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Near-term pressure, long-term buildup

Shalby (SHALBY IN) reported weak Q4FY25 results, with EBITDA down sharply YoY and margin under pressure. Revenue grew 8.4% YoY to INR 2.7bn, aided by the Sanar International Hospitals consolidation. However, EBITDA declined 40% YoY to INR 208mn, with margin erosion across business segments. PAT performance was subdued, and management cited strategic investments as key factors. While Q4 was disappointing, the company remains focused on building scale across core hospitals, implants, and new initiatives. We reduce our FY26-27E core EPS by 14-21% after factoring in delayed margin recovery and sustained investments across key segments. We lower our TP to INR 207 and retain Accumulate.

Sanar under ramp-up pressure: The recently acquired Sanar, a premium hospital at Gurugram, continues to weigh on overall performance. While revenue grew across inpatient, outpatient, and daycare segments, profitability remains under pressure due to low occupancy at ~23% and elevated depreciation cost. Management anticipates EBITDA break-even in FY26, supported by a gradual uptick in occupancy and an improved case mix. Around 60% of Sanar revenue comes from international patients, primarily from the Middle East and the African Union.

Legacy operations hit by strategic investments: Standalone hospital margin declined to 17.7% vs 20.2% in Q4FY24, dragged by higher doctor onboarding cost and change in specialty mix. More than 40 high-end doctors were added in Q4 alone, with focus on gastrointestinal (GI), liver, and transplant verticals. SHALBY emphasized this as a long-term marginaccretive strategy. Hospital revenue was up modestly at 2.7% YoY.

Implants business sees traction but still in the investment phase: SHALBY medtech revenue rose 138% YoY in Q4 to INR 290mn; FY25 revenue grew 67% YoY to INR 930mn. The business turned EBITDA-positive and saw volume growth of 50% YoY in Q4. Global expansion plans are underway with new products (two launches expected in FY26, and deeper market entry in the US, Japan, and Southeast Asia). However, scale investments in US manufacturing continue to impact profitability in the near term.

Retain Accumulate with a lower target price to INR 207: We reduce our FY26-27E core EPS by 14-21% as we factor in delayed margin recovery and continued investments across key segments. SHALBY is currently trading at 35.5x FY27E core P/E and at ~13.1x FY27E EV/EBITDA (pre-IndAS).. We lower our target price to INR 207 from INR 252 based on 27x (from 25x) FY27E core P/E. We retain Accumulate, as near-term challenges appear priced in, with medium-term upside from Sanar recovery and implants growth. Key risks include slower-than-expected occupancy improvement and continued losses at new facilities.

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