same period. A good case mix and higher yield per patient has resulted in a healthy increase in profits in recent years. The company has witnessed a gradual increase in its profit margins. On a trailing four-quarter basis, it enjoys an operating profit margin of 16.8% and a net profit margin of 7.4%.

VALUATIONS:

The company is currently trading at a P/E multiple of 15. Indraprastha Medical Corporation, valued a little more than its revenues in the last four trailing quarters, appears to be a good investment pick. Its stock has been an underperformer to the Sensex during most of the last year, but has now started outperforming the broader index. Investors interested in picking up a small share in the healthcare space with potential for long-term growth can consider this stock.