Series 44 – Breaking down our Portfolio Review Q2 FY’ 2024 (Episode 4) – Healthcare

Over the past few weeks, we’ve been breaking down our Portfolio Earnings review report, elaborating on the sectors we’re optimistic about and currently invested in. We previously explored the power sector, highlighting the substantial surge in power demand leading to increased load factors in thermal plants. We also touched upon our strategic positioning in growth areas through investments in companies that benefit from new capacity expansions in grid and power infrastructure sector. This week, our focus shifts to the healthcare segment, where we’ll be sharing our outlook. For a detailed overview, you can access the report by clicking on the link provided below –

Portfolio Review – 2Q FY24 – ITUS Capital

Healthcare:  In the last 8 years, generic formulation manufacturers faced a pain time, due to consolidation of GPO’s (Group Purchasing Organization) into 4 Major GPO’s that potentially impacted the profitability of manufacturers. The chart below depicts the reduction in the price trend in the US between 2016-2022. This has led to several US-Operated plants to go bankrupt of shut down several plants. EBITDA margins for top generic manufactures declined in the last 6 years. The reduced number of companies able to participate, combined with manufactures unable to face the challenges in meeting the USFDA (US Food and Drug Administration) standards has resulted in shortage of available drugs in the US. This transforms into a favourable trend for generic manufacturers focused on the U.S. market when the business dynamics shift away from being in favour of  GPOs.

In the healthcare sector, we are invested in Hospitals at ITUS through Rainbow Hospitals. This industry is driven by high fixed cost and low variable costs which means that they will see significant operating leverage during recovery and revenue expansion as capex matures. Today, we are seeing an increase in capex from hospital chains coming through in a large way. Alongside the capacity expansion, their increased occupancy would result in higher Fixed Asset Turnover, allowing for faster breakeven on Capex. Figures below shows the Occupancy rates increase of rainbow hospitals and their NFAT.

Next week, we’re discussion into the final sector of this series: Banking and Finance. Join us as we unwind the reasons behind our underweight exposure to this sector.

Meanwhile, to keep you updated, we’re committed to our SIP program, offering a convenient way for investors to regularly improve their portfolios. Feel free to check out the benefits for your clients. If you need more info, reach out to your dedicated relationship manager at [email protected].

These weekly episodes are now available in our website for your quick read and you may access the same in the below link.

Weekly Enlightenment Archives – ITUS Capital