Buy Healthcare Global Enterprises Ltd For Target Rs. 575 by by Axis Securities
Leadership Changes; Growth Ahead
Est. Vs. Actual for Q3FY25: Revenue – INLINE; EBITDA Margin – MISS; PAT – MISS
Changes in Estimates post Q3FY25
FY25E/FY26E: Revenue: -0.6%/3.1%; EBITDA: -1.6%/1.0%; PAT: -11.5%/-0.4%
Recommendation Rationale:
* HCG reported revenue in line with expectations, registering an 18.9% growth, driven by a 3.5% YoY increase in ARPOB and ~16% growth in occupied days. ARPOB stood at Rs 44,284, up 3.5% YoY but down 2.0% QoQ, reflecting healthy growth. Occupancy improved to 62.1%, marking a 230 bps YoY increase.
* EBITDA margins came in at 15.8%, down 90 bps YoY and 260 bps QoQ, missing the expected 19%. However, adjusted EBITDA margins stood at 17.5%. The reported PAT rose to Rs 7.8 Cr, reflecting a strong 120% YoY growth.
Sector Outlook: Positive
Company Outlook & Guidance: The cancer industry is growing at a CAGR of 17%, with HCG outpacing this growth. The company plans to add 900 incremental beds over the next 4-5 years to capitalise on emerging opportunities. Several margin improvement levers are in place, as most emerging centers have matured with margins exceeding 20%. Operating leverage and MG Hospital are expected to contribute an additional 300 bps to margins over the next three years
Current Valuation: EV/EBITDA 14x for FY26E
Current TP: Rs 575/share (Earlier TP: Rs 575/share)
Recommendation: We maintain our BUY recommendation on the stock.
Financial Performance
HCG reported revenue growth of 19%, in line with expectations, driven by a 3.5% YoY increase in ARPOB and ~16% growth in occupied days. ARPOB stood at Rs 44,284, rising 3.5% YoY but declining 2% QoQ, reflecting healthy underlying trends. Occupancy improved to 62.1%, up 230 bps YoY. EBITDA margins stood at 15.8%, down 90 bps YoY and 260 bps QoQ, missing expectations of 19%. However, adjusted EBITDA margins were at 17.5%. Reported PAT surged 120% YoY to Rs 8 Cr
Revenue from new centers was Rs 52 Cr, compared to Rs 121 Cr YoY, indicating that most centers have now matured and are contributing to operating profits. Existing centers reported a revenue of Rs 493 Cr, with EBITDA margins of ~21%. Management has guided for a 100- 150 bps expansion in consolidated EBITDA margins in FY26.
During the quarter, HCG acquired MG Hospital in Vizag, which contributed Rs 25 Cr to revenue with strong margins of 24%. The digital business grew by 14% YoY, generating Rs 76 Cr in revenue. Additionally, KKR has acquired a majority stake in Healthcare Global, assuming sole control from CVC Asia.
For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home
SEBI Registration number is INZ000161633
