METROHL’s 1QFY27 performance was broadly in line with EE across all fronts.
According to a release issued, METROHL’s 1QFY27 performance was broadly in line with EE across all fronts. Strong volume growth, higher contribution from margin-accretive TruHealth and traction in the speciality segments continued to support double digit growth.
- Patient volumes grew 10.1% yoy, way ahead than earlier run rate of 6-7% supported by strong traction in tier II/III cities. We expect FY27 volume growth at ~9% on the back of 500 net centres addition (improving the centre-to-lab ratio), expansion of diagnostic offerings and strong growth in tier II/ III cities.
- We expect sales/EBITDA CAGR of 13%/17% over FY26-FY29E, led by (a) 8% CAGR in patient volumes, (b) recovery in acquired-biz margins and (c) operating leverage in the organic biz.
- The diagnostic sector has undergone a prolonged time correction over the past four years, driving valuation rationalization. Retain LONG with a Sep’27 TP of Rs 683, based on 42x P/E.
Specialty mix aids margin outperformance: Revenue grew 17% yoy/6% qoq to Rs 4.5bn, broadly in line with EE. B2C revenue grew by 18%, while B2B grew by 15% supported by specialty and TruHealth segments. Gross margins improved 110bps yoy to 80.7% (~70bps above EE), aided by a favourable revenue mix. EBITDA grew by 24% yoy/3% qoq to Rs 1.1bn, in line with EE. EBITDA margins at 24.7% (+145bps yoy/-75bps qoq) was 55bps below EE. Reported PAT stood at Rs 567mn, with PAT margins at 12.6%, impacted by an elevated ETR of 27%.
Volume momentum drives organic growth: Volume growth has accelerated materially over the past three quarters, reaching a multi quarter high of 10% yoy compared with the recent run rate of 6%-7%. Growth was driven by the ramp-up of +500 centres added over the past 12 months, and increased traction in Tier II & III cities. We expect healthy volume growth to be sustained, supported (a) an increase in the centre-to-lab ratio to 30:1 (vs 24:1 currently), b) expansion of diagnostic offerings and c) strong traction in Tier II and III cities.
Healthy realization without price hikes and CGHS benefit: METROHL’s realisation grew by ~6% yoy, despite no price hikes and minimal CGHS price hike benefits. Realisation growth was solely dependent on increasing Speciality/TruHealth share. TruHealth grew by 22%, while Speciality grew by 17% in 1QFY27. Going forward, we expect realisations to grow at mid-single digit, driven by improving traction of TruHealth/Speciality in tier II and III cities and price hikes from FY28E.
Margin to expand going forward: We believe margins are set to expand driven by strong patient-volume growth, rising TruHealth/Speciality mix, improving profitability at Core Diagnostics and operating leverage. We expect EBITDA margins to reach 26.8% by FY29E (+240bps over FY26) and model 23% earnings CAGR over FY26-FY29E.
