In this article, we will discuss how KIMS Hospitals can maintain high EBITDA margins despite the presence of big hospital players like Apollo, Fortis, etc. in the industry. So, let’s get started!
Krishna Institute of Medical Sciences (KIMS) is a hospital chain based in Andhra Pradesh and Telangana with 12 hospitals and a total bed capacity of around 3600 beds. The company provides more than 25 specialties and super specialty care in disciplines like cardiac sciences, oncology, neurosciences, gastric sciences, etc.
How does KIMS’s ARPOB shape up in comparison to other players?
Reasons for High Margins of KIMS:
1) High contribution from old and matured hospitals:
- ARPOB or Average Revenue Per Operating Bed is an important metric while analyzing any hospital company.
- ARPOB refers to the percentage of beds occupied by patients in a specific period.
- KIMS has the lowest ARPOB in the hospital industry in India.
- MAX Healthcare is having one of the highest ARPOBs in the industry as this hospital chain is mainly in the Delhi-NCR region which is considered to be quite affluent and hence has a higher ARPOB. Whereas KIMS is based in Andhra Pradesh and Telangana that too in Tier-II and Tier-III cities and hence has lower ARPOB.
2) Saving on rental costs:
- The three matured hospitals of the company in Secunderabad, Nellore, and Rajahmundry contribute largely to the total revenue and EBITDA of the company.
- With the majority of the revenues coming from matured units, the cost optimization of the unit is better, and efficiency is higher and this helps to increase the EBITDA and the EBITDA margin of the company at a consolidated level.
Future Growth and Capex Plans:
- The company either owns all its major units or has them on a perpetual lease. Hence, rent which is a major cost in the hospital business is almost negligible.
- KIMS currently operates in 2 states, but they planned to expand geographically in India.
- Entry into different geographical locations might raise the condition of margins impact in the future.
What Should Investors Do:
- The company wants to double the current capacity in the next 8-10 years.
KIMS is currently trying to expand domestically and also looking for inorganic growth opportunities, but this expansion sometimes might prove painful for the hospital sectors as hospitals take a long time to break even. It will be tested for KIMS whether this model of the company at the currently active location will be successful in the aspiring geography where the company wants to expand. This stock should be on the radar of investors who are looking for some allocation in the Hospital industry but should follow due diligence before making any investment decisions.