Better ROE/ROCE amongst the peers: Shalby has superior margins as compared to its peers and earnings are likely to increase, only if there is improvement in the occupancy levels at new hospitals going forward. The company’s performance has been better than peers with better ROE and ROCE at 23.5% and 11.1% respectively in FY17. However, only two hospitals contributed 77% of revenues and over 90% of EBITDA in FY17 and the operations of the company is majorly dependent on one of its promoters, Dr. Vikram Shah. Any impact on revenues from these hospitals or a loss of his services could adversely affect its business. We recommend “SUBSCRIBE” with a longer term investment horizon because of better profitability and superior return ratios than the peers. However, we believe it is a value investment from long term perspective rather than any short term gains, since the margins in near term will be under pressure due to addition of newer hospitals.
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