Thyrocare Technologies share price may see 20% upside; ICICI Securities upgrades stock, raises target price

Thyrocare Technologies, a dominant player in the Indian B2B diagnostic business, has received a ratings upgrade from ICICI Securities as the brokerage firm is bullish on the company’s growth and attractive valuations.

ICICI Securities has upgraded Thyrocare Technologies stock to ‘Buy’ from ‘Add; earlier and raised the target price to ₹740 per share from ₹615. It believes the stock trades cheap at 17.8x FY25E EV/EBITDA which is a 29% discount to its peer group. 

The brokerage firm expects Thyrocare to register earnings CAGR of 24.7% over FY23-FY26E on a low base led by recovery in volumes, improvement in partnership business and aggressive expansion. 

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“We raise our FY25 EBITDA estimates by 4%. We expect the company to grow its revenue / EBITDA / PAT by 14% / 21% / 25% over FY23-26E and a 430 bps margin expansion to around 27% by FY26E. RoCE is expected to touch ~21.1% by FY26E with cumulative free cash flow generation of ₹2.6 billion in FY24-26E,” ICICI Securities said in a report.

Thyrocare’s new management has charted a roadmap to boost strong 15–17% growth in its base business of pathology. It has reframed contracts with around 7,400 of its franchisee partners (61% of pathology sales), setup a dedicated team to boost growth in the partnership model and shall invest ₹1.3 billion over FY23–25 in its radiology business to turn around operations. 

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The brokerage envisages better traction in pathology and a strong margin expansion of 330 bps over FY23-25E. 

The company’s management expects FY24 revenue to grow 15%, which would be aided by volume growth of 10%, and 5% growth will be price-led. It is aiming for a normalised EBITDA margin (ex-ESOPS and bad debts) of 29%, which will further improve 50 bps every year, the brokerage noted.

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“Discontinuation of the MCGM contract, and a portion of business from its parent API holdings, has slowed down revenue growth to ~8% in H1FY24. Thyrocare’s strategy of revising incentives for its franchisee partners is panning out well for the company. Its residual business grew at ~20% in Q2FY24, which is quite ahead of industry growth,” ICICI Securities said.

However, according to the brokerage house, the key downside risks are promoter pledging its entire stake in the company, fresh competition that may deteriorate pricing and profitability and delay in turnaround in imaging business.

At 12:30 pm, Thyrocare Technologies shares were trading 0.32% lower at ₹619.10 apiece on the BSE. 

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