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Structural levers to drive growth

We hosted Dr. Manish Mattoo (Executive Director & CEO), Mr. Sanjeev Kumar (CFO) and Mr. Ravi Gothwal (Head-investor relations) of HealthCare Global Enterprises (HCG) for NDR at Mumbai. HCG’s consolidated EBITDA grew by 19% CAGR over FY24- 26. The management has guided higher EBITDA growth than historical growth in coming years driven by procurement efficiencies, brownfield expansion and improved payor and case mix.

We believe the recent strategic investment by KKR will bring in more operational and financial efficiency. Currently, HCG enjoys ~18% Post-IND AS margin, which is lower than its peers. We expect KKR to drive growth through bed expansion, largely brownfield, better payor mix, focused marketing initiatives, and scale-up of margins. We expect ~24% EBITDA CAGR over FY26-28E. At CMP, the stock trades at attractive valuations of ~19x EV/EBITDA adjusted for rentals and minority. We retain ‘BUY’ rating with TP of INR820/share (unchanged) valuing at 22x on FY28E pre-IND AS EV/EBITDA

* Strong growth visibility aided by payor and case mix optimization:

With most centers commissioned post-FY22 turning profitable, HCG is well-positioned to deliver sustained growth and operating leverage. The company is focused on optimizing its existing network, improving payor and case mix, scaling international business, and leveraging advanced oncology platforms such as CyberKnife and Tomo Therapy, while expanding day care and diagnostic centers to unlock capacity. The ~300bps improvement in non-institutional payor mix from 66% in FY25 to 69% in Q1FY27 underscores the progress in payor rationalization and should support ARPP improvement and sustained margin expansion.

* Bed expansion to drive the next leg of growth:

HCG plans to add ~938 beds and 5 LINACs by FY30, strengthening its presence across established and underpenetrated markets, with ~60% of expansion through brownfield additions, offering lower capital intensity. The management has guided for total capex of ~INR5.5bn, which is expected to be funded through a combination of internal accruals and debt. Additionally, HCG is evaluating accretive M&A opportunities involving 120–150-bed assets in underpenetrated markets to augment its expansion pipeline.

* Margin expansion story intact:

HCG's post-Ind AS EBITDA margin of ~18.3% in FY26 offers significant headroom for expansion, supported by maturation of existing centers, LINAC utilization, improving payor and case mix, and brownfield additions. Further, the management has guided Post IND AS EBITDA margin at early 20% over the next 2–3 years and mid-20s in the medium term, aided by North Bengaluru breakeven, procurement efficiencies, and sales and marketing rationalization. We believe KKR-led execution of cost optimization and payor-mix improvement, coupled with comfortable leverage, should support sustained margin accretion and post-Ind AS EBITDA growth of ~24% CAGR over FY26–28E.

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