KOVAI MEDICAL CENTER AND HOSPITAL

The Indian healthcare industry is rapidly growing and is being fueled by large investments from existing corporate hospital chains as well as new entrants backed by private equity investors. Health care is going to be a major sector that stimulates the economic growth. Healthcare industry is an evergreen industry and due to health insurance and medical tourism, the sector should see consistent growth. As per the Planning Commission's High Level Expert Group (HLEG), health care industry in India is affected by lack of bed capacity which is presently 9 beds per 10,000 persons and is much lower than the global standard of 29 beds per 10,000 persons. 

Kovai medical center is a super speciality hospital located in Coimbatore.  The company through its subsidiary “Idhayam Hospital” operates another speciality hospital in Erode. The company has two satellite centres at Ramnagar and Erode.  Kovai Medical Center and Hospital Limited started with 150 beds in July, 1990.Over the past two decades, the Center under the visionary leadership of Dr. Nalla G Palaniswami has grown into a giant in the healthcare industry in India. This was acknowledged by the center receiving the award for the best hospital in the non-metro category by the ICICI Lombard and CNBC

The hospital has all most modern facilities including Open heart surgeries ,Steroid free Kidney transplants, Knee replacements, Hip replacements ,Clot dissolution for brain strokes, Blood component therapy, Arthroscopic surgeries, Laparoscopic surgeries etc. In the last 10 years, the net sales of the company grew from 40crs to 320 crs. The company has more than 25% compounded sales growth, profit growth and ROE for the past 5 years. Another important point is that the hospital has 90% bed utilization. With addition of more and more departments with high end facilities, I believe the company will continue to show the past growth along with margin improvement. There are chances of company going for inorganic growth by acquiring small hospitals. Seeing the potential, the promoters have been consistently buying shares of the company. At the cmp of 150 rs, this professionally managed hospital is available at a market capitalization of 160 crs. The hospital is situated in a 20 acre plot in coimbatore. The market capitalization is just the land value of 20 acres in coimbatore. At a p/e below 8, I find value in this company. The daily trading happens in few hundred shares. So buying should be done in a staggered manner. 

Heritage Foods

                                         

Heritage foods(India) Ltd  is a leading dairy company promoted by Mr Chandra Babu Naidu ,which produces and markets milk and milk products under the brand name of “Heritage”. The company has strong regional footprint in the southern states of Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Maharastra and Orissa. Company having four divisions- Dairy Business, Retail Business, Agri Business and Bakery Business. It has ‘farm to fork’ approach to business through the Dairy and Retail, and reach out to over 15 lakh customers every day.

The Historical financial performance of Heritage Foods (India) Ltd. was marked by increased losses from Retail Business as they were in their early stages. The Retail Division started in 2007 used to eat most of the profits of dairy division.Since FY 2013, with almost stable raw milk prices and increased product prices there has been a substantial jump in EBITDA and net profits. All this had improved the net worth and have helped the company cut down on its debt and finance costs

DAIRY DIVISION

Company sells Milk and Milk Products including Ghee, Paneer, Ice Cream, Cooking butter, Lassi, Doodhpeda, Fresh Cream, Curd etc. It is very difficult for any company to set up such a large supply chain which is crucial for the success of any company in Dairy business.Company also exporting Heritage Pure Ghee and Heritage Butter in Bulk and Consumer Packs from two of its units located at Tirupati and Chittoor. Currently there are 1176 parlors with an average shop area of 100sft to sell its value added dairy products across south India.

ü  The company is the only packaging partner (curd) for Nestle in South India, and one of their   only 2 Indian dairy packaging partners

ü  1 in Curd sales in India

ü  3 in regional Ice-cream company and among the top 10 in India (started only 3.5 years back)

ü  1 in Butter Milk sales in India

ü  2 in Lassi sales in India

ü  1 regional company in ghee (not incl. in value-add. Products) and among the top 5 companies in India 

ü  Widest range of dairy products (22) in India

 (FY2013 Revenue:Rs12686mn EBITDA:Rs1219mn Capital Emp:Rs1523mn)

RETAIL DIVISION

Under the retail division, company is selling Groceries ,fresh fruits and vegetables. Under the brand "Farmers Pride”, company offers a full range of staples like rice, pulses, spices , dry fruits..etc . The company has 71 company managed own ―Heritage Fresh stores in South India

 (FY2013 Revenue:Rs3266mn EBITDA:Rs-173mn Capital Emp:Rs585mn)

AGRI BUSINESS DIVISION

Agri division activities are based at Chitoor (Andhra Pradesh), Kolar (Karnataka), Krishnagiri (Tamil Nadu) Medak and Nalgonda in Andhra Pradesh .Company having two pack houses one at Mattam and other at Mulugu. Heritage also having a Poly Green House facility for Production of Vegetable Seeds for supplying to farmers engaged in contract farming.

ü  50% supplies to Heritage Fresh i.e 21 MT/day

ü  Commercial sales of 22 MT /day

ü  FY2013 revenue of Rs399mn

The company has Air-conditioned and humidity controlled pack houses with cold storage facilities and ripening chambers at 2 strategic locations with a combined capacity of 300MT per day.Through Agri Business Division, the Company has strong presence in contract farming of vegetables and fruits. These items are selling through its own retail stores.

BAKERY DIVISION

ü  Manufactures a range of breads, puffs, pastries, puddings and custards

ü  FY2013 revenue of Rs41mn

    

      Bakery Division is relatively a new initiative of the company ,Currently this division operates only in Andhra Paradesh and the company is planning to expand it. This division runs Hyderabad’s first Premium Bistro as “ Heritage Bon Sante Bistro” in Jubilee Hills.

RENEWABLE ENERGY

Heritage Foods Ltd has in association with Mahindra EPC Services Private Limited has commissioned a 2.34 MWP Solar Power Project at IPH, Masjid Adavi Village, Mulugu Mandal, in Medak district near Hyderabad on September 29, 2013, under REC mechanism and to meet for the captive energy requirement.

ü  Turnover in Q3FY14 was Rs. 2.30 mn.

ü  Capital Employed for Renewable Energy division Rs 162.63mn

Without the loss making retail segment , the dairy division alone is capable of posting  more than 60 crs PAT.This is more than 25 rs EPS. There have been many instances where rumours came about the company hiving off the retail division to enhance share holder value. If this happens, we can expect significant appreciation in share price. Hatsun agro, a comparable company that manufactures Arun Ice creams trades at a P/E of more than 30 while Heritage with a better setup is available below 9 P/E. I expect the company to post consistent profitable performance in the coming years as it belongs to the great Indian consumption story.At the cmp of 205 Rs, its worth putting some money into this company

Note:-I have vested interests in HERITAGE FOODS and its safe to assume that i am holding it from lower levels