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Shalby Ltd – Knee Replacement Specialist

Updated: Jun 9, 2022

Company Name – Shalby Limited (Shalby)

Current Share Price – INR 120 (May 04, 2022)

Market Cap – INR 1,295 cr


1. What is interesting about the stock?

I didn't think my knee replacement surgery would help. I stand corrected.

The concept of knee replacement cost in India and surgeries have become very common all around the world. It acts as a permanent solution to prolonged knee illnesses and pain. The success rate for this kind of surgery is almost 100% and thus attracts many people to undertake this surgery and get a permanent solution to their knee joint disorder and pain.

The reason for undergoing this surgery can be varied. Age is one of the factors, but the major reason is the excessive wear and tear of the knee joint due to any reason. Though the illness is common in older people, teenagers, as well as adults, can also undergo this surgery depending upon the degree of wear and tear of their knee joints and the extent of their disability as described by the doctor.

Arthroplasty, the medical name of the knee replacement procedure is performed to repair the damage that is caused to the knee joints. The damage is triggered by Osteoarthritis or rheumatoid arthritis, which are the two most common and severe forms of arthritis.

In simple words, if you are someone who’s having trouble walking straight, climbing stairs, and getting in and out of chairs, then you should consult a knee replacement doctor because maybe, you need knee replacement surgery to get over this problem.

Shalby is promoted by the arthroplasty specialist, Dr. Vikram Shah, who commenced hospital operations under the company with a six-bed facility at Ahmedabad in 1994. Shalby currently operates a chain of multi-specialty healthcare facilities with ~2,012-bed capacity and a potential to reach ~2,400 beds in the coming 2-3 years. Shalby has a strong presence in western and central India with 11 operational hospitals in Ahmedabad, Vapi (Gujarat), Surat (Gujarat), Jaipur, Indore (Madhya Pradesh), Jabalpur (Madhya Pradesh), Mohali (Punjab), and Mumbai. Shalby also operates 50 OPD centers across India and seven clinics in Africa (Kenya and Tanzania). Operations were initially focused on arthroplasty procedures (knee and hip replacements), following which the Company expanded into other specialties such as oncology, bariatrics, cardiology, neurosurgery, etc. over the last few years.

The existing revenue mix between arthroplasty and other specialties is 45:55 (FY20).

Shalby has acquired the implant assets from US-based Consensus Orthopedics, in May 2021, for a consideration of USD 11.5 million. The acquired assets are primarily comprised of inventory and plant and equipment. Product inventory includes knee systems, mobile bearing knee systems, hip systems and revision knee systems. The manufacturing plant and equipment consists of machining & finishing (60,000 components per annum), inspection (75,000-80,000 components per annum) and cleaning, packaging & sterilization (1,50,000 components per annum). This will allow Shalby to procure quality implants at a competitive price for captive consumption.

Future Prospects

Shalby has plans to set up new hospitals through a calibrated expansion strategy. It is pursuing an asset-light model of expansion through franchise route for orthopedics and for joint replacement to expand its pan-India presence. Management has guided towards opening 50 hospitals using the franchise route in the next three years.

Management Background

Dr. Vikram Shah is the founder Chairman & Managing Director of Shalby. Dr. Vikram Shah is known for popularizing Total Knee Replacement (TKR) through his surgical process innovation which reduces surgery time from hours to 8 to 10 minutes with added advantages of minimal incision, minimal blood loss, reduced infection rate, and speedy recovery which enables patients to start walking within few hours after surgery.

Strengths (Why invest in Shalby?)

  • Leader in Arthroplasty (joint replacement surgery): Shalby is a leader in joint replacement surgery in India with a 15% market share in India (highest among private hospitals). It is the top player worldwide for knee replacement surgery.

  • Asset light expansion model

  • Backward integration with the acquisition of implant assets from Consensus Orthopaedics


  • High dependence on the flagship hospital at SG Highway: Company derived 33% of the total revenue and 57% of the total operating profit from this hospital in FY20

  • Low occupancy (the mid-30s vs competition operating in the 50-60% range) and ROE

  • Price regulation by the government

  • Very high keyman risk on Dr. Shah

2. Key Historical Financials

  • Company saw revenue fall in FY21, but growth came back in the last few quarters, as the business got impacted by COVID-19. Patients were postponing elective surgeries

  • Revenue fell in Q3FY22 vs Q2FY22 due to festivities and a surge in COVID-19 (Omicron variant)

  • EBITDA has been stable in the 17-20% range since FY19. Business faced pressure in Q2FY22 and Q3FY22, mainly due to an increase in employee and other expenditure

  • CFO/EBITDA has been poor in FY19 and FY20 with recovery in FY21

  • ROE and ROCE are below the cost of capital – both haven’t shown any improvement. FY22 seems to be better based on TTM results

Cash Flow Analysis

Working capital in the business is higher as compared to the other hospitals as it needs to maintain an inventory of joints that are replaced in the surgeries. I would expect Company to have an EBITDA of INR 120+ cr in the next few years with cash outflow (CFI) predominantly for the working capital (inventory), turning around US business, and opening new hospitals.

3. What is my view on company valuation?

The Company did its IPO in December 2017 at a share price of INR 248. It has never traded above its issue price since listing. The current share price is at more than a 50% discount from the IPO issue price.

Shalby trades at an EV/EBITDA ratio of 10x vs Apollo Hospitals of 27x and Narayana Hrudayalaya at 23x. Valuation looks reasonable vs competition but Company has weak ROE (vs competition) with a difficult path to reach the cost of capital (it needs to double the profitability).

Shalby could be an interesting acquisition target for a larger multi-specialty hospital.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Any surge in COVID-19 can lead to deferment of elective surgeries impacting business

  • Many large multi-specialty players and local hospitals have started developing expertise in Arthroplasty – increasing the competitiveness in the space

  • 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 Middle East across a wide variety of sectors. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in 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 since 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 purpose and not to be construed as an 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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