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In Q3FY24, NH reported earnings slightly below expectations, with revenue reaching INR 12,036 million, a 6.7% YoY increase but a 7.8% QoQ decline due to seasonality. EBITDA grew by 9.6% YoY to INR 2,789 million but decreased by 9.5% QoQ. The EBITDA margin expanded by 62bps YoY but contracted by 43bps QoQ to 23.2%, aligning with estimates. APAT witnessed a 22.3% YoY growth but a 17% QoQ decline to INR 1,881 million. As of December 2023, the company operated 39 healthcare facilities with 5,646 operational beds.

? India Hospitals: India operating revenue was INR 9,590mn vs INR 9,098mn, a growth of 5.4% YoY. The company experienced revenue growth across all regions, with the Eastern Peripheral region (including Jamshedpur, Guwahati, Raipur) leading with a 15% YoY increase. However, the Northern region (including Gurugram, New Delhi, and Jaipur) witnessed a 3% YoY decline, primarily due to underperformance in Gurugram and significant impact in Jaipur related to changes in reimbursement structures. The ARPP (Average Revenue Per Patient) for IP (InPatient) patients was INR 123,000, reflecting a 5.6% YoY growth, and for OP (Out-Patient) patients, it was INR 4,200, showing a 5% YoY growth. The ALOS stood at 4.4 days.

? Cayman Islands: In the Cayman Islands, operating revenue reached INR 2,576mn, up 11.5% YoY from INR 2,309mn. The ARPP for IP decreased by 24.6% YoY to USD 30,700, influenced by unusually high numbers last year. The ARPP for OP grew by 9% YoY to USD 1,200. The unit's capex is nearly complete, with the hospital expected to be commissioned by June 2024.

? Company Gears Up for Health Insurance: The company has successfully acquired an insurance license in early January and is currently in the process of finalizing products, technology, and regulatory policies. The anticipated launch is set for the next year, beginning in Karnataka, particularly in Mysore, with plans for gradual expansion into other regions. The initial investment in the health insurance business is projected to be INR 1,000 million.

Outlook and Valuation: Narayana Hrudayalaya (NH) is poised for strong growth from FY24 to FY26, supported by its diverse presence in India, particularly in Karnataka and Kolkata, and its expansion into new specialties, including ortho spine, neurosciences, GI sciences, and acute care. The company's robust footprint extends to the Cayman Islands, where it anticipates the completion of a new multispecialty center. NH's strategic allocation of high capex towards adding hospitals and clinics further solidifies its growth potential. Valuing the stock at 20x FY26E EBITDA, the target price is set at INR 1,456, maintaining an ADD rating.

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