From Rs 15 to Rs 250: Penny stock up 1,500% in 5 years; what's ahead?

Brokerage firms are mostly negative on Artemis Medicare Services Ltd after its quarterly results. The stock which has zoomed 1,550 per cent in the last five years has seen a 'sell' rating from Ventura Securities, while Anand Rathi has cut its target price by 44 per cent but maintained a 'buy' rating.

Artemis Medicare Services is on a significant expansion path, planning to increase its bed capacity from the current 800+ to 2,000 over the next three to five years. This strategic move is supported by a Rs 3 billion funding from the International Finance Corporation (IFC) in May 2024. The company is exploring expansion through greenfield projects, build-to-suit, mergers and acquisitions, and operations and maintenance agreements. This transaction is expected to be finalised in the coming months, as noted by Anand Rathi.

Despite the promising expansion plans, Artemis faces operational challenges. The company's Gurgaon unit, which contributes over 90% of its revenue, recorded a modest 3% year-on-year increase in revenue in Q4, reaching Rs 2.12 billion. However, the EBITDA fell by 6% to Rs 358 million due to reduced fixed cost absorption, attributed to recent management-level hirings. Margins dropped slightly to 16.8%. Anand Rathi anticipates that the operating leverage from tower-3 will start to materialise from FY26.

Artemis's new facility in Raipur, expected to be operational in Q3 FY26, poses additional financial challenges. The brokerage firm indicates that this facility will likely be loss-making for the first three years, only breaking even by FY29. This is projected to drag EBITDA by Rs 3 million in FY26 and Rs 290 million in FY27. Artemis continues to focus on expanding its presence in the Delhi-NCR region.

In response to these developments, Anand Rathi has revised its earnings projections for Artemis. "We lower our FY26e/27e EPS by 6%/9% due to less-than-expected volume growth in the Gurgaon unit, a slower ramp-up in other businesses, and increased opex in the Raipur facility," the report states. Despite these headwinds, the firm maintains a Buy rating on Artemis's stock.

The brokerage firm has adjusted its target multiple to a 15x EBITDA for FY27e, reducing the target price to Rs 280 from an earlier Rs 500. This revision reflects the expected impact of ongoing operational and expansion-related expenses. The firm's focus on the Delhi-NCR area remains a central strategy for future growth.

Key risks identified by Anand Rathi include the heavy reliance on the Gurgaon unit, the financial performance of the Raipur facility, and potential changes in government policies. These factors could significantly influence Artemis's financial outlook and operational success in the coming years.

Artemis Medicare Services operates multi-specialty hospitals providing advanced medical care across various specialties. It generates revenue through patient treatment, surgeries, diagnostic services, and partnerships with insurance providers, focusing on expanding its healthcare network and improving operational efficiency.

During the year, the third tower was inaugurated, increasing capacity to over 700 beds, making it one of the largest hospitals in Delhi-NCR, and will be commissioned phase-wise. The IFC funding enables strategic expansion in Delhi NCR and select Tier 2 cities through brownfield and greenfield projects, said Ventura Securities in its note.

"Results were in below our estimates and we maintain a 'sell'  rating on Artemis with a target price of Rs 208, suggesting a 16 per cent downside in the stock," said Ventura. It has cited stronger-than-expected growth in new hospital openings or partnerships as key risks for its observations.