Initiating Coverage: Healthcare Global Enterprises
16-02-2023

About the company

Healthcare Global Enterprises Ltd. is a provider of speciality healthcare services in India focused on cancer and fertility. Under the “HCG” brand, it operates the largest cancer care network in India in terms of the total number of private cancer treatment centres licensed by the AERB. Under the “Milann” brand, it operates its fertility centres. It also operates 4 multi-specialty hospitals in Ahmedabad, Rajkot, Bhavnagar and Hubli. It provides clinical reference laboratory services in India under the Triesta brand with a specialisation in oncology, including molecular diagnostic services and genomic testing. Additionally, Triesta offers research and development services to pharmaceutical and biotechnology companies in the areas of clinical trial management and biomarker discovery and validation.

Industry Overview

Based on the World Health Organization's World Cancer Report, it was estimated that India had approximately 1.16 million new cases of cancer in 2018. The report also suggested that one out of every 10 Indians will develop cancer in their lifetime, and one out of every 15 will succumb to the disease, making cancer the second leading cause of death in the country.

Over the past two decades, India has experienced impressive economic growth, with an annual expansion of more than 7% in most years, making it one of the world's top-performing emerging economies. This economic development has led to a range of socio-economic changes, including an increased risk of non-communicable diseases such as cancer, and significant disparities in access to cancer prevention and control services. According to the same WHO report, global cancer rates could increase by 60% in the next two decades if cancer care is not improved in low and middle-income countries.

As per the UN, the fertility rate of Indians has declined significantly by more than 50% from 4.97 to 2.23 and is further expected to decline to 2.1 by CY 2025-30 and to 1.86 by CY 2045-50. But the fertility rate of 2.2 is generally considered as the fertility replacement level. If the fertility rate goes below this number the population rate will definitely decline.

Sedentary lifestyles with minimum physical activity, rising stress level and irregular sleep pattern are few of the reasons that are causing infertility, thus forcing them to opt for artificial ways of conceiving. Infertility at present, affects about 10% to 14% of the Indian population, with higher rates in urban areas where one out of six couples is impacted, according to the Indian Society of Assisted Reproduction. About 27.5 million couples are known to actively trying to conceive suffer from infertility in the country.

Key Business Parameters

Leverage has been an issue with HCGEL in the past as it took recourse to debt to fund its capex expansion drive in recent years. Debt-Equity ratio (Ex IND AS116) is expected to come down significantly from 1.88 in FY20 to 0.13 in FY23 given the fund infusion by CVC, reduction of losses and minimal capex between FY21 and FY23. A strong balance sheet would keep HCGEL in good stead and support a higher valuation multiple.

HCGEL was on a capex overdrive between FY18 and FY20 when Rs 2662 mln, Rs 2199 mln and Rs 2141 mln were added to its gross tangible assets block in FY18, FY19 and FY20 respectively. Nine new comprehensive cancer care centres were added between FY16 and FY20 which led to the decline in EBITDA margin and RoCE. HCGEL’s new centre losses increased to Rs 455 mln in FY20 from around Rs 70 mln in FY17. While it took about ~1.0-1.5 years for the new centres to breakeven, Borivali and Nagpur centres’ breakeven was delayed owing to doctor and rent-related issues. With the commissioning of the South Mumbai centre in Q3FY20, HCGEL is done with its major capex plan barring small amounts related to its Gurgaon comprehensive cancer care centre. Thus, we expect improvement in EBITDA for the projected years FY21 to FY23. Further, incremental depreciation charge would also be low and recourse to additional debt to fund the expansion would not be necessary at all. All these would culminate to positive return ratios in FY23 and support a higher valuation multiple.

Management Team

CVC Capital Partners (Promoter and Member of Board) -  Stakes in more than 50 companies worldwide, employing ~3 lakh people and generating annual sales of over $100 Bn. 34+ years of proven record of Private Equity investment success. Marquee investments in Healthcare services including P T Siloam (Indonesia), Affinity Health (Australia), Metropolitan Hospital (Greece), and General Healthcare Group (UK).

Mr. B.S. Ajaikumar (Promoter and Executive Chairman) - MBBS from St. Johns & Radiation/Medical oncologist from MD Anderson. Over 40 years of experience in practising oncology in India and the US. Successfully raised capital and provided exits to marquee PE investors and led the public listing of HCG.

Mr. Raj Gore (CEO) - He has 21 years of diverse experience in business management in North America, Asia, and Africa, with a focus on Healthcare for the past 17 years. In his previous role, he was the Chief Executive Officer – Southern Region of Apollo Hospitals Enterprise Limited. Before joining Apollo, he worked with Fortis Healthcare Limited as Chief Growth Officer (India) & Chief Operating Officer – NCR.