Mixed reading

It’s been an uneventful year for diagnostic chain Thyrocare Technologies. From a high of Rs.682 in September 2018, its stock price hit an all-time low of Rs.425 in May 2019. The stock had hit its all-time high of Rs.780 in April, 2017 post its IPO at Rs.446 a year earlier.  Mirroring investor sentiment, A Velumani, founder and CEO, noted in the company’s Q4FY19 investor meet that FY19 was a year of subdued growth.

Thyrocare’s quest to boost its topline growth in FY19 meant the company had to “sacrifice” its profitability. It lowered the prices of its popular health check-up and wellness package, Aarogyam. Volume rose, but revenue and Ebitda margin remained subdued. “I had the courage to take a decision, but I took a conservative one, and that resulted in moderate growth and retained Ebitda,” mentioned Velumani during the call.

As Thyrocare’s profitability was hit, the stock lost ground. And Velumani has used this opportunity to shore up his holding. With the latest acquisition of Rs.63 million in the last week of June, he has spent Rs.310 million since January on open market buying. After the latest acquisition, promoter holding stands at 66%. This show of faith has helped the stock recover slightly, as it now trades at Rs.478. The management remains hopeful of a better year as Velumani reiterated during the last concall, “Any price correction gives results only in the fifth or sixth quarter.”

However, some analysts are not so sanguine about the sustainability of its long-term volume growth. A Spark Capital report states, “Thyrocare’s price reduction-led Aarogyam volume growth is achieved at the expense of non-Aarogyam volume growth and pathology Ebitda margin (decline of 350 bps QoQ)”.

Mutual funds have also turned cautious. Over the past four quarters, they have reduced their stake from 18.71% to 13.41%. Reliance MF and Aditya Birla Sun Life MF have decreased their stake from 7.83% and 4.18% to 3.99% and 3.71%, respectively. However, foreign portfolio investors have increasing their holding from 9.73% to 11.67% in FY19. Fundsmith Emerging Equities Trust PLC has raised its stake from 1.51% to 1.67%. Currently, New Horizon Opportunities Master Fund is the largest FII with 4.17% stake. Given that the stock has lost 20% since March, the June quarter holding might reflect reduced institutional interest.