Dhan Jeevan operates a hospital offering various diagnostic
and therapeutic services.
The hospital operates in various areas of medicine including
Urology, Gastroenterology, Cardiology, Neurology, Internal Medicine, and
Radiology (including MRI).
It generally enjoys a high occupancy rate of its beds. Further, the trend of greater numbers of people
taking health insurance coverage bodes well for the hospital industry’s
revenues.
As a result of the above and other related factors,
management intends on increasing the hospital’s bed capacity and expanding some
of the hospital’s other facilities.
The company reported stable operating profits on similarly
stable revenues (with minor growth) – reporting almost 1cr in operating profits
on revenues of over 4.5cr. It did not
operate with any net debt as at 31st March, 2012 although this is
likely to change in the near future (see below).
The business is not immune to reduced demand as a result of
economic slowdowns as patients put off non-emergency visits. Even rises in interest rates reduces demand
for those patients who finance treatment with loans. Other macro-economic factors such as general
cost inflation, slow rate of infrastructure development (roads, etc.), high
taxes, etc. play their part in reducing demand.
Moreover, there is an inherent conflict of interest in this
business where higher profits may not be consistent with quality patient care.
The business earns low returns on invested capital and
hence, significant expansion plans are likely to destroy shareholder
value. Moreover, management have
explicitly stated their intention to raise funds for this purpose – either
enhancing financial risk via external borrowings or diluting existing
shareholders. Further, management have
not paid dividends to shareholders in the past despite low returns. All this raises serious questions about
management’s fidelity towards their employers – the equity shareholders.
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