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NH, in Q2FY24, posted performance were below our expectations only on the revenue front. The company reported revenue growth of 14.3% YoY, amounting to Rs. 13.05bn (compared to CEBPL's est. of Rs. 13.38bn). The company recorded the highest-ever revenue on a quarterly basis which was led by significant contribution from HCCI (achieving highest revenue and profitability) and continued healthy traction from the new radiation oncology block. Revenue from Cayman Island surged by 8.3% YoY to USD 31.5mn. The India business operation witnessed a 14.7% YoY increase, reaching Rs. 10.52bn, primarily driven by the strong performance from new facilities including SRCC, Gurugram and Dharamshila.

Outlook and Valuation: We expect NH to deliver healthy growth over FY23-25 driven by 1) geographically diversified presence across India (strong presence in Karnataka and East India (Kolkata)), 2) Diversification of its specialties from cardiac care and renal sciences to oncology, neurosciences, orthopedics and gastroenterology, 3) Strong presence in Health City Cayman Islands in North America (also adding new multispecialty center and a continued traction in radiation oncology department) and 4) prudent capital allocation of new capex in high ARPOB facilities like Kolkata & Bangalore. We value the stock (19x EV for FY25E EBIDTA), to arrive at a TP of Rs.1,259 with ADD rating

New Hospitals firing growth engine for India business: During the quarter, facilities including SRCC, Gurugram, and Dharamshila contributed the combined revenue of Rs. 1.19bn compared to Rs.1.15bn in Q1FY24. The EBITDA from the facilities also improved significantly from Rs. 60mn in Q1FY24 to Rs. 87mn in the current quarter. Dharamshila is already hitting EBITDA margin of 15- 17%, which the company expects other facilities will follow.

Brownfield expansion keeps long-term growth intact: The company has plans of Rs. 2.5bn of brownfield expansion which will be for the flagship facilities, including Bangalore and Kolkata. In Bangalore, the construction work has already started, and it plans to add 700+ beds in the next 3- 4 years. The Kolkata’s land is a part of green field expansion. The company has added 2 floor in the Howrah facility, Kolkata which will have +110 beds by the end of FY24. It is also looking at other projects in brownfield and greenfield at the flagships hospital. The management understands that even without any further investment, it would be able to grow at a high single digit.

New Facility in Cayman Island: It is on track and is expected to be commissioned in Q1FY25 and make meaningful contribution. There will be decent chunk of fixed cost which will come with the commissioning of the hospital. It expects the ramp up to be significantly fast and may see some margin dilution.

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