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ICICI Securities
Metropolis (Add)
Target: ₹2,368
CMP: ₹2225.00
The company has announced its acquisition of 100 per cent stake in Dr. SP Ganesan’s Hitech Diagnostic Centre (Hitech) in a cash and stock deal. Hitech is a leading player in South India (primarily Chennai and Bengaluru), with a network of 31 labs and 68 collection centers.
This acquisition will help Metropolis in strengthening its presence in South India, improving B2C contribution as Hitech has higher B2C proportion in revenue and in driving potential cost synergies in coming years.
Hitech had revenue of ₹83.30 crore in FY20, with EBITDA margin similar to Metropolis. 9M-FY21 revenue is up about 50 per cent, aided by Covid-19 related tests with higher EBITDA margin. We assume 40 per cent revenue growth in FY21 and flat FY22 revenue as Covid-19 contribution will decelerate in our view.
Hence, this acquisition will result in nearly 10 per cent increase in revenue and EBITDA of Metropolis in FY22 and FY23.
Metropolis will pay a cash consideration of ₹510 crore and also issue 4,95,000 equity shares for 100 per cent ownership. The acquisition has been valued at 7.4xSales and about 26.5xEV/EBITDA on FY20 basis (assuming issue of shares at CMP).
We estimate these valuations to be approximately 38 per cent lower than Metropolis’ existing valuations.
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