Target: ₹1,700

CMP: ₹1,437.80

Metropolis Healthcare Ltd (MHL) has a network of 175 labs, 2,921 patient service centres (PSCs), and 754 assisted referral centres (ARCs) across 20 States and over 220 cities. It offers 4,000+ clinical laboratory tests and profiles. MHL revenue contribution from B2C business increased from 38 per cent in FY16 to 59 per cent in FY23, showing a shift in focus to become a B2C player. Going forward, the company’s future expansion plan focuses on adopting an asset-light approach and implementing an inorganic growth strategy. We expect MHL to grow its core segment by 15 per cent.

In FY22, MHL launched the 90:30 expansion project to set up 90 labs and 1,800 collection centres over 30 months. It actively seeks additional opportunities to provide affordable testing as it expands into Tier-II and -III cities. This project will assist MHL in early monetisation by accelerating the commissioning of laboratories, providing a wider range of tests to newer and larger markets.

MHL has a track record of non-organic growth, demonstrated by its recent acquisition, Hi-tech, which has exhibited impressive revenue growth (excl. Covid) of 35 per cent on a year-on-year basis. This acquisition presents new opportunities for MHL, including B2C market expansion, reduced B2B concentration risk, and establishing a foothold in the Southern region to diversify revenue sources.

We initiate coverage on Metropolis Healthcare with a BUY rating and a TP of ₹1,700 (55x FY24 PE). We believe that MHL is set to grow its core segment by 15 per cent. The company’s aggressive network expansion initiatives are expected to yield a substantial customer base, thus unlocking the potential for high growth.

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