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Buy Thyrocare Technologies; target of Rs 686: Prabhudas Lilladher

November 13
17:25 2019

Prabhudas Lilladher’s research report on Thyrocare Technologies

THYROCAR sales, EBITDA, and PAT increased by 12%, 21%, and 37% YoY. Its higher productivity over the use of RM increased gross margin by 130 bps YoY to 73.2% and reduction in SGA costs increased EBITDA margin by 330 bps YoY to 44.9%in Q2FY20. While employee cost increased by 16% YoY on account of the centers newly started, the productivity of new recruit in H2FY19 helped to increase productivity and reduce employee costs to 10% of revenues in Q2FY20 vs 13% in Q4FY19. Revenue from Diagnostic and imaging testing services increased by 13% and 5% YoY. Revenue growth of 13% is in line with the management guidance for FY20E due to competitive intensity from PE-backed diagnostic centers in B2B segment. Diagnostic services EBIT/EBIT margins increased 18%/190bps YoY while Imaging testing service reported loss of Rs.16mn (18% of Revenues). B2B /B2C revenue increased by 8 % /17% YoY. B2B business contributes more than 75% of the total revenue.

Outlook

The stock trades at PER of 21.8x and 20.1x FY20E and FY21E respectively. With favorable seasonality Q4FY20E and lower base, we expect THYROCAR to grow at 15% YoY growth in revenues and 21% YoY growth in PAT due to lower tax rate to 25.2% from 34% in FY20E. While diagnostic companies are expected to trade at premium valuation with features of consumer’s business, THYROCAR valuation is at sharp discount to its peers. With earnings improvement and attractive valuation vs. peers, we increased our TP to Rs686 (from Rs595) and ‘BUY’ recommendation.

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