Why Ameera Shah-Led Metropolis Healthcare is Attractive to Investors

Metropolis Healthcare is in a sweet spot. No sooner had it indicated that it was looking for strategic partners to grow its business, than it saw investors lining up to partner or buy a stake in the fast-growing diagnostics company.

Major companies across sectors are understood to have shown interest in buying stake in Metropolis. The list, sources say, includes names such as Apollo Hospitals along with the Adani Group, Amazon, Flipkart and Trivitron Healthcare, a medical technology firm.

What makes Metropolis attractive to investors? “The company is in good standing among the medical fraternity in India,” says Dr Arvind Lal, Chairman and Managing Director of Dr Lal PathLabs, a diagnostics and healthcare testing chain that competes with Metropolis. “On the whole, there is great interest in healthcare companies in India and Metropolis fits the bill eminently.”

Agrees Sriraam Rathi, Analyst-Healthcare & Pharmaceuticals at BNP Paribas India. “The company is well positioned to monetise industry tailwinds such as shift of the unorganised market to organised players and double-digit revenue growth with increasing demand for quality healthcare. Metropolis derives a large part of its revenue (42 per cent) from specialised tests, which is a differentiating factor from peers and helps generate better realisation,” he says.

Emailed queries to potential investors such as Apollo Hospitals, the Adani Group, Amazon and Flipkart did not any elicit any response, while Trivitron refused to comment.

Meanwhile, so strong has been investor interest that it was rumoured that the promoters wanted to exit Metropolis, but the company clarified to the stock exchanges in June that there were no such plans. Some reports have also suggested that Metropolis has put its sale on hold and was looking to raise as much as $500 million to fund acquisitions in healthcare and diagnostics. “If equity of $500 million is raised, then promoters’ stake will drop to 33 per cent. Issuance of debt entirely will dent profits by 12-15 per cent. A mix of debt and equity should be the ideal option for the company,” says Abdulkader Puranwala, Analyst-Healthcare and Pharma, and VP at Elara Capital. The promoters currently hold 49.79 per cent.

However, Promoter and Managing Director Ameera Shah has dismissed any reports of the promoters exiting the business as speculative. The plan is different, she says. “Metropolis has always been open for strategic partnerships that will aid the growth of the business,” says Shah. “We are exploring various minority equity strategic options.”

Deven Choksey, MD of KRChoksey Holdings, expects the diagnostics space to become more organised with the imminent entry of the Adani Group and pharma major Lupin, and lead to significant investments. “From Metropolis’s point of view, the pandemic saw a surge in their valuation which, coupled with the entry of those with deep pockets, might give them a reason to exit,” he says.

What makes the company a lucrative investment opportunity is the Metropolis brand that has a strong vision and a unique growth strategy, says Shah. “Since we listed in 2019, we have maintained an excellent track [record] of sustainable growth. We have cemented a position of trust with international and domestic investors by posting industry leading performance every quarter since listing,” she says. “Our focussed efforts in enhancing operating parameters backed by best-in-class disclosures and good governance practices have been recognised by capital markets, and that has resulted in the stock delivering good returns.” The stock has gained 55 per cent since listing compared to the benchmark Sensex’s 53 per cent during the same period. However, on a year-to-date basis, the stock has declined nearly 57 per cent. Metropolis had a market capitalisation of Rs 7,602 crore on August 12, 2022, with the stock closing at Rs 1,486 on the BSE.

Future Focus

Over the years, a major focus of the diagnostics chain has been on the acute illness segment and it aims to strengthen that in FY23. In 2021, Metropolis had unveiled a plan to expand its network by setting up 90 labs and 1,800 collection centres in 30 months. Its acquisition of South-based Hitech Diagnostic Centre was a step in that direction. “With the integration of Hitech Diagnostic Centre under Metropolis Healthcare now, we aim to further strengthen our presence in south India—that includes Chennai, rest of Tamil Nadu and Karnataka—by launching 100 centres in FY23,” says Shah.

The company has indicated that it wants to look at the specialised testing segment. Metropolis also aims to create a category for chronic and wellness testing, something healthcare players eyeing the company are focussing on as well. Shah says that in the past two to three years, consumer behaviour towards health has changed due to Covid-19, with people becoming more health conscious. “Therefore, our goal will be to focus on 100 per cent of the population, which includes chronic and wellness patients. We aim to target them through wellness packages at good price points, loyalty programmes, etc. Digitisation and automation, home testing services and stakeholder engagement will complement our efforts in building this growth segment.”

As part of the company’s strategy to target the chronic and wellness segment, it will require a large amount of tech-enablement in the back end and digital transformation from both front-end and backend, which is currently under process, the company says.

Metropolis is also building a new API-led tech architecture that will allow it to work with all industry players seamlessly. It has upgraded its mobile app for patients and has built digital platforms to engage with its stakeholders. This has translated into Metropolis witnessing 173 per cent increase in digital users year-on-year (YoY) in FY22; 151 per cent increase in website views YoY; and 61 per cent increase in digital-driven revenue.

However, Metropolis isn’t the only organised player in the space. Rathi of BNP Paribas India says competition among organised players is increasing with several corporates entering the space, and this could impact the company’s growth and margins. The valuation of Metropolis has corrected “meaningfully in the recent past” because of this and as a result, it has become more attractive for investors. But, given the organised players’ market share of just 17 per cent, “we expect new entrants to mainly take share from unorganised players”. Rathi adds that Metropolis has large revenue contribution from specialised tests that is unlikely to see the impact of competition.

According to a report by ICICI Securities, a surge in competition from large brands is likely to impact realisations in the near term. But the securities firm remains positive on Metropolis owing to its aggressive network expansion with focus on B2C, strengthening position in the fast-growing South region with the Hitech acquisition, focus on increasing digital revenues, and faster shift of the market to organised players. “While any new entrant can quickly scale up B2B play,the B2C business can only be scaled up gradually,” says Vinay Bafna, Analyst at ICICI Securities. “So, the easiest way to grow is to acquire an established brand or player,” he says.

Advantage Diagnostics

What helps Metropolis’s cause is investor interest in India’s diagnostics space. According to a report by HDFC Securities, diagnostics is one of the fastest growing service segments in the country. The industry, estimated at $9.5 billion in 2021, is expected to grow at a CAGR of around 11 per cent over the next five years, largely driven by increase in healthcare spending by an ageing population, rising income levels, increasing awareness for preventive testing, advanced healthcare diagnostic test offerings, and the central government’s healthcare measures, the report notes. And, according to the Ministry of Commerce and Industry, India’s hospitals and diagnostic centres sector reported growth of 39 per cent in FDI in FY22, with fund infusion of around $697.5 million during the year.

“With the rising burden of non-communicable diseases such as diabetes and cancer, India’s healthcare sector has probably attracted substantial interest from private equity players in diagnostics, primary care to specialist surgical centres and for building new hospitals,” says Narendra Varde, MD, Roche Diagnostics India and Neighbouring Markets.

Such heightened interest can only mean good news for Shah and her plans for Metropolis Healthcare.

@neetu_csharma