A healthcare stock has been on a bull run of late, defying weak stock market sentiment. Still, ICICI Securities believes it has more steam left. The brokerage firm has upgraded the stock to a ‘buy’ from an ‘add’ and raised the target price.
The stock we are discussing is Nephrocare Health Services. The stock has jumped 64% year-to-date compared to a 12% drop in equity benchmark Sensex.
On a monthly scale, share price has been in the green since April this year. So far in September, it has clocked a gain of nearly 10%.
Nephrocare Health shares hit a 52-week high of ₹767.95 on 12 June this year after hitting a 52-week low of ₹445 on 19 December last year.
On Thursday, 10 September, the stock ended 1.94% higher at ₹747.35 on the BSE.
Nephrocare Health shares target price
In an 8 September report, ICICI Securities upgraded recommendation on the stock to a ‘buy’ from an ‘add’ earlier, increasing the target price to ₹825 from ₹725 earlier, valuing the company at 33 times FY28E earnings compared to 30 times earlier.
According to ICICI Securities, the stock currently trades at valuations of 37.5 times FY27E and 28.4 times FY28E earnings, and EV/EBITDA multiples of 22 times FY27E and 16.8 times FY28E.
ICICI Securities expects Nephrocare’s revenue, EBITDA, and PAT CAGRs of nearly 21.7%, 27.6%, and 43.4%, respectively, over FY26–29E, with operating leverage driving a 356 basis points jump in the EBITDA margin to 26.5% in FY29E.
“The company’s asset-light model and operating leverage from its overseas business could help it scale RoE from 12.7% in FY26 to 18.8% in FY29E, and RoCE from nearly 12.4% to 18.1% in FY29E,” said ICICI Securities.
ICICI Securities underscored that Nephrocare Health has “cracked the code” in dialysis’ business model with its success in price-sensitive markets like India and competitive overseas markets like the Philippines.
“Over FY23–26, Nephrocare has acquired 29 companies in the Philippines which, along with a higher realisation rate, has helped it accelerate revenue at a 31% CAGR. The company has recently opened a new centre in Saudi Arabia, and, through the acquisition of 100% stake in Dialysis Center Almaty, it is on the verge of entering Kazakhstan,” ICICI Securities noted.
“Superior realisation ($75–200 overseas versus $22 in India) and its proven ability to manage costs have made the company’s overseas operations highly profitable. Management aspires to enter one new overseas market every 1–1.5 years,” the brokerage firm added.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the brokerage firm, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.