We shall see 2 oversold stocks with bright fundamentals:
1] Metropolis Healthcare Limited is one of the leading Indian diagnostics companies. The Company owns a chain of diagnostic centres across India, South Asia, Africa and the Middle East. The company has a chain of 170 clinical laboratories and 2,400 collection centres across seven countries, while the central laboratory is located in Mumbai, India.
Dragdowns
The company’s share price sunk down to its 52-week low in February 2023, the price has fallen about 50% from its 52-week high in April 2022.
The company’s office was raided by the income tax department in November 2022 as a part of a tax evasion investigation. In the December 2022 quarter, the company reported a weak growth in revenues. The company’s non-covid revenues have grown by 13%, hence the fall in covid revenues affected revenue growth. The net profit has declined by 13% YoY.
Enhancements
The non-covid revenues have been steading rising in the previous four quarters. The company expects further improvement supported by increasing health awareness among consumers.
The operational metrics have gained momentum. In the December 2022 quarter, the revenue per patient and the number of patient visits has risen by 3.6% and 15.7% YoY respectively. The company plans to repay its debt entirely by the end of financial year 2024.
Due to its marketing initiatives, the B2C (business to consumer) revenue has displayed a strong growth of 21% in the first 9 months of the current fiscal. The company is planning to increase their customer base through its asset-light expansion plan by establishing partnerships with third-party patient service centres.
Metropolis plans to capitalise on the growing demand for accessible healthcare and aims to set up 90 labs and 1,800 service centres by 2025. The company has added 12 labs and 396 centres in the first nine months of FY23.
Considering the 5-year historical data, the revenue and net profit have grown at a CAGR of 13.7% and 14%, respectively. The return ratios are also strong, with five-year average RoE of 26.5% and RoCE of 37.8%.
The short-term outlook is weak but it’s a temporary pharma sectoral weakness phase and the company is due for a rebound.
2] Dr. Lal PathLabs Limited is India’s major leading consumer healthcare brand in diagnostic services. It has an integrated nationwide network, where patients and healthcare providers are offered a broad range of diagnostic and related healthcare tests and services for use in: core testing, patient diagnosis and the prevention, monitoring and treatment of disease and other health conditions. The services of DLPL are aimed at individual patients, hospitals and other healthcare providers and corporates.
Dragdowns
The share price of this company which is a leader in diagnostics have fallen by 20% in the past 1 year.
During the December 2022 quarter, the company’s total revenue has declined by 2% YoY, and its Covid revenue has fallen by 80%. The net profit margin have fallen from a high of 22% in June 2021 quarter to 11% in December 2022 quarter.
Inflation and falling covid revenues have placed heavy consequences on the margins of Dr Lal PathLabs. Additionally, the low margins of Suburban Diagnostics, an acquisition of Dr Lal Pathlabs, is dragging down the margins.
Enhancements
Dr. Lal Pathlabs is aiming for strengthening its operation, product and geographical expansion. The company’s time diagnostic segments are focussing on non-covid revenues as the covid situation is subsiding in the country. Hence, the company’s non-covid revenues have enhanced from 88% in December 2021 quarter to 97% in December 2022 quarter.
The operating metrics, such as the number of patients and public service centres have displayed a major improvement.
Considering the 5-year historical data, the company’s revenue and net profit have grown at a CAGR of 14.5% and 15.3%, respectively. The return ratios are highly rigid. The company has consistently shared profits with its shareholders through regular dividends.
The strong fundamentals and positive revenue viability will aide the growth for Dr Lal PathLabs.
Disclaimer: We do not endorse or encourage you to take trades or investment decisions based upon our posts/research, all of your trading and investment activities are your own and should be taken through consultation with reputed financial advisors. The analysis posted on this website has been created by involving multiple mediums which are present over the Internet.