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Strong growth across segments..

Narayana Hrudayalaya Ltd (NH) is a chain of multi-specialty hospitals operating in India and the Cayman Islands.

* NH revenues in Q4FY21 grew by 12.8% YoY to Rs.838cr with strong recovery in the Indian business and continued momentum in Cayman Islands.

* The Q4FY21 operating profit recorded a 47.3% YoY growth to Rs.141cr as the hospitals started performing higher volumes of elective procedures.

* Health City Cayman Island’s expansion is expected to be completed in the next 24 months with niche offerings such as fully fledged oncology services.

* We expect a revenue CAGR of 24% over FY21-FY23E on the back of eased travel restrictions, HCCI expansion and a strong liquidity profile.

* We feel that the current valuations have adequately factored in the positive triggers for NH.

* Hence we downgrade our rating from “Buy” to “Accumulate” based on 20x FY23E EV/EBITDA with a target price of Rs.561.

Healthy performance amidst tough environment

NH returned to profitability in Q4FY21 with the consolidated revenues growing by 12.8% to Rs.838cr and EBITDA growing by 47.3% YoY to Rs.141cr. As fresh covid cases declined in India for most of the last quarter, the operating revenue grew sequentially by 15% on QoQ and 9.5% on YoY basis as the hospitals started performing higher volumes of elective procedures.

Average revenues per operating beds (ARPOB) reported an all-time high of Rs.1.1cr (11% YoY). Despite severe challenges in the year gone by, the company was able to further fortify their balance sheet by maintaining a strong liquidity profile with consolidated bank balance and liquid investments of Rs.250cr against consolidated gross borrowings of Rs.617cr which is down by Rs.100cr in the year gone by.

Mature facilities recorded growth

Flagship facilities grew 10% in March as compared to pre-covid revenues despite a muted recovery in international patient volumes.. As elective surgeries picked up, cardiac science’s contribution picked up to the normal levels of 35% of total operating revenue in Q4FY21. This was also supported by increasing the size of Oncology blocks across the metro hospitals. Excluding the 3 new hospitals , the other mature hospitals continued the growth trajectory and registered a 14.5% YoY growth in operating revenues and over 40% YoY EBITDA in the quarter.

Cayman Island expansion to get commissioned in 24 months

The hospital in Cayman Islands continued to deliver strong and consistent performance with revenues growing by 18% in FY21 to US$69m (~Rs.500cr). The expansion of Health City Cayman Islands (HCCI) will get commissioned in the next 24 months with niche offerings such as fully-fledged oncology services which will be a strong lever for future growth. Ease in international travel restrictions will also contribute to the growth momentum .

Outlook and valuation

Despite severe challenges in the year gone by, Narayana Hrudayalaya posted strong numbers in Q4FY21 owing to higher volumes of elective procedures and increased number of oncology blocks across the metros. The company’s leadership position in the Cayman Islands along with niche offerings such as fullfledged oncology services will be a strong lever for future growth. However, we feel that the current valuations have adequately factored in the positive triggers for NH. Hence we downgrade our rating from “Buy” to “Accumulate” based on 20x FY23E EV/EBITDA with a target price of Rs.561.

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