After gaining 64% from IPO issue price, this hospital stock can rally another 18%: Kotak Institutional

Healthcare services provider KIMS has been accorded a buy rating by Kotak Institutional Equities Research for a target price of Rs 1,590. This, at the current price, offers a potential upside of around 18%.

“KIMS is well-positioned to leverage its position as an affordable tertiary and quaternary healthcare service provider in Hyderabad as well as other parts of AP/Telangana”, said the brokerage.

On further enhancement in case mix, expansion of bed capacity in existing hospitals together with scale up in operations in newer geographies, the brokerage believes the healthcare provider to deliver a healthy 21.6% revenue CAGR over FY2022-26E.

On the back of seamless execution as well as opportunistic expansion, KIMS reported robust 45% EBITDA CAGR over FY2020-22 with the significant ramp-up in profitability surpassing street expectations. The brokerage expects 17.9% EBITDA CAGR over FY2022-26E driven by a better case mix amid continued focus on cost efficiencies and turnaround of acquired hospitals aided by its unique doctor partnership model.

"While we expect KIMS to report a healthy 20.2% RoIC in FY2026E, we note that RoICs will be suppressed compared to pre-FY2023E levels due to the ongoing expansion program”, added the brokerage.

“We assign a 18X multiple to June 2024E pre-Ind AS-116 EBITDA, an around 10% and around 20% discount respectively to the 20X and 22X EV/EBITDA multiples we ascribe to Narayana Hrudayalaya and Apollo Hospitals within the hospital segment”, noted the brokerage.

The discount to KIMS has been assigned in comparison to the aforementioned peers on the back of high concentration risk with around 2/3rd of the company’s sales being accounted for by Hyderabad and higher execution risks given the investment phase lined up over the next few years.

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