Eicher Motors Ltd | Q3FY23 Result Update | Strategies working well, gaining share, more tailwinds ahead! CMP: Rs 3,286 | Target Price: Rs 3,829 | Upside: 16.5% | Rating: Buy Topline matched, EBITDA margin came-in lower due to meagre product & geographic mix, while PAT surpassed estimates owing to higher other income & good performance from VECV. Upgrade the stock from ACCUMULATE to BUY as we believe the company is ticking right boxes for growth by applying the 360-degree approach on products, exports, marketing and correct pricing that’s 1) attracting a wider & younger audience in domestic, and 2) supporting to capture bigger international markets. Expect commodity softness & recent pricing action benefits to flow-in. No more critical supply concerns is a major relief. Q3FY23 result analysis – Revenue matched, PAT surpassed expectations  RE reported volumes at 18 quarters high in Q3FY23 at 220K units. RE market share in Q3FY23 touched highest ever at 8% in domestic (+182bps YoY & +188bps QoQ).  Consolidated Revenues/EBITDA/PAT are at historic highs. Topline matched estimates at Rs 37.21bn in Q3FY23, but the EBITDA margin came in at 23.0%, is lower than expectation of 24.4%. Inferior product (higher share of Hunter 350cc) & geographic mix (lower exports ~9% in Q3 vs. ~12% in Q2) impacted margins.  PAT Rs 7.41bn was higher than est. Rs 6.92bn driven by higher other income of Rs 1.92bn (+109% YoY & 29% QoQ) and higher than expected Share of profits from JV of Rs 639mn vs est. Rs 512mn. Good performance from VECV. Supply is no more a concern, new products supporting growth, gained share  Received good response for newly launched Hunter 350cc & Super Meteor (SM) 650cc. Strong line-up of products are in the pipeline should support growth across nations.  Hunter on one hand is able to pull younger audience; more such launches could wider the target audience. On the other side, SM 650cc along with other options is the right choice for upgraders.  RE is focused on growing internationally with the combination of (building communities, expanding retail network & build CKD facilities).  Export opportunity is good and mid-sized motorcycle market is under-served with a size of 1mn units. RE’s exports have grown at a ~39% CAGR FY13-FY23e. Expect mid-teens growth to continue.  The biggest hurdle ‘supply’ is now resolved. RE is now able to meet the demand prudently. Reasonably attractive valuations  Assigned 27x multiple to RE’s FY25e EPS of Rs143 and 9x to FY25e VECV EBITDA of ~Rs10bn (54.4% Eicher’s share) to arrive at a fair value of 3,829, seeking an upside of 16.5%. Upgrade from ACCUMULATE to BUY! Reduced VECV multiple from 10x to 9x looking at the uncertainty by FY25e on the CV industry.  Revised EPS is lower by ~5%/10%/11% for FY23e/FY24e/FY25e respectively as volumes & EBITDA margin toned down, offset by expected benefits from soft commodities.

HIL Ltd | Q3FY23 Result Update | Resilient performance CMP: Rs 2,400 | Rating: Under Watch HIL Ltd. (HIL) reported Q3FY23 results were slightly lower than our estimates at the PAT level, while revenue was in line & EBIDTA was higher than our estimates. Company reported ~6.6% YoY decline in sales due to decline in the flooring & polymer solution segment. Parador business was impacted due to high inflation in European countries which led to low sentiments amongst the consumers which led to lower demand in the market. In Q3FY23 company faced inflationary pressure in most of the business segment due to inflation in key raw material cost, high sea freights and geopolitical scenario in Europe which led to decline in profit margins YoY across all the business segment (except building solution) of the company. There was an improvement in gross margin in Parador business on a QoQ basis due to some reduction in raw material prices and sea freights. Management has taken some initiatives to overcome these challenges by implementing digital shop floor using IoT 4.0 in 12 plants, implementation of various six-sigma projects across functions which will help in getting better efficiencies and lowering of cost. In the roofing solution segment company expects to continue maintain its market leadership. Company’s building solution business is performing well and the board of the company has approved an estimated capex of ~Rs 340 mn to enhance the production capacity of AAC Blocks at Chennai plant to meet growing customer demand. In the polymer solution business management aims to reach sales of ~Rs 10 bn in the pipes segment and ~Rs 4 bn in the putty segment, so overall sales of ~Rs 14 bn over next 3 years. In the Flooring solution segment company expects to double the sales of Parador over next 3-4 years. In the past management has reiterated that HIL is well on the way to achieve revenue of $1 bn by 2026 & progressively advancing towards becoming a “One-Stop” building material & Solution provider. In order to reach this target, management would also take resort to in-organic opportunities. Going forward growth will be driven from Polymer and Flooring segment, supported by growth from Roofing & Building segment. Key Highlights from 9mFY23 Earnings • Revenue contribution in 9mFY23 from Roofing, Building, Polymer, Flooring Solutions segment stood at 33%/14%/15%/37% respectively. • In 9mFY23 company reported revenue growth of ~1.7% YoY. Roofing and Building Solution segment reported revenue growth of ~4%/21% YoY respectively. While revenue in the Polymer & Flooring solution segment declined by ~5%/22 YoY respectively. • PBIT margins declined YoY in roofing, polymer and flooring segment on account of steep increase in raw material cost. Polymer division reported PBIT profit after reporting losses for last two quarters on account of inventory losses and sharp fall in resin prices. Losses in the flooring division reduced on a QoQ basis due to cost saving initiatives taken by the management. • PAT declined by ~63.4% YoY to Rs 125 mn due to a sharp decline in margins. Outlook and Valuation: Company is yet to conduct their post results Q3FY23 earnings conference call, so due to lack of clarity on the future outlook, we have prepared the future estimates as per our understanding of the business of the company. Hence, we have kept the rating “Under Watch” till we have further clarity from the management on future outlook of business of the company.

Suprajit Engineering Ltd| Q3FY23 Result Update | Slight miss due to external factors, traction is good across division! CMP: Rs 359 | Target Price: Rs 445 | Upside: 23.9% | Rating: Buy Q3 performance was below estimates due to external factors viz. subdued exports, higher interest rates, power cost & MTM. Auto cables, Phoenix Lamps and LDC performance was remarkable, while Non-auto cables division show was poor due to slowdown in the USA. Suprajit Technical Centre (STC) to give additional wing to fly higher as new products have much higher realization & margins. We believe the company is putting good efforts to de-risk and grow beyond cables, this would provide additional growth opportunities. The company is moving up the value chain, rediscovering itself for a profitable growth ahead. It is capable to invest in complex & future-ready products. Maintain BUY rating! Q3FY23 performance – below estimates owing to weak exports, higher interest outgo, other expenses & lower other income • Operational performance was slightly lower than our estimates, but the bottom line impacted a lot due to higher finance cost (+238% YoY & +35% QoQ) due to increase in the interest rates, and substantially lower other income (-36% YoY & -76% QoQ) due to MTM. • Geopolitical concerns impacted revenue performance, while domestic piece was healthy. • EBITDA Margin at 11.7% (+41bps YoY & +70bps QoQ) came in lower than our estimates of 12.3% due to increase in other expenses (+38% YoY & +8% QoQ) owing to power cost increase in EU & the US. Phoenix Lamps – reached at double-digit EBITDA margin, traction to continue • Phoenix Lamps revenue met estimates, EBITDA margin improvement was impressive at 10.9% in Q3. The double-digit margin performance came after seven quarters & we trust that bad days are over double-digit margin performance to continue. • It received price increases from customers and witnessed a significant operational improvement. Additionally, Gas prices have come down that supported further. • 70% revenue comes from aftermarket business, which is moving very strong. • Restructuring exercise started to improve efficiencies & reduce costs. The management decided to voluntarily would-up Trifa subsidiary. This will take one year with no write-downs expected. • Only Luxlite subsidiary will be operational with reduced costs & improved efficiencies. Auto cables division at one of its best level • A very good performance witnessed in Auto cables division, whereas revenue & margin beaten our estimates. Revenue at Rs3.16bn with 17.3% EBITDA margin is healthy. • It received price increases & shipping costs dropped supported overall performance. Auto cables margin is sustainable. • Domestic OEM & Aftermarket performance was robust, while the picture was mixed for exports. New business pipeline remain healthy for the coming years. Light Duty Cable (LDC) – EBITDA margin turned in black, improvement to continue • LDC revenue met our estimates, although margin turned positive at 3.7% due to restructuring exercise & price adjustments received, but margin is slightly lower than our estimates of 5%. We believe margin improvement trajectory will continue. • China plant faced Covid disruption, but team managed it well. The outlook for Hungary plant is positive as stability is returning and performance is expected to improve. • Mexico plant's revenue is stable with margin improvement, expect good traction in the coming years. • Guidance of $100mn revenue in FY24 with double-digit EBITDA margin by Q4FY24 maintained. The next FY will be good for LDC in revenues and margins. Non-auto cables – a temporary blip in the performance due to external factors • Non-auto cables division dragged down overall financials completely. Revenues & margin was much below our anticipation as slowdown in the US market impacted sales. • The US non-auto segment have witnessed slowdown, which led to a few customers reducing business volumes in Q3.

SJS Enterprises Ltd | Q3FY23 Result Update | Q3 – a slight miss, immense growth ahead & valuation is attractive! CMP: Rs 438 | Target Price: Rs 583 | Upside: 33% | Rating: Buy Q3FY23 numbers were slightly lower than our estimates due to external factors including weakness in exports due to geopolitical reasons & one-off expense in Exotech. Despite this, outperformance continued vis-à-vis industry growth, margins maintained at a respectable level, the addition of new customers, geographic expansion & winning businesses from mega accounts continued. SJS raising funds upto Rs3bn for inorganic & Exotech’s expansion purpose. Due to near term challenges in the export markets, reduced revenue guidance from 25% to 20% for FY23e, while maintained mid-term CAGR of 25%/30% in Revenue/PAT respectively. We retain BUY with a fair value of Rs 583 per share as the next leg of growth will come from the combination of 1) cross-selling Exotech-SJS products to each other clients, 2) selling higher realization new generation products developed in-house (2-3x higher price than traditional ones), 3) aims to grow exports faster, 4) premiumization in Auto/Consumer durables, and 5) mining existing accounts along with acquiring new customers in domestic as well as overseas. Q3FY23 performance – a slight miss due to weakness in exports & one-off  Consolidated revenue Rs1.06bn (+16% YoY & -9% QoQ), EBITDA margin 24.5% (-325bps YoY & -200bps QoQ), and PAT at Rs157mn (+15% YoY & -21% QoQ). Revenue/EBITDA/PAT was slightly lower than our estimates by 3%/4%/7% respectively.  Due to seasonality, domestic demand softened in Q3 vs. Q2. Exports continue to remain weak in Q3 and expect weakness to continue in Q4 as well. Owing to one-off in Exotech and subdued demand in high margin export business, its overall EBITDA Margin dropped.  Exotech continue to perform well with 37% YoY growth (flat QoQ) in revenue to Rs349mn, reported EBITDA margin at 12.3% (-147bps YoY & -489bps QoQ), and PAT Rs14mn, (+32% YoY & -50% QoQ). A lot of Exotech’s business comes from cross-selling, gaining market share and launching new products quickly. Hence, revenue growth was very strong. (Exotech financial numbers are derived).  Q3FY23 includes one-off expenses of Rs6mn in Exotech, hence EBITDA margin was lower by 147bps YoY to 12.3%. The one-off is related to pre-acquisition rate amendment request raised from the customer. On a conservative basis, Exotech accounted this in financials. The adjusted EBITDA margin is ~14% in Q3FY23 (+25bps YoY).  Standalone revenue Rs715mn (-13% YoY & -13% QoQ), EBITDA margin 30.5% (-268bps YoY -0.04bps QoQ), PAT Rs143mn (+4% YoY & -16% QoQ). Revenue growth outperformed 2W+PV industry, and margin remains healthy at 30%+ level.  Overall, outperformance continued driven by increasing market share with existing customers, offering new-gen products, acquiring new customers and premiumization. The strategy is to grow mega accounts (focus), offer new products & win new businesses. Outperformance continued in Q3 as well  Its 2W+PV segment (~72% of revenue) grew by ~25% YoY in Q3FY23 surpassed 2W & PV industry production growth of ~4% for the same period.  Outperformance continued as SJS 2W segment grew by 14.1% in Q3 vs. 0.5% for the industry. Similarly, SJS PV segment grew by 43.5% vs. 21.4% industry growth. The similar kind of outperformance witnessed in 9M as well.  The strategy behind this is that SJS keep adding new customers, increase share of business with existing clients, & expand into new geographies, introduction of new-generation products (2-3x higher realization) and premiumization.  SJS added new customers’ viz. Foxconn in e2W, and IFB Industries in consumer appliances. Additionally, won new business with large accounts including M&M, Tata Motors, Toyota, Whirlpool, Electrolux and Royal Enfield.  Geographic expansion strategy continues by adding sales representative in Columbia, thereby expanding presence across Latin

Apollo Hospitals Enterprise Ltd | Q3FY23 Result Update | Ready to take off, hospitals business to take charge CMP: Rs 4,485 | Target Price: Rs 5,280 | Upside: 18% | Rating: Buy Q3FY23 saw decline in occupancy levels for the mature and new hospitals of Apollo due to festive seasons, going ahead this will improve. There has been contraction in EBITDA margins of existing hospitals both on a YoY and QoQ basis, however new hospitals saw muted margins. The patient mix will improve going forward as international patients revenue contribution will increase to 10% by FY23 and 15% in FY24 from current levels of 6-7%. The hospital business may see margin expansion of 100-120 bps yoy in FY25, led by improved payor mix and cost optimization. IP Volumes across the group grew by 7.5% YoY in Q3FY23. Revenue of existing hospitals grew 10.7% yoy while the new hospitals grew by 3%. Diagnostics and Primary care are being ramped up in AHLL (Apollo Health and Lifestyle Limited). The Pharmacy distribution segment registered a growth of 34%YoY with revenues of Rs. 17.5 bn during the quarter due to increased patients base and digital initiatives taken. The hospital business is poised to deliver superior growth in the next 1-2 years through better asset utilisation and increase in ARPOBs led by price hike. International revenues should also pick up in the next 1-2 years. The pharmacy distribution business will see increase in GMV to Rs. 15 bn is FY23 and Rs. 32bn in FY24 due to increased customer base. Since, the losses of 24*7 diagnostics business is expected to decline, the EBITDA margins would see improvement going ahead. Cost optimization, reduction in losses and high revenue growth will improve profitability. On an overall basis, we are positive about the prospects of Apollo and we assign “Buy" rating on the stock. Decent topline growth but higher expenses dented the margins • Apollo reported decent numbers for Q3FY23. The company registered growth of 17.2% on YoY basis but was flat on QoQ basis to Rs. 42 Bn. • EBITDA margin for Q3FY23 decreased by 428 bps YoY and 145 bps QoQ to 11.9%. This was mainly due to higher losses from Apollo 24*7 which dragged the overall profitability. • Occupancy across the group was 65% in Q3FY23. ARPOB (excluding vaccination) was Rs 51,482 in Q3FY23 as compared to Rs 44,374 in Q3FY22 registering growth of 12%. ALOS for Q3FY23 was 3.4 days. • During the quarter, Healthcare services posted an EBITDA margin of 24.7%, Pharmacy has margin of -3.6% (after adjusting for 24x7 operating costs) and AHLL—8.2%. • Mature hospitals delivered EBITDA margin of 27.4% (from 24.3% in Q3FY22) while new hospitals delivered margin of 18.1% from (18.9% in Q3FY22). Outlook and Valuation: We are positive about the prospects connected with Apollo. Both the healthcare services and pharmacy including 24x7 should perform robustly in the future. AHLL should also report superior performance. Based on SOTP valuation we arrive at target price of 5,260 (implied EV/EBITDA multiple of 22 on its FY25E EBITDA), offering 19% upside from current levels. Buy.

Huhtamaki India Ltd | Q4CY22 Result Update | Strong operational performance, Upgrade to ACCUMULATE CMP: Rs 199 | Target Price: Rs 213 | Upside: 7.1% | Rating: ACCUMULATE The company reported strong show on its operational part although revenue was slightly lower than estimates. The revenue declined by 10% QoQ & gross margin expanded by 181bps YoY & 278bps QoQ to 27.8% in Q4CY22. The expansion in gross margins is majorly because of decline in raw material prices & cost pass on to its end user industries. Despite revenue growth of 5% YoY, EBITDA grew by ~351% YoY because of lower raw materials and operational expenses. EBITDA margins expanded by 542bps YoY & 407bps QoQ to 7.1% in Q4CY22. At the PBT level, the company reported profit of Rs161mn in Q4CY22 vs loss of Rs47mn in Q3CY22. The company has also given an approval to monetize the freehold land and building situated at Majiwade, Thane, Maharashtra, subject to necessary formalities being completed. We upgrade to ACCUMULATE rating from earlier SELL rating on the stock with a target price of Rs 213 per share which offers upside of 7.1% from current valuations. Q4CY22 revenue declined by 10% QoQ; Gross/ EBITDA margins expanded QoQ basis • The company’s Q4CY22 revenue declined by ~10% QoQ to Rs 6.92bn (Slightly lower than our estmates of Rs7.11bn). As per our estimates, the de-growth should be led by decline in realization. Gross margins expanded by 181bps YoY & 278bps QoQ to 27.8% for the quarter, majorly led by declining raw material prices of PE films, biaxially oriented polyethylene etc. • The employee cost increased by ~3% YoY & declined by ~5% QoQ to Rs623mn and stood at 9.0% of sales in Q4CY22 as compared to 9.2% in Q4CY21 & 8.5% in Q3CY22, while other expenses declined by ~19% YoY & ~21.6% QoQ to Rs815mn and stood at 11.8% of sales in Q4CY22 as compared to 15.2% in Q4CY21 & 13.5% in Q3CY22. Lower raw material & lower operating expenses led to EBITDA margins witness improvement of 407bps QoQ to 7.1% for Q4CY22. • The interest cost went up by ~6% YoY & declined by 2% QoQ to Rs86mn; while the depreciation expenses were lower by ~7% YoY & flattish on QoQ to Rs210mn. Cost savings measure to help company cut down on fixed cost and stabilize margins • The company has embarked on ‘Project Parivartan’ (Transformation Project) which focuses on cost transformation, stronger price realisation and better quality of growth to turnaround its performance. It focuses on improving efficiency of manufacturing network, labour productivity and reduce wastages from operations to boost company’s long-term competitiveness. • The recent monetization of Thane and Ambernath plant will cut down on fixed cost and will help to stabilize the margins in the long term. Valuation • Post Q3CY22 earnings, we assigned SELL rating on the stock and thereafter the stock has also reached our previous quarters target price. Considering strong performance in current quarters and anticipation of strong quarters ahead, we have upgraded our price target to Rs 213, owing to pass on raw material prices & greenshoots of pickup in demand valuing the stock 14.5x CY24E EPS of Rs 14.7. • At our target price, the stock offers an upside of ~7.1%, thereby, assigning ACCUMULATE rating on the stock.

Bodal Chemicals Ltd | Q3FY23 Result Update | Subdued performance in Q3, weak demand pain persist CMP: Rs 65 | Target Price: Rs 69 | Upside: 5.4% | Rating: ACCUMULATE The company reported very subdued operational performance. Revenue de-grew by 44% YoY & 20% QoQ owing to very weak performance in the dyestuff, dye-intermediates businesses. Dye-intermediates business on YoY basis recorded dip of ~60% in revenue majorly led by both volumes & realization dip. Dyestuff business also dipped by 22% QoQ majorly led by volumes dip of 20% QoQ. Despite weak operational performance, Gross margins expanded by 60bps YoY & 644bps owing to pass on of higher RM prices & decline of some major raw material prices during the quarter. Chlor alkali business revenue dipped by 22.5% QoQ majorly because of realization & also shutdown of 3-4 weeks impacted bit of volumes. This business is expected to rebound as company has completed its technological upgradation which will support volume growth going ahead which is a positive and greenfield expansion of benzene derivatives will drive the growth beyond FY24E. The legacy business dye-intermediates and dyestuffs continue to witness volatility led by weak demand and excess supply and because of this the company is now foraying into newer businesses which would insulate itself from majorly depending on sectors like textiles, dyes etc. However, weak demand in legacy business will continue to weigh on the valuations, and therefore we downgrade to ACCUMULATE from earlier BUY rating on the stock. Weak demand of end user industries & recent issues in Turkey will slow the recovery • The dye intermediates & dyestuffs business reported very weak operational performance because of weak offtake from key end user industries like textiles, dyes, pigments etc. Dyestuffs business has been majorly hit because of weak exports market. • The global demand has also weakenend owing to higher inventory & recent issue of Turkey earthquake will slow the recovery. • We feel the pain in demand would be visible in coming quarter also and recovery should only be visible from Q1FY24 but meaningfully it should recover from H2FY24 which seems to be a long affair. Major subsidiaries continue to report profits, is a positive sign • The Turkish subsidiary Sener Boya has reported revenue decline of 21% YoY to Rs556.5mn in 9MFY23. However, on the bottomline the business has reported profits of Rs68.6mn in 9MFY23 as compared with loss of Rs273.6mn in 9MFY23. • Trion Chemicals reported revenues of Rs174mn in 9MFY23 despite weak volumes. The weak volumes was due to slow offtake in US market. But the major issues regarding hazardous application of TCCA in US market has been resolved and expected ramp up much faster in the coming quarters. Valuation • The company’s major end users are textiles, leather, dyes & pigments wherein demand had weakened significantly and is expected to remain weak for the coming quarters. Export market is also witnessing weak demand and pickup is anticipated by Q1FY24, also, recent turkey earthquake will again put exporters of textile dyes manufacturers in difficult times which will slow the recovery in demand. • We value the stock on PE multiple of 10x FY25E projections and arrive at a target price of Rs 69 per share which is a upside of ~5.4% from current levels. • Therefore, we downgrade to ACCUMULATE rating from earlier BUY rating on the stock.

Dollar Industries Ltd | Q3FY23 Result Update | Growth pillars in place driven by project Lakshya CMP: Rs 353 | Target Price: Rs 508 | Upside: 44% | Rating: Buy Dollar Industries Ltd (DIL), reported weak performance in Q3FY23, which was even lower than our estimates. Revenues in Q3FY23 declined by ~25.2% YoY led by a volume de-growth of ~32% YoY (volumes in 9mFY23 declined by ~6% YoY). Volumes in Q3FY23 were impacted due to volatility in the raw material prices which impacted primary sales. There was also an impact of high base of last year (pentup demand and channel filling) due to an expectation of increase in GST rates which resulted in preponment of demand from Q4FY22. Gross margins in Q3FY23 declined on account of consumption of high cost inventory. Since the raw material prices have now started to stabalise in a range company does not expect any further inventory related loss in Q4FY23. There has also been improvement visible in the sentiments of the distribution channel & thus management has guided for a topline growth of ~14%-15% YoY in Q4FY23 with EBIDTA margin improvement on a QoQ basis. We expect performance of the company to improve on a QoQ basis from here onwards due to some stability in raw material prices. We remain positive on the company’s mid-to long term potential and thus maintain our ‘Buy’ rating on the stock with a target price to Rs 508 (20xFY25e EPS). 9mFY23 Earnings Highlights • In 9mFY23, the company reported sales increased by ~1.7% YoY, volumes declined by ~6% YoY. Average selling price increased by ~9% YoY. • Gross margin for 9mFY23 declined by ~409 bps YoY to 30.1% due volatility in raw material prices and impact of inventory loss due consumption of high cost inventory. • EBITDA margin for 9mFY23 declined to 6.8% vs 16.9% YoY. EBIDTA margins were impacted due to lower gross margin, higher advertisement expenditure & lower absorbtion of overheads. • PAT for 9mFY23 declined by ~53% YoY to Rs 520 mn. Tax rate was lower at ~17.6% vs 25.5% YoY. Project Lakshya on track DIL is working with Vector Consultants to implement Theory of constraints (TOC), in an attempt to keep a tab on its working capital mainly by reducing receivables and inventories. Company has enrolled ~203 distributors upto 9mFY23 (14 distributors in Q3FY23) under the project Lakshya and target to bring ~70% of its distributors under project Lakshya by FY25. Company has also on-boarded ~245 distributors (40 distributors in Q3FY23) under channel financing. Management has maintained its goal to reach sales of ~Rs 20 billion by FY25. Outlook and Valuation: • DIL’s strong brand recall coupled with deeper penetration and consumers shifting towards affordable branded quality products are strong macro tailwinds for the company. Currently the innerwear industry is witnessing a structural shift from unorganised to the organised sector. We expect DIL to benefit from this trend. • We have valued the stock at 20xFY25e EPS (rolled over from Sep’24) of Rs 25.4, to arrive at a target price of Rs 508 per share and maintain our “Buy” rating.

Krishna Institute of Medical Sciences Ltd | Q3FY23 Result Update | Acquired clusters to drive growth CMP: Rs 1,438 | Target Price: Rs 1,704 | Upside: 19% | Rating: Buy KIMS, has experienced good growth due to the merger between Sunshine and Kingsway. Additionally, the base business has also shown improvement in terms of EBITDA, indicating that the cost rationalization efforts put in place have been successful. Turnaround of Sunshine will be key driver for KIMS overall EBITDA as there is big room to grow from 18% to 25% EBITDA once occupancy picks up at Sunshine. Management is further confident of operationalizing Bangalore and Nashik facility in 2 years’ time leveraging their healthy balance sheet & operating cashflows. Also, management is looking at increasing its stake in certain subsidiaries, thereby reducing its minority contribution. Over the longer term, growth is expected to be robust led by expansion of operating beds, increased occupancies and improved case mix. As new hospitals move towards matured category, revenue and EBITDA margins would gain traction because 55% of beds capacity is from new and acquired clusters. With bed capacity ramp up over the next few years, the revenue is expected to remain robust. We assign 20x EV/EBITDA on FY25E EBITDA and arrive at Rs 1,682 per share, translating into an upside of 19% and hence, we assign Buy rating on the stock. Decent performance all around • Revenue increased 42.8% YoY and was flat by 0.3% QoQ to Rs 5,622 mn. This was mainly due to decline in Inpatients admission which saw decline of 1.7% QoQ but has seen rise of 26.5% YoY. • ARPP (12.8% YoY) and ARPOB (Rs. 29,812- growth of 12.8% YoY) have shown improvements at the group level, though IP volume has declined due to the festive season. Going forward, it will show healthy growth. • EBITDA for the quarter reported a healthy growth of 16.5% YoY but was flat on sequential basis to Rs. 1,512Mn, whereas EBITDA margin was at 26.9% which witnessed contraction of 608 bps YoY and 13 bps QoQ. This was mainly due to higher employee and other expenses. Consolidation of Sunshine and Nagpur hospital was another reason for lower margins. • Sunshine Hospitals have shown an improvement in ARPOB from Rs. 60,419 in Q2FY23 to 65,436 in Q3FY23, growth of 8.8% whereas EBITDA has improved from 18% in Q3FY23 to 21% in Q3FY23 Outlook and Valuation: The company plans to add beds capacity of 2200-2300 beds over a span of 3 years which will increase the number of operational beds by 75% from 3064 in FY22 to 5375 beds in FY25E. This will help to boost revenue growth going forward. Currently, the stock is trading at comforting valuation on FY25E EV/EBITDA of 15x. We value the stock at 20x (in line with its historical average) due to capacity and geographical expansion, improved margins and robust revenue growth, thereby, arrive at target price of Rs 1,704 per share which offers upside of 19% from current valuations. Therefore, we assign BUY rating on the stock.

Fortis Healthcare Ltd | Q3FY23 Result Update | Improvement in patients mix to drive revenue CMP: Rs 272 | Target Price: Rs 380 | Upside: 40% | Rating: Buy Fortis delivered a healthy Q3FY23 results, driven by strength in hospital business. The diagnostic business continues to see pressure due to high covid base, however the EBTDA margins have improved sequentially. We expect strong growth in hospital business to continue with capacity debottlenecking, case mix improvement and increase in ARPOB. We expect revenue CAGR of 13% from FY23-FY25E as the high-end surgeries would continue to increase leading to improved case mix. Around 1500 beds would be added in the next 4-5 financial years. The patients mix and occupancy to improve from 63% in FY22 to 70%-75% by FY25E going forward. The SRL diagnostics business is showing initial signs of stabilization in the aftermath of the covid surge and the challenging industry environment. SRL continues to focus on improving its channel mix and adding to its specialized test menu such as those in the area of genomics On an overall basis, we are positive about the growth prospects of both Hospitals and SRL, and accordingly we recommend an "Buy” rating on the stock. Hospital business boosted by higher international patients • Q3FY23 Hospitals business revenue witnessed growth of 13.4% YoY and degrew 2.4% QoQ to Rs 12,674 Mn mainly due to increased occupancy level (66%), increase in ARPOB by 8.6% YoY at Rs. 55,342. • International patient revenues grew 73% YoY to Rs. 1,140 Mn in Q3FY23. International patient revenue contribution increased to 9.0% of hospital revenues versus 5.9% and 8.4% in Q3FY22 and Q2 FY23 respectively. • EBITDA margins for the hospital business contracted by of 150 bps QoQ and 10 bps YoY to 16.7%. EBITDA in the quarter was Rs. 2,110 Mn for Q3FY23. Diagnostic business continues to show improvement sequentially • Diagnostics business gross revenues declined 14.7% YoY to Rs 3,315 Mn versus Rs 3,885 Mn in Q3FY22. It witnessed decline on sequential basis as well by 5.6%. Diagnostics revenues were impacted by the decline in covid volumes. Non covid revenues however grew 7% YoY for the quarter. • The diagnostics business EBITDA was Rs 711 Mn in Q3FY23 versus Rs 977 Mn in Q3FY22 with margin of 21.4%. SRL’s revenue contribution from the specialized test portfolio (non-covid) increased to 33% from 30% in Q3 FY22. Outlook and Valuation: We are positive about the prospects connected with Fortis. Both the Hospitals business and SRL should perform robustly in the future. We have valued the Hospitals business at 18x on FY25e EV/EBITDA and the Diagnostics business (SRL) at 18x on FY25e EV/EBITDA to arrive at a Target Price of Rs 380. This provides an upside of 40% with respect to the current market price. Accordingly, we recommend a “Buy” rating on the stock.