Case 063Stock pitchCore

In rapid pitches to a hiring manager, defend a long on Quintara Hospitals and a short on Selvoro Diagnostics in five minutes, with one driver and one number each.

Fidelity InvestmentsToronto · 2024

The situation

Quintara Hospitals runs 2,000 beds at 62% occupancy with average revenue per occupied bed, ARPOB, of Rs 52,000 a day. New specialty wings and insurance tie-ups should lift occupancy to 72% within two years. About a quarter of costs move with patient volume; the other Rs 1,300 crore a year is doctors on salary, nurses, rent and equipment.

Selvoro Diagnostics has revenue of Rs 1,000 crore and an EBITDA margin of 22%. Online test aggregators are pushing test prices down about 8% a year, while volumes grow about 10%. Reagents and consumables are 30% of revenue at today's prices; the Rs 480 crore of lab, collection-centre and staff costs rises about 6% a year.

Your task

Give each pitch in about two minutes: the thesis, the one driver, the number that proves it, and the risk that would make you wrong.

Quick check

Selvoro's revenue still grows a little next year. What happens to its EBITDA?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

Long Quintara on occupancy: 62% to 72% lifts revenue 16% and EBITDA 61%, because most hospital costs are fixed. Short Selvoro on price: 8% annual price erosion cuts EBITDA 21% next year even with 10% volume growth. Both pitches rest on the same idea, cost structure turning one driver into a large profit move, pointed in opposite directions.

Step 1What does a two-minute pitch need, and nothing more?

A good auto driver answering why this route is faster gives one reason, the flyover, and one number, ten minutes saved. A rapid pitch is the same: one sentence of thesis, one driver, one number that proves the driver matters, one risk. Hiring managers stack several pitches in a row to see whether you can find the one thing that moves each stock. A list of five positives sounds like a brochure; one driver sounds like an analyst.

Step 2Why does occupancy move Quintara's profit so much?

Revenue is beds x occupancy x ARPOB x 365: 2,000 x 62% x Rs 52,000 x 365 is Rs 2,354 crore; at 72% it is Rs 2,733 crore. Only a quarter of costs follow patients, so each extra rupee of revenue keeps 75 paise. Each point of occupancy is worth about Rs 28 crore of EBITDA, and ten points take EBITDA from Rs 465 crore to Rs 750 crore, up 61% on 16% more revenue. That is operating leverageProfit rising faster than revenue because most costs stay fixed as volume grows. in its plainest form. The risk: new beds opening elsewhere in the city, or a shift to government-scheme patients that lowers ARPOB.

One driver each: occupancy lifts one margin, price erosion eats the otherLong: Quintara HospitalsThe driver: Occupancy 62% to 72%Revenue2,354 now2,733 (+16%)EBITDA465 now750 (+61%)EBITDA margin 19.8% to 27.4%Short: Selvoro DiagnosticsThe driver: Price -8%, volume +10%Revenue1,000 now1,012 (+1%)EBITDA220 now173 (-21%)EBITDA margin 22.0% to 17.1%
Occupancy rising from 62% to 72% lifts Quintara's EBITDA from Rs 465 crore to Rs 750 crore, while 8% price erosion against 10% volume growth cuts Selvoro's EBITDA from Rs 220 crore to Rs 173 crore, the same fixed-cost logic run in reverse.
Step 3Why does price erosion eat Selvoro's margin when volume is growing?

Revenue next year is 1,000 x 0.92 x 1.10, Rs 1,012 crore. But a cheaper test uses the same reagents, so reagent costs grow with volume to Rs 330 crore, and lab and staff costs rise 6% to Rs 508.8 crore. EBITDA falls from Rs 220 crore to Rs 173.2 crore, and Selvoro needs about 18% volume growth just to hold it flat. The risk to the short: aggregators consolidate and price cuts stop, or Selvoro's home-collection network wins volume far faster than 10%.

Rs croreQuintara nowQuintara at 72%Selvoro nowSelvoro next year
Revenue2,3542,7331,0001,012
Volume-linked costs588683300330
Fixed costs1,3001,300480508.8
EBITDA465750220173.2
Quintara's EBITDA rises 61% on 16% more revenue, and Selvoro's falls 21% on 1.2% more revenue, because in both a large fixed cost base amplifies the one driver that moves.

Close the pair with the link, because it shows judgement rather than two memorised pitches. The long and the short use the same discipline: find the driver, run it through the cost structure, and state the number that would prove you wrong. Say what that number is for each, occupancy below 66% in a year for Quintara and volume growth above 18% for Selvoro, and stop.

Where candidates lose it

Candidates in rapid pitches run out of time on the business description and never reach the driver or the number. Two minutes is enough for a thesis and one number, not a company history.

The other loss is pitching the short on revenue decline. Selvoro's revenue grows; the case against it lives in the cost structure, and saying revenue is falling is simply wrong.

What the interviewer asks next

  • How would you size the Quintara long against the Selvoro short if you ran them as a pair?
  • What would make you close the Selvoro short early?
  • Quintara adds 500 beds next year. What happens to occupancy and to your thesis?

Asked at Fidelity Investments, Equity Research Intern Interview, Toronto, 2024 (Wall Street Oasis): Last interview is a bunch of stock pitches with the hiring manager

Company names and figures are illustrative.