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Growth Visible; Maintain BUY

Est. Vs. Actual for Q1FY26: Revenue – BEAT; EBITDA Margin – INLINE; PAT – MISS

Changes in Estimates post Q1FY26

FY26E/FY27E: Revenue: 1.0%/0.8%; EBITDA: 0.9%/0.9%; PAT: 2.8%/1.8%

Recommendation Rationale:

• Inline Revenue Performance: HCG reported revenue higher than expectations, registering a 16.7% growth YoY. This was driven by higher bed additions of 257 beds over the period, leading to 15.7% growth in occupied days with a flattish ARPOB. ARPOB stood at Rs 44,751, remained flat both YoY and QoQ, reflecting healthy growth. Occupancy improved to 67%, marking a 150 bps YoY increase, and on a like-for-like basis, AOR stood at 76%.

• PAT Lower than Expected: The company reported EBITDA margins of 17.6%, down 50 bps QoQ but up 30 bps YoY. It reported EBITDA of 108 Cr, grew by 18.6% YOY and 2% QoQ. Adjusted EBITDA margins stood at 18%. Its PAT increased to Rs 6 Cr, which was lower than expected due to higher tax expenses and lower other income.

Sector Outlook: Positive

Company Outlook & Guidance: The cancer industry is growing at a CAGR of 17%, and HCG is outpacing this growth. The company plans to add 900 incremental beds over the next 4 to 5 years to capitalise on emerging opportunities. Several margin improvement levers are in place, as most emerging centres have matured with margins exceeding 20%. HCG has strengthened its infrastructure and expanded its network through acquisitions and new investments, positioning itself for long-term growth and enhanced patient outcomes. The recent entry of new investors such as KKR, replacing CVC, signals confidence in the company’s strategic vision and growth prospects.

Current Valuation: EV/EBITDA 17x for FY27E (Earlier 16x/FY26E)

Current TP: Rs 680/share (Earlier TP: Rs 620/share)

Recommendation: We maintain our BUY recommendation on the stock.

Financial Performance

HCG reported revenue ahead of expectations, registering a strong 16.7% YoY growth. The performance was primarily driven by the addition of 257 beds over the period, which led to a 15.7% increase in occupied bed days. ARPOB remained steady at Rs 44,751, showing a flat trend both YoY and QoQ, yet reflecting healthy underlying growth. Occupancy improved to 67%, up 150 bps YoY, while on a like-for-like basis, the Average Occupancy Rate (AOR) stood at a robust 76%. The company reported EBITDA margins of 17.6%, down 50 bps QoQ but up 30 bps YoY. Reported EBITDA of 108 Cr grew by 18.6% YOY and 2% QoQ. Adjusted EBITDA margins stood at 18%. Its PAT increased to Rs 6 Cr, which was lower than expected due to higher tax expenses and lower other income.

HCG’s established centres delivered an excellent 16.4% revenue increase and an 18% rise in EBITDA, reflecting its mature operations and reliable performance. The ARPOB for these centres reached Rs 43,068, with a flat growth, underscoring their steady occupancy and service efficiency. Moreover, emerging centres acted as key growth drivers, posting a remarkable 23.6% revenue growth and an 86% jump in EBITDA for the quarter. The ARPOB was significantly higher at Rs 69,856, up 11.6% YoY, driven by increased pricing power and a growing share of advanced treatments. This strong performance from emerging centres, especially in Tier 1 cities, highlights their strategic importance and role in boosting HCG’s overall profitability and future growth.

Outlook

The cancer industry is growing at a CAGR of 17%, and HCG is outpacing this growth. The company plans to add 900 beds over the next 4 to 5 years to capitalise on emerging opportunities. Multiple levers exist for margin expansion, with most new centres now mature and delivering margins above 20%. Additionally, operating leverage and contributions from MG Hospital are expected to add 300 bps to margins over the next three years.

Valuation & Recommendation In light of strong traction in the oncology industry and HCG's optimism about sustaining its robust growth trajectory in both revenue and profitability, the company has earmarked a capex of Rs 286 Cr for FY26. This will entail plans to operationalise over 900 beds across its network within the next three years, including the new flagship Ahmedabad center and two additional hospitals in Bangalore. This will be directed towards network expansion and technology upgrades. We retain our BUY rating with a target price of Rs 680/share, implying an upside potential of 12% from the CMP.

Key Risks to our Estimates and TP

• Economic Slowdown may impact the overall revenue growth of the company.

• A high attrition rate of doctors may impact the company's revenue growth.

• Unplanned Capex may lead to a weak balance sheet for the company.

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