Shifa International Hospitals Limited

Shifa International Hospitals Limited (PSX: SHFA) was established as a private limited company in 1987; the idea, however, was envisaged two years earlier in 1985. Two years after establishment in 1989, it was converted into a public limited company. The company is essentially engaged in establishing and running medical centers and hospitals, pharmacies and lab collection points; the latter two are in different cities across the country.

Shareholding pattern

As at June 30, 2021, close to 58 percent shares are held by individuals. Major shareholders of the company are Tameer-e-Millat Foundation and International Finance Corporation. Nearly 16 percent shares are held under the others category, followed by over 12 percent in financial institutions; almost 10 percent shares are held by insurance companies. The remaining roughly 4 percent shares are owned by the rest of the shareholder categories.

Historical operational performance

Topline for Shifa International Hospitals has consecutively been on a rise from FY14 to FY21. Profit margins, however, have been gradually on a decline.

Topline in FY18 grew by close to 11 percent, but with operating costs making up more than 92 percent of revenue, profitability reduced from over 9 percent to 7.5 percent. Since the company is located in Islamabad, it was adversely impacted by the political happenings such as the sit-in protest. In addition, other income was unusually high in FY17 at Rs 136 million that elevated profitability; in FY18, other income fell to Rs 63 million. Most of this decline was seen in profit on investments and bank deposits; they reduced from Rs 58 million in FY17 to Rs 12 million in FY18. Therefore, with significantly lower support from other income, net margin declined to 5.4 percent for the year.

In FY19, revenue grew by 14.5 percent to reach Rs 11.7 billion. Majority of this revenue growth was attributed to the inpatients department which is also the biggest segment in terms of contribution to revenue. Operating costs, on the other hand, reduced somewhat to make up around 90 percent of revenue, that allowed profitability to improve to 9 percent. This also trickled down to the bottomline as net margin was posted at 6.6 percent, despite the negligible support from other income that stood at an all-time low of Rs 44 million for the year.

In FY20, revenue growth stood at an all-time low of 3.4 percent; topline crossed Rs 12 billion in value terms. Majority of the increase was seen coming from outpatients and pharmacy, whereas the largest contributor of revenue, that is, the inpatients department, remained more or less flat. On the other hand, operating costs escalated to 94.5 percent, resulting in profit margin to reduce to an all-time low of 6.5 percent. Although significant contribution was made by other income towards the bottomline, with the increase in operating expense combined with the rise in finance expenses due to an increase in KIBOR and long term financing, net margin fell to 4 percent for the year.

The company witnessed one of the highest growth rates in revenue in FY21 at 17 percent, with revenue crossing Rs 14 billion in value terms. All the three segments, that is, inpatients, outpatients and pharmacy exhibited a rise of 11.7 percent, 18 percent and 22.7 percent. With this growth in revenue, operating costs reduced to 90.7 percent of revenue, allowing profit margin to improve year on year to 6.8 percent. The increase has been marginal due to the decline in other income year on year. Other income in FY20 was abnormally high due to gain on disposal of tangible assets and on foreign currency translation that was nearly negligible in comparison year on year in FY21. The lower profit margin also trickled down to the bottlomline, with net margin recorded at 4.9 percent.

Quarterly results and future outlook

Revenue in the first quarter of FY22 is higher by 25 percent year on year, whereas operating costs, in value terms are higher by 22 percent. This is due to increase in usage of medicines/supplies, increased expenses of utilities, repair and maintenance, salaries, etc. However, as a share in revenue, operating costs have declined to 89.9 percent of revenue, compared to 92 percent seen in the first quarter of FY21. The company also experienced significant support from other income that rose from Rs 7 million in the same period last year, to Rs 194 million in 1QFY22. Thus, there was a marked improvement in profitability from 3.6 percent in 1QFY21, to 10 percent in 1QFY22.

Although the company operates in essential services industry, it did face lower profitability due to the Covid-19 pandemic. But now with the roll out of vaccinations, and experiencing improved profitability in FY21 as well as the first quarter of FY22, the company can continue to remain on its growth trajectory, despite the uncertainty related with Covid-19 pandemic, that has not been eliminated entirely.