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ICICI Securities Report
Discontinuation of the MCGM contract, and a portion of business from its parent API holdings, has slowed down revenue growth to ~8% in H1 FY24. Thyrocare Technologies Ltd.'s strategy of revising incentives for its franchisee partners is panning out well for the company.
Its residual business grew at ~20% in Q2 FY24, which is quite ahead of industry growth. We expect Thyrocare to register earnings compound annual growth rate of 24.7% over FY23-FY26E on a low base led by:
recovery in volumes;
improvement in partnership business; and
aggressive expansion.
We raise our 25E Ebitda by 4%. We expect the company to grow its revenue/Ebitda/profit after tax by 14%/21%/25% over FY23-26E and a 430 bps margin expansion to around 27% by FY26E.
Return on capital employed is expected to touch ~21.1% by FY26E with cumulative free cash flow generation of Rs 2.6 billion in FY24-26E.
The stock currently trades at valuations of 33 times FY25E and 26.5 times FY26E earnings and enterprise value/Ebitda multiple of 17.8 times FY25E and 14.8 times FY26E, respectively.
We raise our recommendation to 'Buy' (Add earlier) on the stock with a revised discounted cash flow-based target of Rs 740 (Rs 615 earlier), implying 32 times FY26E earnings and 18.1 times FY26E EV/Ebitda.
Key downside risk:
Promoter has pledged its entire stake in the company, fresh competition may deteriorate pricing and profitability, delay in turnaround in imaging business.
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