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Steady Q1 despite significant Covid influence…

About the stock: NHL operates a chain of multispecialty, tertiary & primary healthcare facilities that initially focused on cardiac & renal but expanded to cancer, neurology, neurosurgery, orthopaedics & gastroenterology facilities.

* NHL network comprises 21 hospitals (including one managed hospitals), five heart centres, 19 primary care facilities (including clinics and information centres) and a multi-speciality hospital in Cayman Islands

* It has 5992 operational beds with potential to reach up to 6725 beds

Q1FY22 Results: NHL reported steady Q1FY22 results.

* Sales were up 2.6% QoQ to | 859.8 crore

* EBITDA in Q1FY22 was at | 133 crore, down 5.5% QoQ with margins at 15%

* Consequent adjusted PAT was at | 76.2 crore (up 12% QoQ)

What should investors do?

NHL’s share price has grown by ~1.5x over the past five years (from ~| 318 in July 2016 to ~| 489 levels in July 2021).

* We maintain our view of BUY on this stock due to return of normalcy in elective procedures post Covid wave in Q1 and uptick in patient’s visits

Target Price and Valuation: We value Narayana at an SOTP of | 620 by valuing matured India & Cayman hospitals at 16x FY23E EV/EBITDA, new hospitals at 2x and other business at 1x FY23E EV/sales.

Key triggers for future price performance:

* New hospitals (SRCC, Gurugram, Dharamshila) are expected to witness a reduction in losses with ramp up in occupancies

* Improvement in numbers on the back of judicious case mix identification (more focus on oncology, transplants and non-invasive procedures)

* Significant traction from HCCI Cayman Islands which provide significant additional cushion for overall scheme of things

Alternate Stock Idea: Apart from NHL, in our healthcare coverage we like Apollo.

* Apollo Hospitals is an integrated healthcare services provider and has a robust presence across healthcare ecosystem, including hospitals, pharmacies, primary care & diagnostic clinics & retail health models

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