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Buy Narayana Hrudayalaya  Ltd For Target Rs. 545

Cayman expansion in Camana Bay to improve reach…

Narayana Hrudayalaya’s (NH) subsidiary - Health City Cayman Islands (HCCI), already running a hospital at East End, Grand Cayman, Cayman Islands, is establishing a facility at a new location in the Camana Bay Development area of Grand Cayman. This is in order to expand the scope of super specialty treatment options already offered and offer medical services closer to the city centre. As such, the new facility, planned on a 3-acre land plot, is expected to have 50 operating beds and will be completely commercialised within two years with a capex outlay of ~US$100 million that will be funded through a mix of internal accruals and debt

Snapshot of NH’s Cayman offering – existing & upcoming

Existing:

NH had, in April 2010, set up a 110 bedded (current) multi-speciality hospital in East End, Cayman Islands by entering into an agreement with the Government of Cayman Islands, which was later commissioned in April 2014. It had initially entered into the JV with 28.6% stake in the hospital and then bought back the rest of the 71.4% stake from Ascension Health for a cash consideration of US$32 million in 2017. HCCI primarily targets Caymanians and North American patients (Cayman Islands is 430 miles south of Miami, near Caribbean islands) and provides high-quality, affordable tertiary health care. For FY20, HCCI revenues was at US$61.1 million with EBITDA at US$15.1 million (EBITDA margin of 24.7%).

Upcoming:

In order to increase reach and cater to more patients, NH is now setting up a 50 bedded facility closer to the city centre at Camana Bay, Grand Cayman with an investment of US$100 million funded equally by HCCI internal accruals and borrowing. It will include an advanced cancer centre, which will offer comprehensive oncology treatment including bone marrow transplant, CAR-T cell therapy, medical oncology, haemato oncology, surgical oncology and radiation oncology. It will also offer robotic surgery, a neonatal intensive care unit, emergency and critical care, as well as a fully equipped radiology department. The radiotherapy and associated block is expected to get commercialised within 12-18 months while the remaining portion will take an additional six to 12 months.

Valuations & Outlook

The expansion at Camana Bay is likely to improve HCCI’s reach to patients both – international and local, due to close proximity to the airport and several major residential complexes. Significant capital outlay notwithstanding, the new facility would complement the existing set up by focusing more on day care, short stay but niche categories of oncology care while the existing facility would continue to cater to tertiary and quaternary care. We expect the impact of this blended model to materialise from FY23 onwards. NH’s experience in running hospital in this region could be handy for such types of ventures. We maintain our BUY recommendation and arrive at a target price of | 545 (earlier | 580) based on SOTP (Exhibit 1).

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