In this briefing:
- Debt Ratios Do Matter
- Dr Lal Pathlabs: Pricing Pressure, Lower Earnings Growth Leave Room for Downside
- Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Stagnant
1. Debt Ratios Do Matter
Monetary diarrhoea has inflated the debt structure.
The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns.
2. Dr Lal Pathlabs: Pricing Pressure, Lower Earnings Growth Leave Room for Downside
- Dr Lal Pathlabs (DLPL IN) is the largest pathology chain in India and caters to the Rs 600 bn market growing at 15% Cagr. It is strongest in the lucrative NCR and Kolkata markets.
- Management has the best capital allocation track record in the pathology chain space. Network expansion mirrored patient volume growth.
- Patient volume growth has been the strongest among peers.
- However, revenue/patient has been declining as competitive pressure forced them to do away with price hikes for 2 consecutive years (2017-18). Increasing bundling of tests without adequate price hikes leading to sharp decline in revenue/sample.
- Expansion into eastern India with second central reference lab will drive down realizations
- Revenue growth deceleration and Ebitda margin contraction over FY17-18 looks to have stabilized now but are unlikely to revive.
- We expect Revenue and PAT Cagr of 15% and 16% respectively over FY18-21 against 21% and 34% respectively delivered over FY13-16.
- At CMP of Rs 996, Dr Lal trades at 36.1x FY20 EPS. Dr Lal’s steep multiples could see some compression with the lower growth trajectory and once the faster-growing Metropolis lists in the market. Our target price (30x FY20F) is Rs 827 implying 17% downside.
3. Mrs. Bectors Food Specialities Pre-IPO Quick Take – Sales for Its Main Segment Have Been Stagnant
Mrs Bectors Food Specialities (814506Z IN) (BFS) plans to raise around US$100m+ in its India IPO via a sell-down of secondary shares.
As per Technopak, BFS is one of the leading manufacturers in the non-glucose biscuit segment in Northern India. It is also one of the largest supplier of buns to the quick-service restaurants and a leading supplier of breads in Delhi NCR and Maharashtra. In addition to its Indian operations, exports account for 30% of the revenue.
Despite providing a host of numbers, the company has failed to provide clear statistics on the growth of revenue of its main segment, domestic biscuits. If one tries to back out this numbers from the other statistics it seems to imply that revenue has been flat for five years. Despite showing some revenue and PATMI growth over the past five years, cash flow from operations as well have been stagnant.
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