PL Stock Report: Krishna Institute of Medical Sciences (KIMS IN) - Q2FY24 Result Update – In-line EBITDA; Expansion plans slightly delayed - BUY

Krishna Institute of Medical Sciences (KIMS IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs1,870 | TP: Rs2,000

Q2FY24 Result Update – In-line EBITDA; Expansion plans slightly delayed

Quick Pointers:

♦ Expansion plan across Thane, Bangalore and Kondapur unit slightly delayed and pushed back by 3-6 months.

♦ 1-1.5% revenue impact from bed expansion in Nashik, Thane and Bangalore.

Krishna Institute of Medical Sciences (KIMS) Q2 operating performance was in-line with our estimate; reported EBITDA growth of 16% YoY to Rs1.8bn. Company’s robust cost control, low capital intensive set-up and value accretive acquisitions have ensured good profitability in the past (with EBITDA growth of 34% CAGR over FY18-23). Also recent acquisitions of Sunshine, Nashik and Nagpur are value accretive which will continue to aid growth momentum, in our view. We expect 15% EBITDA CAGR over FY23-25E with healthy return ratios of ~20%. Our FY24E and FY25E EBITDA estimates broadly remains unchanged. We maintain our ‘Buy’ rating with a TP of Rs. 2,000/share (unchanged) based on 22x Sept 2025E EV/EBITDA. At CMP, the stock is trading at 23x EV/EBITDA (adj for partner’s stake) and 38x P/E on FY25E. Any delay in expansion plan will be key risk to our call.

♦ In- line EBITDA at Rs1.8bn; driven by AP and Nagpur units: KIMS reported in-line EBITDA of Rs. 1.8bn; up 16% YoY. Consolidated Pre IND AS EBITDA stood at Rs. 1.7bn in Q2. Sunshine reported revenues and Pre IND AS EBITDA of Rs.1.2bn and Rs. 288mn, with OPM of 23.2% (flat QoQ). Nagpur unit reported revenues and Pre IND AS EBITDA were at Rs. 455mn and Rs 57mn resp. with 12.6% OPM. Consolidated OPM was at 27.2% (up 130 bps QoQ); aided by higher profitability in its AP (24.7% vs 22.4% OPM in Q1) and Nagpur units (12.6% vs 6.5% OPM in Q1).

♦ Healthy ARPOB; improved occupancy due to seasonality: Occupancy improved QoQ at 76.4% vs 70.4% in Q1 due to seasonality. Sunshine occupancy was at 53% vs 44% in Q1, while Nagpur occupancy was at 80% vs 63% in Q2. Consolidated ARBOB came in at Rs. 31,140/ day in Q2; declined 2% QoQ. Payor mix remains steady at 79% (Cash+ insurance).

♦ Key con-call takeaways: (1) Telangana- Mgmt undertook onetime expense towards hospital renovation in Telangana units and guided 31% sustainable margins from this cluster. KIMS requires cash of Rs. 5bn to increase its stake to 100% in Kondapur unit. (2) Thane –Hospital work is in progress; delayed on account of signing MoU as delayed from partner’s end to arrange funding. Mgmt cited capital allocation of Rs4.3bn in case if KIMS enter on its own. Transaction to close by Nov’23 end and expected to be operational by Q4FY25. (3) Sunshine – Mgmt anticipates Rs70-80mn cost towards shifting of Secunderabad unit which will be reflected in Q3FY24. Margin guidance closer to 30% for FY25 (4) Nagpur – Further margin expansion expected post operationalizing of incremental 80 beds which would result in higher occupancy and ARPOB growth. (5) Bangalore and Nashik – 415 beds expansion plan for one hospital in Bangalore is expected to be operational by Q4FY25 with capex of Rs. 3.5-4bn where ARPOB will be at Rs.50k initially. Terms for another hospital (+300 beds) are expected to complete by Jan–Feb 2024. Nashik to commercialized by Q1FY25. (6) Placed order for radiation therapy equipment’s worth $30-40m which will operationalize across units over next 2-3 years.

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