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In Q2FY24, Global Healthcare (Medanta), delivered performance above our expectations on all fronts. Revenue for the quarter grew by 24.3% YoY to INR 8.44bn (vs est. of INR 8.23bn). ARPOB for the matured hospitals increased by 7.2% YoY to Rs. 63,132 due to an increase in occupancy from 60% in Q2FY23 to 65% in Q2FY24. In developing hospitals, Occupancy improved from 57% to 64% in Q2FY24. EBITDA for the quarter grew by 36% YoY to Rs.2.13bn (vs est. of INR 1.93bn). EBITDA margin expanded by 216bps YoY to 25.2% (vs est. of 23.4%) led by improvement in operational performance of key facilities like Patna and a drop in ALOS to 3.19 days vs 3.24 days in Q2FY23. PAT for the quarter grew by 46.1% YoY to INR 1.25bn (vs est. of INR 1.15bn).

* Expanding to high ARPOB market with DLF: Company has signed a 50:50 JV with DLF to set up a new facility in South Delhi. JV Plan to set up a ~400-bed super specialty hospital in South Delhi where GHL and DLF to form a new company, both will contribute equity in equal proportion (50:50), Medanta will run the hospital and have operational control; DLF will be a strategic investor. The facility will also have a comprehensive cancer care unit. Post expansion in the region we expect the new facility will strengthen Medanta’s bed count to ~2,400 in NCR. We believe post expansion in this region ARPOB of Medanta will further elevate as some reputed hospital in nearby vicinity is running with 65-70k ARPOB band.

* Patna facility: Dring the year achieved EBITDA breakeven and supported the overall margin growth of the group. Group continues to add beds and medical equipment in the facilities. During the quarter the developing hospitals including Patna and Lucknow saw a increase in the revenue share from 27% in Q2FY23 to 31% in Q2FY24. The developing hospitals (Lucknow & Patna) group looks to add 470-670 beds by FY25. During the quarter, the company added 20 ICU beds in Patna. We believe an increased share of the revenue from developing hospitals led to healthy margin expansion at the group level as margins for developing hospitals are higher (600-700bps over-developed hospitals). The group also introduced new equipment and clinical services like LINAC machines for radiation oncology, ICUs, dialysis, and ventilators in Lucknow and Patna.

* Fixed cost structure of Doctors to support operating leverage benefits: The major cost for a hospital is the doctor’s/staff salary which was at around 40% in FY18 and came down to 22.4% in H1FY24. Medanta has a unique structure where the salary for doctors is fixed in nature, which is helpful as an increase in occupancy will bring operating leverage and improve the margin.

Outlook & Valuation: We maintain our positive view on MEDANTA due to 1) Operating leverage due to the specialized doctor-led model, 2) ROCE improvement over FY23-25E, 3) Focus on underserved markets, 4) a Strong brand identity, 5) Expanding into a new segment Medanta Labs. We expect Medant’s revenue/EBITDA/ARPOB to grow at 21%/30%/6% CAGR over FY23-25E and the ROCE expansion of 140bps over FY23-25E. The company is into the capex cycle and we expect the margin to see some pressure in the FY25-27E period when the Noida facility operation starts. However, stock is currently trading at 28x/23x EV/EBIDTA of FY24 and FY25 seems expensive and gives limited upside. Factoring all the positives we value the stock based on EV/EBITDA and assign a multiple of 22x on FY25E EBIDTA to arrive at a price target of Rs.890 and recommend NEUTRAL. Kripashankar Maurya, AVP Email: kripashankar.maurya@choiceindia.com Ph: +91 22 6707 9949 CA Yogesh Soni Email: yogesh.soni@choiceindia.com Ph: +91 22 6707 9919 Deepika Murarka Email: deepika.murarka@choiceindia.com Ph: +91 22 6707 9513 Shareholding Pattern (%) Sep-23 Jun-23 Mar-23 Promoters 33.06 33.07 33.08 FII’s 10.69 10.58 9.89 DII’s 10.93 10.79 12.34 Public 45.31 45.56 44.69 Source: Company, CEBPL Rebased Price Performance Relative Performance (%) YTD 1Y 6M 3M BSE HC 21.8 23.5 1.7 Global Health 107.9 69.8 25.4 India Equity Research| Healthcare Delivery Q2FY24 Result Update Nov 14, 2023 CMP (Rs) 908 Target Price (Rs) 890 Potential Upside/Downside (%) (2) Particular FY23 FY24E FY25E Revenue 26.9 34.1 40.3 Gross Profit 20.7 25.9 30.6 EBITDA 6.1 8.5 10.5 EBITDA (%) 22.7 24.9 26.0 E

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