Buy Global Health Ltd For Target Rs.1,410 by Motilal Oswal Financial Services Ltd
Better-than-est. 3Q; developing hospitals boost earnings
Expanding presence in Ranchi by leasing the newly-built hospital
* Global Health (Medanta) delivered better-than-expected 3QFY25 results. The strong improvement in developing hospitals and a steady show at the matured hospitals led to healthy earnings growth for the quarter.
* We raise our earnings estimate by 3%/4%/3% for FY25/FY26/FY27 factoring in: 1) faster scale-up at Patna Hospital backed by demand tailwind, 2) enhanced effort at Lucknow, driving recovery in operational performance, and 3) improved visibility for volume growth aided by the addition of institutional empanelment. We value Medanta at 30x 12M forward EV/EBITDA to arrive at our TP of INR1,410.
* Medanta remains on track to a) add clinical talent at existing centers (~100+ doctors added in 9MFY25), b) improve case mix through the addition of beds in oncology/ICU, and c) expand at newer locations (Ranchi/Noida/Delhi). Interestingly, a major portion of the revenue/EBITDA growth is driven by volume, partly supported by patient realization. Overall, we expect 22%/25% CAGR in EBITDA/PAT over FY25-27. Reiterate BUY.
Quarterly EBITDA surpasses the previous high; scope to improve further
* In 3QFY25, sales grew 12.8% YoY to INR9.4b (vs. our est: INR8.8). Mature hospitals' revenue (69% of total revenue) grew 10.1% YoY to INR6.5b. Developing hospitals’ revenue (31% of total revenue) rose 9.5% YoY to INR3b.
* EBITDA margin contracted 90bp YoY to 25.6%, primarily due to a higher share of RM costs (+150bp YoY), offset by a lower share of employee expenses (-40bp YoY) and a reduced share of other expenses (-20bp YoY).
* Medanta’s EBITDA grew 8.9% YoY to INR2.4b (vs. our est: INR2.2b). Mature hospitals’ EBITDA increased 9% YoY to INR1.6b, and developing hospitals grew 4.8% YoY to INR1b for 3QFY25.
* PAT grew 18.4% YoY to INR1.5b (vs. our est: INR1.3b) owing to a marginally lower interest and tax burden.
* Medanta’s revenue/EBITDA/PAT grew 13%/7%/11% to INR27.6b/ INR6.7b/INR3.9b in 9MFY25.
Highlights from the management commentary
* Medanta would lease a 110-bed newly-built hospital in Ranchi. Medanta will invest about INR500m in medical equipment at this site and commence operations from 1QFY26.
* The barricading of the land has been completed, and architectural drawings are currently being prepared at Oshiwara, Mumbai.
* Medanta onboarded 49/100+ doctors in 3QFY25/9MFY25. Lucknow and Patna have witnessed maximum doctor addition in 3QFY25.
* Noida Hospital would commence in the next 1Q/2QFY26. On an overall basis, about 1000 beds would be added by Medanta across sites over the next two years.
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