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HCG Ltd – Cancer Specialist

Updated: Aug 11, 2022

Company Name – HealthCare Global Enterprises Limited (HCG)

Current Share Price – INR 284 (August 10, 2022)

Market Cap – INR 3,951 cr


1. What is interesting about the stock?

Reading about HCG (cancer) evoked strong feelings. Fear of the unknown, loss of loved ones…

What is Cancer?

Cancer is a large group of diseases that can start in almost any organ or tissue of the body when abnormal cells grow uncontrollably, go beyond their usual boundaries to invade adjoining parts of the body, and/or spread to other organs.

Cancer is the second leading cause of death globally. Lung, prostate, colorectal, stomach, and liver cancer are the most common types of cancer in men, while breast, colorectal, lung, cervical, and thyroid cancer are the most common among women.

“Cancer” is a powerful word that evokes strong feelings as it did in me. It’s a word associated with a lot of fear, but it shouldn’t be. Most people have preconceived notions about cancer that are inaccurate — and often scarier than the reality they face. Most forms of cancer, depending on when they’re caught, are treatable and curable. Some forms of cancer are curable even at advanced stages.

The following risk factors and mechanisms have been proposed as contributing to cancer:

  • Lifestyle factors like smoking, a high-fat diet, and working with toxic chemicals

  • Family history, inheritance, and genetics may play an important role in some childhood cancers

  • Some genetic disorders

Cancer prevalence has jumped 100% in India since the 1990s on a DALY basis (based on the data provided in our hospital note). Disability-adjusted life year (DALY) is a measure of overall disease burden, expressed as the number of years lost because of ill-health, disability, or early death. However, its prevalence is still 1/3rd of cardiovascular diseases. As early cancer diagnosis improves, thanks to scientific advancements, spending on cancer-related surgeries and medicine will also increase.

Established in 1989, Healthcare Global Enterprises Limited (HCG), is present primarily in the oncology field with the largest cancer care network. It is promoted by Dr. B.S. Ajaikumar, who is practicing radiation and medical oncologist with over 30 years of experience. Originally established with a single cancer care center, the Bangalore Institute of Oncology (BIO), in Bangalore by Dr. B.S. Ajai Kumar and four other oncologists, the Company has rapidly expanded its presence to Ahmedabad, Chennai, Nasik, Ranchi, Rajkot, Cuttack, Hubli, Mumbai, Nagpur, Vizag, and Vijayawada, among others. The Company is now present across the oncology value chain, offering services from prevention, screening, diagnosis, and treatment to rehabilitation, supportive care, and palliative care. CVC group owns ~57% stake on a fully diluted basis, after equity infusion and open offer in 2020.

The Company operates 21 comprehensive cancer centers, 4 multi-specialty hospitals, and 7 fertility centers and has over ~1,750 operational beds. Almost 82% of its revenues come from Oncology.

As most of its centers are located in Karnataka, Gujarat, and Maharashtra, the revenue contribution from these states is higher. Revenue split in Q1FY23 was:

  • Karnataka – 35%

  • Gujarat – 26%

  • Maharashtra – 15%

  • East India – 10%

  • South India (other than Karnataka) – 9%

  • North India – 4%

The Company uses the hub-and-spoke model to create an integrated approach to cancer care. HCG can successfully reach patients across India through the spokes located in smaller cities and Tier 2/3 towns. The Company is the number 1 player in these smaller cities and Tier 2/3 towns, Centre of Excellence in Bangalore serves as the hub, which provides access to centralized quality control and assurance services, establishes treatment protocols across the network, provides centralized treatment planning services and teleradiology services and provides access to advanced technologies and specialized procedures.

Capital allocation has been a challenge for the Company with a large capex plan in the last few years, which was funded by debt. Additionally, cancer treatment is an evolving field in medicine so the capital expenditure on cutting-edge technology equipment is high. The situation became more difficult during the COVID-19 period. The Company has done the following to address the issue:

  • Raised capital from CVC – INR 650 cr

  • Monetized 38% equity stake in Strand Life Sciences (JV) resulting in a net cash inflow of INR 75 cr

  • Acquired balance stake (49.9%) in BACC Health Care Private Limited (Milann fertility business) for INR 68 cr – HCG will look to sell the fertility business which is unrelated to the core cancer business. Owning 100% makes the transaction easier

  • Prepayment of existing term loans of ~INR 240 cr

  • Stopped greenfield project in Gurugram and wrote off ~INR 47 cr

Future Prospects

The Company is expected to focus on business consolidation in the next few years with no rollout of greenfield projects. We can expect a growth rate of 15-20% in revenue and expansion of EBITDA margin. The Company is expected to become profitable at the PAT level driven by higher EBITDA margins and lower interest costs from deleveraging.

Management Background

  • Dr. BS Ajaikumar is the Executive Chairman and Founder of HCG. He served as the CEO from 2005 to Jan 2021. Dr. Ajaikumar has been a practicing oncologist in the US and India for over three decades.

  • Raj Gore is the current CEO. He has more than 21 years of experience in the hospital space with players like Apollo Hospitals and Fortis. Raj joined after CVC took a majority stake in HCG

Strengths (Why invest in HCG?)

  • Leading cancer specialist hospital chain. Incidence and delectation of cancer expected to increase

  • Hub and spoke model – make the business relatively asset-light

  • Business turning around with professional management and CVC as a shareholder


  • High competition from multi-specialty players – they get operating leverage as the hospital size (number of beds) could be bigger in a multi-specialty setup vs a standalone cancer hospital

  • Operational turnaround of new centers could be challenging

2. Key Historical Financials

  • Company had flat revenue in FY20 and FY21 with growth coming back in FY22

  • EBITDA margin has been steadily increasing due to the focus on turnaround

  • HCG broke even in last couple of quarters

  • The net D/E ratio has come down after the equity infusion by CVC

  • Cash Flow Convertibility (CFO/EBITDA) was strong in FY22

Cash Flow Analysis

Working capital in the business is low so HCG would have high cash flow convertibility from EBITDA. I would expect Company to have an EBITDA of INR 240-300 cr in the next few years with cash outflow (CFI) predominantly for the replacement or maintenance capex. This would lead to cash available to reduce the debt level in the Company. The sale of the fertility business is expected to help in cash generation as a one-time.

3. What is my view on company valuation?

The Company share price has run up ~4x since March 2020 reflecting optimism about the business turnaround. CVC invested at the share price of INR 130 in Jun 2020 vs the current price of INR 300.

HCG trades at an EV/EBITDA ratio of 17x vs Apollo Hospitals of 30x and Narayana Hrudayalaya at 20x. Valuation looks quite rich for a business that is expected to grow at 15-20% on revenue level and has weak ROE/ROCE (vs competition).

The opportunity looks interesting for the long term with the expected increase in cancer cases. However, it may be better to look at multi-specialty players with a diversified business model and better/stable operating economics.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • CVC will look to exit the investment in medium/long-term players. Shareholders could benefit from any acquisition premium paid by the buyer

  • Adverse government regulations

  • Limited availability of medical staff – could lead to an increase in cost pressure for quality resources


About the Author

I have over 15 years of experience in venture capital, private equity, and investment banking in India and the Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.

I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).

I am an Insignificant Investor in the public market and co-founder of SocInvest.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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