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Efforts underway to add beds/enhance realization per operating bed

* Max Healthcare (MAXHEALTH) delivered a marginally better-than-expected operational performance in 4QFY23, aided by a steady improvement in average realization per operating bed (ARPOB) and an increased number of patients treated. Growth prospects remain robust on the back of price hikes, optimization of payor mix/case mix, and bed additions. Further, surplus cash provides scope for inorganic growth opportunities.

* We raise our earnings estimates by 6.5%/6% for FY24/FY25, factoring in 1) a tariff increase for patients from PSUs, 2) a faster ramp-up in occupancy for recently added beds at Shalimar Bagh, 3) ongoing cost management, and 4) scale-up in the non-captive pathology business. We value MAXHEALTH at INR600, based on SOTP (23x EV/EBITDA on 12M forward basis for hospital business, 17x EV/EBITDA for Max Lab, 2x EV/sales for Max @ Home).

* We remain positive on MAXHEALTH on the back of 1) significant land bank available in high demand areas of Delhi for brownfield expansion, 2) focused approach to improve profitability per bed, and 3) proven capability of a strong turnaround of hospital assets. Reiterate BUY.

EBITDA per bed touches new high; good scope for further improvement

* For 4QFY23, Max network revenues (including trust business) grew 27% YoY to INR15.5b (est. INR14.6b).

* EBITDA margin was flat YoY at 28% (in line).

* Accordingly, EBITDA grew 28% YoY to INR4.3b (est. INR4b).

* Adjusted PAT grew 54% YoY to INR3.2b (est. INR2.9b), aided by a strong operational performance and interest income (v/s interest expense in 4QFY22).

* EBITDA per bed (annualized) stood at INR7m (+26% YoY and +5% QoQ).

* FY23 revenue/EBITDA/PAT rose 14%/20%/55% to INR59b/INR16b/INR13.7b.

Highlights from the management commentary

* MAXHEALTH plans a capex of INR9b for bed capacity expansion and INR1.7b as maintenance capex for FY24. Total capex stood at INR4.2b in FY23.

* In addition to 92 beds added at Shalimar Bagh, there is scope to add 100 beds at various sites in FY24.

* It expects ARPOB to be on an uptrend on the back of a tariff increase for PSUs, payor mix/case mix optimization and an annual price hike.

* MAXHEALTH has ordered medical equipment for a 300-bed hospital at Dwarka, which is expected to be commissioned by 2QFY24.

* The 329-bed expansion at Nanavati Hospital is in progress and is expected to be commissioned by FY25-end.

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