Health giant completes one year, but does not stand up – 7/2/2023 – Marcos de Vasconcellos

It was in the first days of 2021 that Hapvida, then one of the largest health operators in Brazil, announced its proposal to offer a truckload of money to its competitor, Notre Dame Intermédica, and create the largest company in the field in Brazil.

On the day of the announcement (January 8), in a mad rush, investors tried to catch a ride on the birth of the giant. Shares of companies soared. Hapvida shares (HAPV3) rose 17.5%. Those at Notre Dame (GNDI3) soared even higher: 27.5%. In one day.

At the time, they were both profitable companies. Hapvida had a profit of more than BRL 850 million in 2019 and BRL 785 million in 2020. For every BRL 100 invested in the company, it was able to generate more than BRL 10 in profit —which is measured by the ROE indicator (Return on Equity).

A little over a year later, in February 2022, Sistema Hapvida and Grupo Notre Dame Intermédica completed the merger, forming the largest supplementary health company in the Southern Hemisphere.

The new company was born with 15 million beneficiaries, 60,000 employees and a network of 7,000 beds. Expectations were high regarding the potential for synergies and efficiencies provided by the merger.

Three months later, Hapvida’s first post-merger balance sheet did not match the market’s ambition. The financial performance was below expectations, and the shares showed well the opinion of investors: they melted 16.7% in a single day.

Quarter after quarter, the challenge of turning the new business into a profitable operation became clearer to analysts and investors. In the accumulated of 2022, there was a loss of BRL 775 million. In the first quarter of this year, there were over R$ 341.6 million.

And so, the HAPV3 share, which, when the giant was created in 2022, cost BRL 12, fell by almost 65% and is now traded at around BRL 4.40. The Ibovespa, in the same period, rose more than 5%.

The company’s indicators make clear the effort it takes to turn the keys. If, in 2020, for every BRL 100 invested, Hapvida returned BRL 10 in profit, now, the same amount results in more than BRL 1.50 in loss, according to data from the Market Monitor.

To try to improve this, the company decided to concentrate efforts not on seeking new customers, but on raising prices for those who have already contracted their health plans.

The strategy was clear to anyone who followed, on June 15, an event called “Investor Day”, with Hapvida’s top management. The company “will continue to prioritize profitability even if it harms the growth of its beneficiary base”, wrote analysts at BTG Pactual.

The integration of the merger with Notre Dame, on the other hand, continues to be “difficult and slow, generating operational challenges”, according to specialists at Genial Investimentos.

In short, the health giant has already celebrated its first anniversary, but it still does not stand on its feet. The challenges for learning to walk depend on him being able to raise prices for his customers without losing market share.

For those who bought the shares with the announcement of the operation, expecting a bounce, this development seems like a slow move.

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