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On robust runway for sustainable growth

* Over the past four years, MEDANTA has delivered a stupendous performance (3x earnings), witnessing a 35% EBITDA CAGR. Moreover, it turned net cash in FY23 from a net debt of INR3b in FY19. Since listing in 3QFY23, the stock has more than doubled today.

* Interestingly, over FY23-26E, the outlook remains strong, on the back of a healthy pipeline of beds being added to the existing facilities (552 beds) and the upcoming ones in Noida, Indore, and South Delhi (1,000 beds on a combined basis).

* Additionally, ARPOB is expected to witness a 6% CAGR due to the improving case mix/payor mix. Moreover, we expect ARPOB of mature/developing facilities to reach INR70k/INR67k at 5%/6% CAGR, respectively, over FY23-26.

* We expect 28% earnings CAGR over FY23-26, factoring a) faster scale-up of existing hospitals, b) additional business from new hospitals and c) better operating leverage. Accordingly, we value MEDANTA at 26x 12-month forward EV/EBITDA to arrive at our TP of INR1,170. We reiterate our BUY rating on the stock.

Future growth to be fueled by aggressive bed expansion

* At the end of 1HFY24, MEDANTA had a bed capacity of 2,725. MEDANTA is focusing on growing its capacity to more than 3,500 beds over the next two to three years.

* MEDANTA is focusing on increasing this capacity at North and Central India, as it intends to deepen its presence in these markets.

* MEDANTA plans to add a) 100 beds at Gurugram, b) 300-350 beds at Lucknow, c) 150-300 beds at Patna, and 300-550 beds at Noida over FY23-25.

* Additionally, MEDANTA, in JV with DLF, has planned to set up a 400-bed facility in South Delhi. It is expected to commence operations in the next four to five years.

* This provides a robust runway for growth over the next three to four years.

Noida facility to boost dominance in NCR for MEDANTA

* MEDANTA’s Noida facility, currently under construction, is expected to commence operations from end-FY25.

* It is likely to have an installed capacity of 300 beds in Phase-1, rising to 500 beds under Phase-2.

* The hospital is strategically located to cater to the West-UP patient community. Its close proximity to the Metro station significantly enhances accessibility to the hospital.

Expanding presence throughout the NCR area to spur long-term growth

* Additionally, MEDANTA, in JV with DLF, is setting up a 400-bed hospital.

* This will come in the Greater Kailash area of South Delhi. This facility is likely to boost the presence of MEDANTA in Delhi-NCR.

* The super-specialty hospital will offer medical and surgical interventions across more than 20 specialties, including the establishment of a comprehensive cancer health unit.

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