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Limited volume-led growth triggers; Cayman risk persists

Result Synopsis

Narayana continues to report improved numbers driven by persistent traction in Cayman hospital and better showing by new hospitals Gurugram. Key clusters of Bangalore & Kolkata rebounded on relatively weak base of last year with 56% and 15% growth respectively. We reckon as case mix has normalized, tailwind from favourable mix will recede. At the same time, while company has indicated lowering length of stay as a margin lever, believe the slow improvement may not be enough to move the needle in the near term. Company reiterated high utilization of flagship hospitals with barely incremental availability of critical functions like ICUs/OTs, which translates in to some sort of volume headwind especially for mature hospitals. Hence, we continue to factor single digit growth for the mature clusters; albeit, new hospitals would continue to ramp up and indeed EBIDTAR performance barring Mumbai has led to higher estimated EBIDTAR assumption in FY23 and FY24. FY23 capex of Rs7-10bn may not lead to any bed addition but would be supportive in better price realization – a key reason for growth assumption for mature hospitals. We continue to perceive Cayman island dependence as a key risk wherein EBIDTA margin is prone to at least a modest retracement. Retain our negative bias on back of such a risk coupled with likelihood of slow growth domestic business; raise FY23 margin estimates translating in to 15%/6% rise in FY23/24 estimates & retain Reduce with revised TP Rs500 based on unchanged 13x FY24 EV/EBIDTA (earlier Rs460).

Result Highlights

* Revenue up 10% QoQ and 20% YoY, with bulk of growth being driven by domestic improvement

* Cayman hospital revenues were broadly flat YoY at US$22.7mn

 * Margin of newer hospitals improved leading to better overall OPM at 18.6% - flat QoQ and +300bps YoY

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