Healthcare Global Enterprises Ltd( HCG) is one of the largest cancer care network
in India in terms of the total number of private cancer treatment centers licensed
by the AERB as of May 31, 2015. The HCG network was ranked second in India
and first in the South India region and Bengaluru in the oncology segment in the
Times Health All India Critical Care Hospital Ranking Survey 2016 while the
Milann network was ranked first in India, the South India region and Bengaluru in
the fertility segment in the same survey.
Dominant player in the Cancer Care industry: Despite high demand for
comprehensive cancer care centres, India has only 200-250 comprehensive
cancer centres, which represent just 1 per 6mn people V/s 1 per 0.2mn people in
the US. Also, ~40% of these centres are located in the 8 metropolitan cities and
fewer than 15% of these centres are government operated, which limits access to
advanced and multimodal treatment options available to cancer patients. As a
consequence, the majority of cancer care is expected to be provided by the
private/for-profit sector in India.
The HCG network is the largest provider of cancer care in India in terms of total
number of private cancer treatment centres. As of December 31, 2015, HCG
operated 18 HCG cancer centres, including 14 comprehensive cancer centres, 3
freestanding diagnostic centres and 1 day-care chemotherapy centre in India.
Cancer centres contribute a major part of the overall revenues of the company.
Outlook and Valuation: HCG’s sales have grown at a CAGR of 24.7% over
FY2011-2015 and EBITDA grew by 19% during same period. However, HCG has
exhibited a loss in FY2013-2014 primarily due to higher interest cost and
depreciation. Currently the capacity utilisation of the hospitals at around 50% is
lower and has some room for improvement. Thus an improvement in margins
along with improvement in capacity utilisation are key to achieve a high ROE and
for the business to sustain. In terms of valuations, on EV/sales, the company are
trading at 3.4x-3.6x FY2015 V/s 3.9x FY2015 for Apollo Hospitals. Given the
company has strong growth potential and would continue to enjoy pricing power
in the long run, only long term investors should subscribe to the issues.

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