Krishna Institute of Medical Sciences: Business Analysis

Krishna Institute of Medical Sciences is a multi-specialty hospitals under the “KIMS Hospitals” brand, with an aggregate bed capacity of 3600+. It is a strong brand in Andhra Pradesh and Telangana associated with high degree of medical competency under the leadership of Dr. Bhaskara Rao Bollineni.

About

KIMS is a provider of multi-disciplinary integrated healthcare services, with a focus on primary secondary & tertiary care in Tier 2-3 cities and primary, secondary, tertiary and quaternary healthcare in Tier 1 cities. It operates 12 multi-specialty hospitals under the “KIMS Hospitals” brand, with an aggregate bed capacity of 3600+. Its first hospital was established in Nellore in 2000 and has a capacity of approximately 250 beds. The company is operated under the leadership of Dr. Bhaskara Rao Bollineni, Founder and Managing Director, and Dr. Abhinay Bollineni, Executive Director and CEO.

Specialties

Cardiac sciences: KIMS provides a comprehensive range of cardiac services to treat cardiovascular disorders, ranging from preventive programs to complicated surgeries, including heart transplants. It offers sophisticated interventional cardiac procedures such as coronary bypass operations, heart valve repairs and replacements, angioplasties, cardiac catheterizations, as well as implantation of cardiac assist devices.

Neurosciences: KIMS provides comprehensive care to patients with neurological disorders, including brain, spinal cord and peripheral nerve disorders. Equipped with neuro-imaging and monitoring technology, KIMS offers specialized care for patients with a range of neurological diseases, including Alzheimer’s disease and related dementia, Parkinson’s disease and other movement disorders, multiple sclerosis, stroke, amyotrophic lateral sclerosis, neuromuscular diseases, epilepsy and brain tumours.

Organ Transplantation: KIMS provides multidisciplinary care for patients who require organ transplantation, including heart, lung, liver, pancreas and kidney transplants.

Oncology: KIMS offers a range of oncology treatments, including medical oncology, surgical oncology and radiation oncology. The surgical oncology programmes offer modern, multidisciplinary treatment of primary and metastatic tumours in collaboration with different departments, with a specialization in detecting and treating prostate gland cancers, ovarian cancers, brain cancers and other rare types of cancers.

Orthopaedics: KIMS provides comprehensive care in major areas of orthopaedics, including sports injuries, spine procedures, trauma and joint, knee, and hip replacements.

Renal sciences: KIMS provides a complete range of consultative, diagnostic and treatment services for patients with kidney diseases. The scope of care encompasses all stages of kidney diseases, from earliest detectable changes in kidney function through end stage kidney diseases.

Gastric Sciences: KIMS treats diseases of the oesophagus, stomach, small intestine, colon and rectum, pancreas, gallbladder, bile ducts and liver and also help evaluate early stages of cancer.

Mother & child care: KIMS offers a wide range of medical and surgical specialties with a focus on medical care services for women and children, including obstetrics, gynaecology and paediatrics.

Revenue Contribution of Different Specialties:

Hospital Network

KIMS is one of the largest corporate healthcare groups in the South Indian States of AP and Telangana. Its 3600+ beds capacity is 1.9 times more than the second largest hospital player in the region. KIMS has created a strong regional leadership for itself in the South India healthcare market through its clinical excellence in 25 specialties, affordable pricing model, and both organic & inorganic expansions. This organic and inorganic approach to expansion has allowed KIMS to create a profitable hospital business model in both tier-1 and tier- 2/3 markets.

KIMS Secunderabad

KIMS’ flagship hospital at Secunderabad (Telangana) is one of the largest private hospitals in India at a single location (excluding medical colleges) with a capacity of 1,000 beds, including 885 operational beds, as of March 2021. KIMS Secunderabad commenced operations in 2004. It occupies five acres of land and is strategically located and easily accessible from within the city of Secunderabad, Telangana.

It receives admissions primarily in the areas of cardiac sciences, oncology, neurosciences, gastric sciences, orthopaedics, organ transplantation, renal sciences and mother & child care.

KIMS Nellore

KIMS hospital at Nellore (AP) is a multispecialty hospital that commenced operations in 2000. KIMS Nellore is among the top three hospitals in Nellore (AP) in terms of bed capacity, with 250 patient beds, all of which are operational beds. It is equipped with six laminar flow operation theatres, one catheterization laboratory, six advanced intensive care units with 112 ICU beds, 24-hour MRI scan unit, a CT scan unit, a diagnostic lab and ambulance and pharmacy services.

KIMS Rajahmundry

KIMS hospital at Rajahmundry (AP) is a multispecialty hospital that commenced operations in 2002. KIMS Rajahmundry is the largest private hospital in Rajahmundry (AP) in terms of bed capacity. This hospital has a total of 180 beds, all of which are operational beds.

KIMS Ongole

KIMS hospital at Ongole (AP) is a multispecialty hospital that commenced operations in April 2017. It has a total of 350 beds, including 246 operational beds, as of March 2021.  KIMS Ongole is equipped with nine operation theatres, an advanced intensive care unit with 83 ICU beds, one catheterization laboratory, one CT scan unit, one MRI unit, an acute medical care unit, a department of casualty, diagnostic and laboratory services and ambulance and pharmacy services.

KIMS Srikakulam

KIMS hospital at Srikakulam (AP) is a multispecialty hospital that was established in 2011. KIMS Srikakulam is the largest private hospital in Srikakulam (AP) in terms of bed capacity with 200 patient beds, 150 of which were operational beds, as of March 2021. This hospital is strategically located to serve patients in Srikakulam (AP) as well as from the neighboring state of Odisha.

KIMS Kondapur

KIMS Kondapur is a multispecialty hospital that commenced operations in 2014. It largely caters to India’s IT belt of Kondapur (Telangana), Hitech City and Gachibowli areas of Hyderabad (Telangana). It had a total of 200 beds, including 150 operational beds, as of March 2021.

KIMS ICON Super Specialty Hospital Vizag (AP)

KIMS ICON Super Specialty Hospital is a multispecialty hospital situated in Visakhapatnam, AP. This hospital offers a wide range of medical services in over 25 specialties, including cardiac sciences, neuro sciences, gastro sciences, renal sciences, ortho sciences, oncological sciences and mother & child care. As of March 2021, it had 434 patient beds, including 314 operational beds.

This hospital is under an operation and maintenance arrangement with the Milk Producers and Employees Educational Health and Medical Trust in AP. Under this arrangement, KIMS Vizag is required to reserve about 100 beds, and provide medical services at subsidized rates to certain classes of patients.  Under this arrangement, no traditional lease fee is charged to KIMS and the remaining beds are operated normally.

KIMS Saveera Super Specialty Hospital Anantapur (AP)

KIMS Saveera Super Specialty Hospital is a multispecialty hospital that commenced operations in 2018. This hospital is situated in Anantapur, AP. It had 250 patient beds, of which 215 were operational beds, as of March 2021.

KIMS Kurnool

KIMS Kurnool was acquired by the company as a mother & child care hospital in 2020. Since the acquisition, KIMS Kurnool has been transformed into a multi-specialty hospital with a total of 200 beds, all of which were operational beds, as of March 31, 2021.

Acquisition of Sunshine Hospitals

KIMS has acquired a 51% stake in Sunshine Hospitals which owns and operates hospitals in and around Hyderabad, Telangana for an enterprise value of 730 crores.

Sunshine Hospitals was started in May 2009 by Dr. A.V. Gurava Reddy, a globally reputed Joint Replacement Surgeon. Sunshine Hospitals has become the second largest Joint Replacement centre in South East Asia. It is only the 2nd hospital from Asia, to have a full membership of the prestigious society international society of orthopaedic centres. It currently operates at three locations in Telangana, out of which two are in Hyderabad (Secunderabad and Gachibowli), and the third is in Karimnagar. It has a total bed strength of over 600.

KIMS plans to add new specialties and strengthen existing ones to improve the current low occupancy levels of ~40% for Sunshine, given that KIMS’ hospitals operate at occupancy levels north of 70%. The margin profile of Sunshine is also lower than KIMS.

Unique Model of Doctor’s Equity Participation

KIMS has crafted a unique model of hospital ownership in which the doctors which it employs also have an equity ownership in KIMS’ hospitals. This drives volumes & leads to higher occupancy, which also reduces attrition rate at the top level who are the key drivers of hospital business. 300+ doctors own nearly ~9% equity in the company. Since inception in 2000, KIMS has retained over 80% of its doctors. These doctors have been involved in the growth of KIMS’ hospitals by actively participating in the equity ownership in the Company and Subsidiaries.

Expansion Plans

KIMS has lined up a series of brownfield and greenfield expansion over the next few years to enunciate the presence in existing geographies and also to expand to newer geographies. KIMS plans to grow into markets that are adjacent to the current core markets of AP and Telangana.

Central & Western India - KIMS flagship hospital observes an influx of patients and doctors from Central India. Given scarcity of quality healthcare and existing KIMS brand awareness in Central India, smaller facilities can be set up in Central India.

Odisha (Bhubaneswar): This is a natural extension given Odisha’s proximity to KIMS hospitals in Vizag and Srikakulam in northern AP that already serve a significant number of patients traveling from south Odisha for treatment.

Karnataka (Bangalore and greater Karnataka): KIMS has observed both cash patients and insurance patients traveling from the districts of AP bordering Karnataka to seek treatment at larger hospitals in Bangalore (Karnataka). Karnataka is a natural growth market because a sizeable portion of the state speaks Telugu – the main language spoken in AP and Telangana.

Tamil Nadu (Chennai): Already attracts patients from AP’s four southern border districts of Chittoor, Kadapa, Nellore and Ongole and has a large Telugu-speaking population. KIMS has acquired land in Chennai for construction of a new facility in the future.

Ongoing Expansion Details

Operational Focus

KIMS focuses on low-cost affordable healthcare in all the cities it operates in. Thus, its ARPP is lower compared to its peers but it gets compensated through higher volumes and KIMS has shown one of the best margin profiles in the healthcare industry.

KIMS is also focused on reducing ALOS at its hospitals and increasing the patient turnover rate in order to drive revenue growth because a significant portion of in-patient revenues are derived from medical services provided in the initial two to three days of a patient ‘s stay in the hospital. It plans to improve the patient management and discharge processes, expand home care offerings, implement time and cost-saving medical technologies and perform more minimally-invasive surgeries.

Financials and Valuation

KIMS has displayed one of the best financial performances across the hospitals sectors. Its 5 years CAGR in slaes/PAT has been 24%/59% respectively. In the same period, EBITDA margins have expanded from ~20% to ~30%, superior to the listed hospitals universe. 

A snapshot of its financial performance (source - sharescart.com):

KIMS is currently trading at a TTM P/E of 37x. Hospital stocks have currentlly caught the fnacy of the markets and most of the comparable listed players are trading at skyhigh multiples. That siad, KIMS given its solid trackrecord of growth, suprior margins and strong growth plans, deserves a premium multiple and would be a stong candidate for a deeper look in a market correction. 

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