Add Max Healthcare Ltd for the Target Rs.1,250 By Emkay Global Financial Services Ltd
Steady quarter; outlook remains robust
Max Healthcare (Max HC) reported a steady quarter, with overall revenue/EBITDA growing 21%/24% YoY, respectively. Resolution of issues with key insurers, CGHS price hike (Rs2bn), and levers like the improving case and payor mix at Lucknow, Dwarka, Noida hospitals should support ARPOB expansion, in our view. Additionally, Max HC is slated to add ~1,500 beds over the next 18 months, the majority of which would be brownfield in nature, entailing a quick ramp-up in occupancies. We, thus, expect 21% revenue CAGR over FY25-28E, on OBD/ARPOB CAGR of 18%/3%, respectively. Max HC’s increasing focus on international patients and brownfield expansions should improve the margin trajectory ahead; we expect margins to expand by ~200bps over FY25-28E. Barring certain commissioning-related delays, our estimates largely remain unchanged. We retain ADD on Max Healthcare, with an unchanged Sep-26E TP of Rs1,250, based on SoTP method (implying 31x Sep27E EV/EBITDA; a 25% premium to the sector average).
Revenue momentum continues
Max reported network revenue growth of 21% YoY to Rs25.7bn, in line with the street’s estimate, as IP volumes grew 22.5%, while overall ARPOB rose 1.4% YoY. EBITDA was reported at Rs6.7bn (+24% YoY), with the margin growing by 53bps YoY as the increase in employee costs (+17% YoY) and other expenses (+18% YoY) was outpaced by growth in revenue. Adj PAT came in at Rs4.1bn (+16% YoY) despite the increase in D&A (+26% YoY) and interest (over 8x) costs. Maxlab/Max@Home reported revenue growth of 16%/20% YoY, respectively. FCF was Rs2.9bn and net debt was Rs20.7bn (Sep-25). Capex was Rs4.6bn.
Earnings call highlights
1) Project commissioning timelines – Nanavati (268 beds)/Max Smart (400 beds): To be commissioned in Q3; Lucknow (137 beds): To be added by FY26-end, and oncology radiation program to be launched by next month; Nagpur (100 beds): Awaiting approvals to establish; will take 24 months post receipt of approvals; Patparganj (397 beds): The project would be complete by FY28; Max Vikrant, Saket (550 beds): To start within 40 months from the date of commissioning of Max Smart, ie, CY29; Zirakpur, Mohali (400 beds): Expected to complete by 2027-end; Thane (500 beds): The project is expected to be complete in 42 months, ie, CY29; Pitampura (250 beds): Expected to receive necessary approvals by Q3 – the project will be complete in 36 months post receipt of approvals. 2) For the brownfield expansions in Nanavati and Max Smart, the management expects to achieve EBITDA breakeven almost immediately upon commissioning. 3) CGHS rate hike is yet to be fully baked in and is expected to boost annual revenue by Rs2bn from FY27, with ~80% to flow into EBITDA. 4) Update on existing units: Noida Jaypee - 64% occupancy and 18% EBITDA margin in Q2, with consistent MoM growth since Jan25. All empanelments and licenses are now in place. Dwarka: +81% occupancy and 15% margin - expected to reach company-level margins by FY27, with operationalization of oncology. 5) Cashless facilities stopped earlier by insurers have now been resolved and services resumed for all four insurers. 6) H2FY26 capex is estimated to be Rs11-12bn.
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