Click here for last year post on HCG
Today HCG has sold its stake in
Strand life to Reliance Industries. HCG had 38.4% stake in Strand and it has
sold it for Rs. 158 cr. Reliance is paying Rs. 550 cr for 80% stake in Strand.
I always liked the work being done by Strand in Genomics, Genetics and
diagnosis and I was thinking that HCG would sell their IVF business (Milann
brand) and use the same for increasing their stake in Strand. But looks like
the focus has changed after the arrival of a new majority shareholder in the
form of CVC and they want to focus only on Cancer care. I have no problems with
them selling strand but I also want them to exit this IVF business.
But they have done one good thing
while selling stake in Strand- strand has hospital Labs and Clinical research
business and HCG has bought the same from Strand as a part of the deal for 81
cr (setting off 7 cr against receivables so net outflow is 74 cr). In my last
year article on HCG I have mentioned this clinical research business. I think
due to inherent strength of HCG in cancer care and their huge database of cancer
patients they can do great in clinical research in India. If someone wants to do
research for cancer treatment/diagnosis in India then they need the genetic and
cancer related data of Indian patients only and that’s where HCG can contribute
big. Acquisition of Hospital labs will help HCG to grow its diagnostics
business.
So after paying for Labs and
clinical research businesses it has got 83 cr cash which is good as they are
focusing on paying off debt and expansion also which requires funds. I like
businesses when they take tough decisions and this stake sale is a tough
decision by them. But I think they don’t have any other choice- Strand was a
research heavy business and only recently they started focusing on growing
their revenues. But they are still making losses and require regular capital
inflows which I think is something that HCG cannot do right now as they are
trying to generate capital for expanding their cancer care business and reducing debt. HCG needs to cut its debt but they can't take their eyes of the business expansion because India is still having massive unmet cancer care needs. So they need to be extremely careful in capital allocation. Hence in
these circumstances this looks like a wise decision and I like their single
minded focus on growing their cancer care business in India.
In last 2 years, we have picked three healthcare stocks
as our healthcare Trinity- Max healthcare (click here for article on Max Healthcare), Narayana Hrudayalaya (Click here for article on NH) and HCG. Max Healthcare
has already been almost a 10 bagger for us (adjusted for demerger) while NH and HCG are a double
right now but I always have a feeling that HCG may outperform all in the next 2-3
years as their expansions of last 2-3 years are going to bear fruits in the near
future. So HCG at 240 is still looking good.
(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your own Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post. Reach me at oscillationss@yahoo.in)