KIMS Q3 Results Review - Strong Operating Cash Flows, ROCE: Axis Securities

Axis Securities Report

In Q3 FY24, Krishna Institute of Medical Sciences Ltd. achieved consolidated revenue of Rs 606 crore, up 7.8%/-7.1% YoY/QoQ. It missed our estimates, which were primarily driven by low occupancies and average revenue per occupied bed in Telangana and Andhra Pradesh assets on account of factors such as election in Telangana, decline in elective and transplant work, one-time expenses for innovation work and cyclone in Vizaz. The consolidated occupancies exhibited an improvement of 480 basis points/(- 420 bps) YoY/QoQ reaching 72.2%.

Additionally, there was a 3.2%/-1.3% YoY/QoQ rise in ARPOB to Rs 30,741 during Q3 FY24 which was below the industry levels. Matured assets in Telangana reported flat ARPOB (Rs 48,712, -3.1% QoQ) and stable occupancies which stood at 72.2% QoQ.

A stable trend was observed in Telangana and AP region for KIMS in the last nine months. This contributed to the company's relatively stable growth rate. Notably, revenue in significant therapeutic areas like cardiac, neuro, and ortho surged by 20%, 8%, and 8% YoY respectively.

In comparison, oncology and renal therapies also registered an 8% growth, albeit the industry displayed low double-digit growth in the previous quarter. Consolidated Ebitda reached Rs 147 crore, with margins of 24.3%. However, these margins were lowest in the last four quarters led by negative operating leverage. The company’s consolidated profit after tax stood at Rs 77 crore, showcasing a -6.7%% YoY increase, led by low operating profitability during the quarter.

Outlook:

Industry occupancies in Telangana and AP have been declining due to a bed oversupply (increased fourfold in the past three years). This trend has been evident for the last six quarters among key players such as KIMS, Apollo Hospitals Ltd., and Aster DM Healthcare Ltd.

The Q3 FY24 occupancies revealed occupancy softness in KIMS' matured hospitals, which constitute 60% of its Telangana and AP revenue. KIMS pursued organic growth by acquiring assets in neighbouring areas, yet the stabilisation of Ebitda margins for these acquired assets is expected to take more time in the forthcoming quarters.

These factors could challenge KIMS in the current scenario. Nevertheless, boasting a robust return on capital employed of ~32% and displaying a strong generation of operating cash flow, the company remains an attractive choice for long-term investment.

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