Vijaya Diagnostic extends rally, surges 20% in 3 days on healthy Q4 results

In past one year, the market price of Vijaya has been more than doubled or zoomed 116%, as against 17% rise in the S&P BSE Sensex.

Shares of Vijaya Diagnostic Centre hit a record high of Rs 799, rallied 9 per cent on the BSE in Friday’s intra-day trade amid heavy volumes. In past three days, the stock of healthcare services provider has surged 20 per cent after reporting healthy earnings in January-March quarter of fiscal year 2023-24 (Q4FY24). The diagnostic firm posted a 18.5 per cent year-on-year (YoY) organic revenue growth in Q4FY24 with full year revenues also surpassing its guidance.

At 12:06 pm; the stock was trading 7 per cent higher at Rs 784, as compared to 0.25 per cent gain in the S&P BSE Sensex. In past one year, the market price of Vijaya more than doubled to 116 per cent, as against 17 per cent rise in the benchmark index.

After completing six months of productive business operations, the company’s Tier II hub centre in Mahbubnagar has gained a lot of momentum and broken even in just two quarters, showing a high demand for quality diagnostics in the area, and enforcing Vijaya’s reputation as a trusted brand, the management said.

Vijaya provides a one-stop solution for pathology and radiology investigations through an extensive operational network spanning 145 diagnostic centres and 21 reference laboratories in 23 cities spread across Telangana, Andhra Pradesh, Maharashtra, NCR and Kolkata. 

In Q4FY24, the company’s profit after tax jumped 21.7 per cent Y-o-Y at Rs 33.45 crore. Revenue from operations grew 28.3 per cent Y-o-Y at Rs 1,552 crore. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin improved 10 basis points to 40.7 per cent from 40.6 per cent in year ago quarter.

Vijaya unveiled their strategy to set up 10-11 hubs and a few spokes over the next 2 years. Of this, 5 hubs will be set up in Pune under the PH Vijaya brand and 2 hubs in Kolkata. The company has already identified 6 hub locations. The cumulative capex outlay over 2 years will be Rs 200-Rs 220 crore. Some of the capex will also go in adding new modalities such as MRI or ultra-sound machines in existing centres where the load is immense.

Given around Rs 100 crore free cash flow (FCF) generations per annum over the next two years, there is ample of room for inorganic growth. The management remains open to acquisition in core geography, East, Mumbai or South (not North), analysts at JM Financial Institutional Securities said in result update.

The brokerage firm believes Vijaya will continue to deliver mid-to-high teens organic growth whilst sustaining 40 per cent plus EBITDAM. “Given the strong underlying earnings momentum, we upgrade the multiple to 45x (vs. 42x earlier; catch up with DLPL’s) to derive a Mar’25 target price of Rs 830,” analysts said.

Meanwhile, Emkay Global Financial Services initiated coverage on Vijaya with an 'Add' rating. The stock however is trading above brokerage firm Mar-25E target price of Rs 725 per cent share.

Vijaya’s differentiated business model has resolved the quintessential problem of scaling up profitably in the diagnostics industry. Elevated upfront capex and high attrition convolute the radiology segment in terms of scale up, unlike Pathology where most organised and online players scramble for market share.

Vijaya’s higher concentration of B2C revenues (94 per cent), strong brand equity in home markets, and skew towards radiology (35 per cent of the business) are likely to support industry-best margins, whereas aggressive network expansion in Pune and Kolkata will keep return ratios muted, in our view, analysts at Emkay Global said. The company has a solid franchise and sound business model, however, its already expensive valuations leave only scant room for an upside, it added.