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, 2024, SHFA has a total of 63.214 million shares outstanding which are held by 2431 shareholders.
Associated companies’ undertakings & related parties have the majority stake of 30.13 percent in SHFA followed by Banks, DFIs and NBFIs holding 18.57 percent of the company’s shares.
Around 8.94 percent shares are held by the Directors, CEO, their spouse and minor children and 5.14 percent by mutual funds.
Charitable trusts account for 4.37 percent of SHFA’s shares while insurance companies hold 2.14 percent shares. The remaining shares are held by other categories of shareholders.
Financial Performance (2019-24)
SHFA’s topline has posted growth in all the years under consideration; however, its bottomline posted a plunge in 2020. The company’s operating and net margins rose in 2019. In 2020, operating margin posted considerable growth while net margin slumped. In 2021, operating margin fell while net margin picked up.
In 2022, both margins took an upward flight to attain their optimum level. This was followed by a downtick of margins in 2023 and 2024. 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 to clock in at Rs.11,754.39 million. 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, lesser liabilities written back and curtailed scrap sales made during the year. Total income improved by 14.18 percent in 2019.
Operating cost 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. 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 OP margin of 8.04 percent recorded in the previous year. 66 percent higher finance cost incurred during the year was the effect of higher discount rate and increased long-term loans obtained during the year.
The company made reversal of Rs.11.85 million against provision booked for 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 6.61 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 which was recorded at Rs.12,15176 million in 2020.
The occupancy ratio which stood at 67.61 percent in Islamabad dropped to 58.73 percent while in Faisalabad, 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 and 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 cost escalated by 7.88 percent in 2020, which was 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 cost soared by 403.33 percent in 2020 as the company availed loan facility under refinance scheme of the SBP for the payment of salaries and wages.
SHFA also recorded 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 right to International Finance Corporation at a premium of Rs.229.29 per share. This resulted in 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 to clock in at Rs. 14,219.72 million. This was driven by improved performance of all the segments – inpatient, outpatient, pharmacy and others. Other income slid by 83.13 percent in 2021 due to high-base effect as the company recorded gain on sale of tangible assets and foreign currency translation in 2020.
Total income posted 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 24.70 percent in 2021 due to monetary easing. However, the effect of lower finance cost was almost nullified by 220.74 percent higher allowance for ECL booked in 2021.
The effect of deferred taxation lowered the tax expense for the year by 9.68 percent. This translated into 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 clocked in at Rs.16,197.55 million. This 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 17.50 percent in 2022. 14.67 percent surge in operating cost in 2022 was on account of elevated payroll expense, supplies and medicines consumed during the year, utilities expense, depreciation as well as repair & maintenance expense.
SHFA recorded 43 percent improvement in its operating profit in 2022 with OP margin climbing up to 9.83 percent.
Despite monetary tightening, finance cost ticked up by a paltry 6.12 percent in 2022 due to repayment of long-term liabilities. Allowance for 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 which clocked in at Rs. 19.721.43 million. This was due to staggering rise in inpatient services.
Outpatient and other services also delivered reasonable performance over the year. Conversely, other income tumbled by 3.20 percent in 2023 due to lower exchange gain, gain on disposal of property and dividend income.
Overall income posted 20.81 percent increase in 2023. Operating cost 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 20.70 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. Allowance for ECL also nosedived by 17.32 percent. While profit before taxation recorded 22.29 percent improvement in 2023, effect of deferred taxation and imposition of 10 percent super tax resulted in only 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.
SHFA’s Core revenue grew by 19.48 percent to clock in at Rs23,563.84 million. This was due to a stunning rise in inpatient services delivered during the year.
During the year, the company implemented various measures to improve its performance and operational efficiency. These include development of specialized medication administration unit, new OPD phlebotomy points, expansion of gastroenterology accommodation, operationalization of the first phase of endoscopy unit extension, automation of in-house OPD pharmacies etc.
Other income slid by 69.19 percent in 2024 due to strengthening of Pak Rupee against the greenback which resulted in no translation gain. Gain on disposal of tangible assets and dividend income from subsidiary and mutual funds also drastically fell in 2024.
Overall income grew by 16.79 percent in 2024. Operating cost grew by 17.19 percent in 2024 on account of high inflation which drove up salaries, utility expense as well as cost of medicines and supplies consumed during the year. This resulted in OP margin moving down to 11.92 percent in 2024.
Finance cost dropped by 4.66 percent in 2024 due to less outstanding loans at the end of the year. Allowance for ECL mounted by 95.74 percent in 2024. Net profit picked up by 15.29 percent to clock in at Rs. 1362.074 million with EPS of Rs.21.55. NP margin dwindled to 5.78 percent in 2024.
Recent Performance (9MFY25)
During the nine-month period of the ongoing fiscal year, SHFA’s core revenue posted year-on-year growth of 17.24 percent to clock in at Rs.20,872.12 million. This was driven by reasonable growth portrayed by revenue from both in-patient and out-patient services.
The company also posted a phenomenal 85.59 percent growth in its other income during the period. This appears to be the consequence of robust return recognized from the company’s prudent investments, return on loans to associated companies and returns from other financial assets.
Cost control measures implemented during the period coupled with operational efficiency achieved through a number of measures executed during the last year resulted in 73.57 percent stronger operating profit in 9MFY25.
OP margin grew from 12 percent in 9MFY24 to 17.89 percent in 9MFY25. During the period under review, the company also merged its wholly owned subsidiary Shifa Neuro Sciences Institute (Islamabad) Private Limited. This also provided much needed operational effectiveness to the company.
Moreover, SHFA was able to cut down its finance cost by 21 percent due to efficient working capital management and calculated debt repayments.
Allowance for ECL increased by 177.73 percent during 9MFY25. Nevertheless, the company was able to boost year-on-year growth of 76.59 percent in its net profit, which clocked in at Rs.1883.127 million in 9MFY25. This translated into EPS of Rs.29.79 in 9MFY25 versus EPS of Rs.16.87 posted in 9MFY24.
NP margin also strengthened from 6 percent in 9MFY24 to 9 percent in 9MFY25.
Future Outlook
SHFA is in the process of diversifying its services mix, expanding its network and investing in advanced medical technologiesto add vigor to its sources of income and improve clinical income.