Shifa International Hospitals Limited

Shifa International Hospitals Limited (PSX: SHFA) was incorporated in Pakistan as a public limited company in 1987 and converted into a public limited company in 1989. The company is engaged in establishing and running medical centers, hospitals, pharmacies, and lab collection points across Pakistan.

Pattern of Shareholding

As of June 30, 2023, SHFA has a total of 63.214 million shares outstanding which are held by 2422 shareholders. Charitable trusts have the majority stake of 54.31 percent in the company followed by Directors, CEO, their spouse & minor children holding 9.53 percent shares. Banks, DFIs, and NBFIs account for 6.54 percent of shares of SHFA. Mutual funds and insurance companies have 5.11 percent and 2.95 percent stake in the company respectively. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

SHFA’s topline has been growing in all the years under consideration with its bottom line posting a plunge only in 2020. The company’s operating and net margins rose in 2019. In 2020, the operating margin posted considerable growth while the net margin slumped. SHFA’s margins took an upward flight in 2021 and 2022 followed by a downtick in 2023. The detailed performance review of the period under consideration is given below.

In 2019, SHFA’s core revenue grew by 14.45 percent year-on-year. Inpatient, outpatient, pharmacy, and rent of buildings – all delivered reasonable results during the year. Conversely, other income plummeted by 29.79 percent in 2019 due to lower profit on investment and bank deposits, fewer liabilities written back, and curtailed scrap sales made during the year. Total income improved by 14.18 percent in 2019. Operating costs surged by 11.93 percent in 2019 mainly on account of higher salaries & wages as well as increased cost of medicines and supplies consumed during the year. SHFA’s number of employees grew from 4778 in 2018 to 4865 in 2019. Operating profit strengthened by 40.08 percent in 2019 with OP margin rising up to 9.84 percent from 8.04 percent recorded in the previous year. 66 percent higher finance cost incurred during the year was the effect of higher discount rates and increased long-term loans obtained during the year. The company made a reversal of Rs.11.85 million against ECL in 2019. All these factors translated into 39.64 percent higher net profit in 2019. Net profit stood at Rs.777.33 million in 2019 with EPS of Rs.14.25 versus EPS of Rs.10.21 recorded in the previous year. NP margin also improved from 5.42 percent in 2018 to 6.6 percent in 2019.

Due to the outbreak of COVID-19, restrictions were imposed on the treatment of OPD patients which coupled with lower diagnostics and other procedures resulted in a paltry 3.38 percent uptick in SHFA’s topline in 2020. The occupancy ratio which stood at 67.61 percent in Islamabad dropped to 58.73 percent while in Faisalabad, the occupancy ratio dipped to 28.3 percent from 42.38 percent in 2018. Conversely, other income boasted a staggering 1338.74 percent year-on-year rise on account of hefty gain on disposal of tangible assets as the company transferred the leasehold rights in the land and buildings located in Islamabad to Shifa Medical Center Islamabad (Private) Limited Shifa Neuro Sciences Institute Islamabad (Private) Limited. Moreover, gain on the translation of foreign currency also added to other income of SHFA in 2020. Total income grew by 8.39 percent in 2020. Operating costs escalated by 7.88 percent in 2020 mainly attributable to the cost and volume of medicines and supplies consumed over the year and increased salaries & wages. Number of employees moved down to 4787 in 2020. Operating profit grew by 13.14 percent in 2020 with OP margin climbing up to 10.77 percent. Finance costs soared by 403.33 percent in 2020 as the company availed loan facility under the refinance scheme of the SBP for the payment of salaries and wages. SHFA also recorded an ECL of Rs.32.28 million in 2020. Net profit slumped by 35 percent to clock in at Rs.505.19 million in 2020. During the year, SHFA issued 7436,986 ordinary shares other than rights to International Finance Corporation at a premium of Rs.229.29 per share. This resulted in a 42.6 percent decline in EPS which stood at Rs.8.18 in 2020. NP margin plunged to its lowest threshold of 4.16 percent in 2020.

In 2021, SHFA’s core revenue improved by 17 percent year-on-year driven by improved performance of all the segments – inpatient, outpatient, pharmacy, and others. Other income slid by 83.13 percent in 2021 due to the high-base effect as the company recorded gains on the sale of tangible assets and foreign currency translation in 2020. Total income posted a 12 percent year-on-year rise in 2021. Operating cost grew by 12.36 percent in 2021 on the back of higher cost and volume of medicines and supplies consumed during the year, elevated payroll expense, utility expense, depreciation expense as well as exchange loss on foreign currency translation incurred during the year. SHFA enhanced its workforce to 5047 employees in 2021. Operating profit improved by 9.13 percent in 2021, however, OP margin fell to 10.04 percent. SHFA was able to squeeze its finance cost by 24.7 percent in 2021 due to monetary easing. However, the effect of lower finance costs was almost nullified by 220.74 percent higher ECL recorded in 2021. The effect of deferred taxation lowered the tax expense for the year by 9.68 percent. This translated into a 38.55 percent improvement in net profit which clocked in at Rs.699.92 million with EPS of Rs.11.07 and NP margin of 4.92 percent.

In 2022, SHFA recorded 13.91 percent year-on-year enhancement in its core revenue which comprised of progress in both inpatient and outpatient services. Other income magnified by 493 percent in 2022 primarily on the back of exchange gain on foreign currency translation. Scrap sales, gain on disposal of tangible assets and dividend income from both subsidiary and mutual funds investment also buttressed other income in 2022. Total income grew by 17.5 percent in 2022. 14.67 percent surge in operating cost in 2022 was on account of elevated payroll expenses, supplies, and medicines consumed during the year, utility expenses, depreciation as well as repair & maintenance expenses. SHFA recorded a 43 percent improvement in its operating profit in 2022 with OP margin climbing up to 9.83 percent. Despite monetary tightening, finance costs ticked up by a paltry 6.12 percent in 2022 due to the repayment of long-term liabilities. ECL also dropped by 33.29 percent in 2022. Net profit picked up by 66.10 percent in 2022 to clock in at Rs.1162.549 million with EPS of Rs.18.39 and NP margin of 7.18 percent.

Among all the years under consideration, 2023 stands out in terms of topline growth. During 2023, SHFA registered 21.76 percent year-on-year growth in its core revenue due to a staggering rise in inpatient services. Outpatient and other services also delivered reasonable performance over the year. Conversely, other income tumbled by 3.2 percent in 2023 due to lower exchange gain, gain on disposal of property, and dividend income. Overall income posted a 20.81 percent increase in 2023. Operating costs also grew by 20.83 percent in 2023 due to high inflation, utility charges as well as elevated volume and cost of medicines and supplies consumed during the year. Operating profit grew by 20.7 percent in 2023, however, OP margin slightly ticked down to 12.5 percent. Finance cost surged by 20.97 percent in 2023 due to monetary tightening while outstanding loans posted a decline in 2023. ECL also nosedived by 17.32 percent. While profit before taxation recorded a 22.29 percent improvement in 2023, the effect of deferred taxation and the imposition of a 10 percent super tax resulted in a 1.62 percent growth in net profit in 2023. SHFA’s net profit stood at Rs.1181.406 million in 2023 with EPS of Rs.18.69 and NP margin of 5.99 percent.

Recent Performance (9MFY24)

Core revenue grew by 20.99 percent in 9MFY24 due to a stunning rise in inpatient services delivered during the year. Other income slid by 71.75 percent during the period due to the strengthening of the Pak Rupee against the greenback which resulted in lower translation gain. Overall income grew by 17.71 percent in 9MFY24. Operating costs grew by 19.28 percent during 9MFY24 on account of high inflation. This resulted in OP margin moving down to 12.1 percent in 9MFY24 down from 13.62 percent during the same period last year. Finance costs dropped by 1.09 percent during 9MFY24 due to fewer outstanding loans. ECL grew by 40.54 percent during the period. While profit before tax posted an 8.31 percent year-on-year rise during the period to clock in at Rs.1756.67 million, an increase in super tax rate resulted in net profit marching down by 7.5 percent to clock in at Rs.1066.38 million during 9MFY24 with EPS of Rs.16.87 versus EPS of Rs.18.24 recorded during the same period last year. NP margin also tumbled from 7.84 percent during 9MFY23 to 5.99 percent during 9MFY24.

Future Outlook

SHFA is in the process of diversifying its services mix and expanding its network to add vigor to its sources of income. The company is also actively working on the phased implementation of Shifa National Hospital Faisalabad.