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Indraprastha Medical - new developments!

I completed reading the Annual Report of Indraprastha Medical Corporation sometime last week. The figures for the year ending 31st March 2007 were not that impressive and nothing to write home about. But I found out that there are significant developments which has taken place since then. They are:

1. A new Managing Director by name Mr Richard Leroy Larison has been appointed.

2. Well known and eminent cardiothoracic Surgeon, Dr Naresh Trehan has joined the company along with a team of 100 members comprising of surgeons, cardiologists, paramedics and nursing staff.

3. In addition to Dr Trehan, various other specialists have joined the hospital in the last few months. Eminent Neurosurgeons Prof. A.K. Banerjee and Dr V P Singh has joined the company from VIMHANS. Dr Subhash Gupta and his liver transplant team joined the Hosptial in Sept 2006., Prof Dr SN Mehta and Dr Anand Kumar joned as Senior kidney transplant surgeons. Dr Girish Raheja and Dr Arvind Soni, Senior ENT Surgeons have joined the company.

4. A new 57 bed Apollo Hospital in Noida offering secondary and teritary services became operational in 2006.

5. A specialised clinic for Chest pain under the banner "Apollo Chest Pain Centre (ACPC) was launched in 3 locations at Delhi. It plans to have atleast 10 centres in the coming months based ont he feedback from the existing centres.

6. Twenty patients a week are coming from Iraq for treatment as part of an agreement with the Iraqi government. Forty more beds have been added after June 2007 to meet the increased patient inflow. A new cath lab is being commissioned to handle the additional volume.

It is getting reflected in the higher number of liver and kidney transplant operations which has been done over the last 4 months as reported by the company in their annual report. (Doesn't sound good as a human-being, but gives me comfort as an investor!!! ) This information on the increased patient inflow was corroborated by a press report by Business Standard newspaper that Indraprastha Medical is converting their lobbies as make-shift wards to accomodate new patients.

7. The company is focussing on six areas, namely, Cardiology and Cardiothoracic Surgery, Neurology and Neurosurgery, Oncology, Orthopedics, Transplant surgery and Emergency services by creating Centres of Excellence. (Are they copying the IT/BPO model !!!)

8. The company would also benefit from the increasing presence of Apollo Hospitals in North Indian locations like Ludhiana, Lucknow and Varanasi. This can lead to higher number of referrals for specialised treatments at Indraprastha.

Opportunities:

The company sees big opportunities in the areas of

  • Health Insurance
  • Medical tourism
  • Telemedicine
  • Clinical trials
  • Corporate spending on wellness programs
  • Focus on prevention

Risks:

1. The company has an agreement with Government of Delhi for providing free treatment exclusive of medicines and medical consumables to patients recommended by Govt of Delhi. A PIL has been filed against the hospital to provide free mediciens and medical consumables to patients recommended by Govt of Delhi.

2. The company may not go in for big expansion location-wise as it would interfere with Apollo Hospitals expansion plan. The hospital may remain rooted to Delhi alone.

3. The company is in an industry where the employees (Doctors and other staff) play a very crucial role in customer satisfaction and retention. It is a challenge for the company to retain their key staff considering their very high profile.

4. Though there has been reported volume expansion on all fronts, we have to wait and see how the margins would be in the Sept 2007 quarter. There can be margin contractions due to additional expenditure on key staff.

Valuations:
The stock today closed at Rs39.85. At this price, the market capitalisation of this company stands at Rs365 crores. During the June'07 quarter they have made a profit of Rs4 crores resulting in an EPS of Rs0.43. I believe with increased inflow of patients in the high margin cardiac, kidney and other specialisations, there is bound to be margin expansion from the present OPM of around 5.8%. The company has consistently declared dividends in the last years and at current market price the dividend yield works out to 3.125%.

I would be closely watching the September quarter results to see if the new developments are turning out as profits.

Technically, the stock has broken about from a range of Rs27-37 since Sept 2006. Any fall to Rs35-37 zone can be a good buying opportunity.

I would be buying Indraprastha only with a long term perspective. It can be a multi-bagger but patience is required. With promoters holding more than 50% of the share capital, there is also a possibility of merging it with Apollo Hospitals at a later stage. But this is purely my guess!!

With an increasingly fast paced life ridden with health concerns, I strongly believe that Indraprastha would stand to gain. It would serve a natural hedge for anybody's medical treatment in the long run!!!

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