Healthcare Global Enterprise Ltd. - Company Overview

Healthcare Global Enterprise Ltd. -  India's Leading Oncology Focused Network

Background

Established in 1989, Healthcare Global Enterprises Limited (HCG), is present primarily in the oncology field with the largest cancer care network (with 22 cancer care centers as of December 2021) and three multi-specialty hospitals. It is promoted by Dr. B.S. Ajai Kumar, practicing radiation and medical oncologist with over 30 years of experience.

Originally established with a single cancer care center, the Bangalore Institute of Oncology (BIO), at Bangalore by Dr. B.S. Ajai Kumar and four other oncologists, the company has rapidly expanded its presence to Ahmedabad, Chennai, Nasik, Ranchi, Rajkot, Cuttack, Hubli, Mumbai, Nagpur, Vizag, and Vijayawada, among others. The company is now present across the oncology value chain, offering services from prevention, screening, diagnosis, and treatment to rehabilitation, supportive care, and palliative care.

Pursuant to the Investment Agreement entered by the company and promoter with Aceso Company Pte Ltd (CVC group) in June 2020 and subsequent equity infusion, a majority stake of 56.8% (on a fully diluted basis) is now held by the CVC Group. Established in 1981, CVC is a private equity and investment advisory firm with US$ 114.8 billion of assets under management as of March 31, 2021. It has a global network of 24 local offices - 16 across Europe and America and eight in the Asia Pacific region. 

Business Overview

Strand Divestment

HCG announced the acquisition of oncology hospital labs and clinical trials business from Strand Lifesciences as well as simultaneous divestment of its approx.38.5% stake (on paid-up capital basis and 34.5% on a fully diluted basis) in Strand to Reliance Industries group company. 

HCG acquires majority stake in Suchirayu HealthCare Solutions

HealthCare Global Enterprises Limited (HCG), the leading specialty healthcare service provider in India focused on oncology, announced the acquisition of an additional 60.9% in Suchirayu Healthcare Solutions (“Suchirayu” or “Company”), Hubli, thereby becoming a majority stake owner from its existing 17.7% to 78.6%.

Suchirayu owns a state-of-the-art multi-specialty hospital in Hubli with an operational capacity of 110 beds and a potential to scale up to 250 beds.

Services provided by HCG Cancer Care

Each of its comprehensive cancer centers offers, at a single location, comprehensive cancer diagnosis and treatment services (including radiation, medical oncology, and surgical treatments). HCG’s freestanding diagnostic centers and its daycare chemotherapy center offer diagnosis and medical oncology services, respectively. HCG has one of the lowest doctor-related expenses (~15% of revenues) and the attrition rate is just ~5%.

Capex phase to end between FY21 and FY23

HCG was on a CAPEX overdrive between FY18 and FY20 when Rs 2,662 mn, Rs 2,199 mn, and Rs 2,141 mn were added to its gross tangible assets block in FY18, FY19, and FY20 respectively. 9 new comprehensive cancer care centers were added between FY16 and FY20 which led to the decline in EBITDA margin and RoCE. HCG's new center losses increased to Rs 455 mn in FY20 from around Rs 70 mn in FY17. While it took about 1-1.5 years for the new centers to break even, Borivali and Nagpur centers’ breakeven was delayed owing to the doctor and rent-related issues.

With the commissioning of the South Mumbai center in Q3FY20, HCG is done with its major CAPEX plan barring small amounts related to its Gurgaon comprehensive cancer care center.

Capital Expenditure

De-leveraging balance sheet

Net debt reduced compared to June 2021 HCGs net debt on consolidated books reduced by Rs. 67 crores to Rs. 226.8 crore. The reduction was because of Rs. 8 crore-10 crore improvement in FCF and amount raised through stake sale in Strand Life Sciences.

Revenue Snapshot for Q3FY22

1. Record performance with ‘all-time high’ operating financials delivered across the business:

Highest ever quarterly Revenue and Operating EBITDA delivered during the quarter. Strong yearly revenue growth on the back of higher footfalls. Consolidated Income from Operations (“Revenue”) was INR 3,581 mn as compared to INR 2,740 mn in the corresponding quarter of the previous year, reflecting year-on-year growth of 30.7%.

2. HCG New centers continued their scale-up trajectory:

Strong revenue growth of 54.2% y-o-y o Recorded positive EBITDA with several centers witnessing a turnaround in EBITDA (unit level). Several regions delivered high double-digit revenue growth on yearly basis on the back of gradual unlocking of the economy.

3. Maharashtra's upsurge continued across all centers and delivered 29.9% revenue growth y-o-y o East India witnessed a continuance in its growth path with 35.1% revenue growth y-o-y. North India recorded high growth of 147.9% y-o-y.

4. Milann revenues grew by 28.5% y-o-y.

Operating Metrics

Millan – is back on track with a good set of numbers

Milann revenue grew by ~57% y-o-y to Rs. 17.4 crore with new center revenue growing by 78% y-o-y. The business has registered improved digital traction driven by a continuous focus on strengthening clinical talent. The company is looking to focus on market leadership in Bengaluru and scaling up North India centers in the near term.

Management Comments

HCG's new patient registration has almost doubled since 2018 and the company currently has above 100,000 new patients per annum which in turn has doubled the revenue in the said period. The fact that 85% of this revenue is Oncology centric is a clear testament to their business model in addition to the deep social impact that they make on the lives of thousands of patients and their families. Looking at the future, management believes that this growth will enhance not only the back of the increasing longevity of patients but also a realization that cancer is now being viewed as a curable and chronic disease with a good lifestyle.

With the addition of the labs and the clinical trials business, the company is now uniquely positioned to not only enhance its diagnostic capabilities and offerings but potentially redefine precision medicine with end-to-end expertise spanning bioinformatics, genomics, and research. With 25 hospitals, 21 of which are Oncology focused, HCG has built a niche platform in the Indian healthcare space, and with their major CAPEX cycles already done, management believes the future years will see the Company benefiting from these investments.

This is the fourth consecutive quarter with all-time-record revenue and the second consecutive quarter with all-time-record EBIDTA. Implementation of go-to-market plans across their network locations during the last three quarters has started showing results through this profitable growth.

Overall, these results were made possible through the execution focus and hard work of the entire HCG team, and they remain committed to driving growth and optimizing operations in the coming quarters. For the future, they want to build a long-term relationship with their patients to be their trusted advisors over a lifetime.

With that objective in mind, they have begun their digital transformation journey to create an Omnichannel end-to-end patient engagement platform with the help of digital technology. Management believes that this initiative will accelerate its growth in the future and help HCG to solidify its leadership position in oncology.

Link to Hospital Sector Overview-http://myweekendspot.blogspot.com/2022/01/hospital-sector-upcoming-gem-of.html

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