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Medanta continues to outperform JMFe / Street expectations. Occupancy levels of ~65% drove strong revenue growth of 24% YoY. Of this, developing hospitals' growth has been on expected lines but matured hospitals' 20% YoY growth, partly aided by price hikes, was a pleasant surprise. Brownfield bed additions in 2H in Patna and Lucknow may keep margins in check (c.24%). The Noida hospital remains on track for FY25-end commencement - if its trajectory turns out to be similar to that of Lucknow, we believe there could be an upside risk to our earnings estimate. After announcing assets in Indore and South Delhi, the management alluded to more hospital additions in North / Central India. Our recent note (click here) highlighted Medanta's expansion strategy for long-term sustainable growth. Undeterred by near-term valuations, we maintain BUY with a Dec'24 TP of INR 930

* Mature hospitals’ growth better-than-expected: Matured hospitals grew 19.5%YoY with EBITDAM improving to 25.5% (vs. 22.9% YoY), partly aided by price hikes and much better than expected. ARPOB increased +7%YoY to INR 63,132 while occupancy levels increased to 65% (vs. 60% YoY). Medanta will increase capacity at Gurgaon by c. 100 beds achieved largely through internal reconfiguration and minimal capex. The company expected to incur INR 1bn capex for medical equipment and technology related upgrades. At Gurgaon, the medical Oncology and M&C department are scaling up and is expected to be operational by CY24. Revenue from international patients increased 20% YoY to INR 507mn driven by increased volumes and realisation.

* Strong Lucknow and Patna performance continues: Developing hospitals grew 40.3%YoY with EBITDAM improving to 33.9% (vs. 29.7% YoY). ARPOB was flattish YoY to INR 57,082 while occupancy levels increased to 64% (vs. 57% YoY). Brownfield bed additions in 2H in Patna (50-70 beds) and Lucknow (100-125 beds) will keep margins in check. With further bed additions, we expect 26%/50% Revenue CAGR over FY23-26 for Lucknow/Patna, respectively. The management alluded to Patna ARPOB being 10-15% lower than Lucknow. The Noida hospital remains on track for FY25-end commecement - if its trajectory turns out to be similar to that of Lucknow, we believe there could be an upside risk to our earnings estimate. Longer term growth levers for Medanta are Indore hospital and DLF JV. We expect new hospital additions in North / Central India given the robust cash flow visibility.

* Key financials: Revenue/EBITDA/PAT of INR 8.4bn/2.1bn/1.3bn grew 24%/36%/46% YoY and were +6%/+14%/+15% vs. our estimates. Gross margins were flat YoY to 77.1% (JMFe: 76.3%). EBITDA margins grew 210bps YoY at 25.2% (vs. 23% QoQ; JMFe: 23.5%). EPS was 4.7 (vs. 3.4 YoY). ARPOB for the quarter was INR 61,003 (vs. INR 63,148 QoQ: INR 58,203 YoY). Occupancy was 64.9% (vs. 58%QoQ; 59%YoY). OPD Pharmacy business continues to register strong growth - revenue increased by 39% from INR 215 million in 2Q23 to INR 298 million in 2Q24. ALOS was 3.19 vs. 3.24 YoY. Net cash surplus of INR 6bn as of Sep ’23.

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