Stock Recommendations From Hospitals And Medical Service Sector

Low Priced Scrip is a hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.

A turnaround candidate

Almost a debt-free company

Available at half of the valuation

In the month of December 2105, three healthcare companies have come out with initial public offering (IPO) at high premium and still got oversubscribed successfully. The gap between healthcare supply and demand is enormous in India. Therefore, this time we have picked a scrip from this sector that remains the flavour of this festive season.

Lotus Eye Care Hospital is a super specialty eye care hospital mostly operating in southern parts of India. The company operates seven eye care hospitals in Tamil Nadu and Kerala. Besides delivering the regular eye‐care services, the company’s hospitals provide advanced diagnostic and therapeutic services. Its speciality treatments include cataract surgery, retinal diseases, vitreoretinal service, glaucoma, refractive surgery, cornea, orbit and oculoplasty, squint correction surgeries, uvea, neuro ophthalmology, pediatric ophthalmology, low vision aid, etc.

Increasing demand for health care services combined with the aggressive expansion by the Indian private sector health care players is expected to significantly increase the demand for medical professionals. Therefore the company has setup Lotus Bausch & Lomb Institute of Optometry at Peelamedu, Coimbatore and Kadvendra, Cochin. The institute is collaborated with Bharathiyar University, Alagappa University for diploma in nursing courses with Avinashi Lingam University. Lotus Eye Hospital and Institute is affiliated to MGR Medical University for Ophthalmic fellowship trainings in Cornea, Glaucoma, Retina and anterior segment. Lotus is also affiliated to National Board of Examination and central government origination for DNB teaching and training.

Considering its financials, the company reported net profit at Rs 0.12 crore in Q2 FY16 as compared to loss of Rs 0.66 crore in the same period of the previous year. The total revenue rose by 8.7 per cent to Rs 7.90 crore in Q2 FY16 from Rs 7.3 crore in the corresponding quarter of the previous year. The EBITDA growth reported six fold, amounting to Rs 1.2 crore as against Rs 0.20 crore in Q2 FY15 due to margins jumping by 1,242 bps to 15.2 per cent as against 2.78 per cent YoY. For six months ended September 30, 2015, the company’s net profit was at Rs 0.90 crore as against loss of Rs 0.46 crore in the same period of the previous year and topline grew by 8 per cent to Rs 16.30 crore. In FY15 company has reported a loss of Rs 2 crore. 

It’s an almost debt-free company and the stock is trading at below the book value of Rs 24.18 as on September 30, 2015. One can look at the stock from a short-term trading perspective. As far as valuation is concerned, the company is trading at 1.42x of its last four quarter of TTM revenues as against industry’s top players trading at more than three times of their revenue whereas when we compared on EV/EBIDTA basis the company available at 11.8x as against industry’s top players trading at at 30x. As such, the stock is worth buying as turnaround candidate with 40 per cent upside in the next one year.