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Non-Institutional Shift & Advanced Oncology Adoption Propel Quality Earnings

Est. Vs. Actual for Q2FY27: Revenue – INLINE; EBITDA – BEAT; PAT – MISS

Changes in Estimates post Q2FY27

FY27E/FY28E: Revenue: 0%/0%; EBITDA: 0%/0%; PAT: 0%/0%

Recommendation Rationale

* Inline Revenue Performance: HCG delivered revenues of Rs 732 Cr, growing a steady 16% YoY, supported by broad-based performance across operating clusters; top-line growth was slightly tempered in Gujarat by strategic rationalization of lower-realization institutional contracts to improve margins.

* Margin Performance: The company reported an EBITDA margin of 19.7%, expanding 50 bps YoY from 19.2% (EBITDA of Rs 143 Cr, up 17% YoY, or >20% excluding wage revisions). H1 Adjusted PAT reached Rs 29 Cr, up 30% YoY, as operational losses narrowed to Rs 6.1 Cr at the ramping North Bangalore facility.

* Patient Volumes Grew 9% YoY (Excluding Fertility): This was supported by healthy demand across network clusters and ongoing bed additions. Average Revenue Per Patient (ARPP) registered a 7% YoY increase, as positive payor-mix gains (non-institutional mix rising over 300 bps to 69%) were further aided by high-complexity oncology adoption.

Sector Outlook: Positive

Company Outlook & Guidance:

Outlook remains strong, with management guiding for mid-teens revenue growth and high-teens EBITDA expansion going forward. The North Bangalore facility's EBITDA loss narrowed to Rs 6.1 Cr with monthly breakeven slated for Q4FY27, alongside 146 operational beds added across the network in H1FY27. Margin trajectory remains resilient despite recent oncology drug price caps, driven by non-institutional mix gains and operating efficiencies. Utilization of rights issue proceeds funded the strategic Vizag buyout and enabled Rs 170 Cr of planned debt reduction.

Current Valuation: EV/EBITDA 15.5x for FY29E (Earlier 17.5x/FY28E)

Current TP: Rs 820/share (Earlier TP: Rs 785/share)

Recommendation: We maintain our BUY recommendation on the stock.

Financial Performance

HCG reported Q2FY27 revenue of Rs 732 Cr, up 13% YoY (14% excluding North Bangalore), broadly in line with expectations, driven by 9% volume growth and 7% ARPP improvement. Excluding fertility, underlying revenue was strong. EBITDA reached Rs 133 Cr (up 8% YoY, or >20% excluding wage revisions), with margin at 18.2%, down 77 bps YoY. H1 Adjusted PAT reached Rs 29 Cr, as start-up losses narrowed to Rs 6.1 Cr at North Bangalore.

Outlook

Backed by robust demand in oncology care, HCG aims to sustain mid-teens revenue growth and high-teens EBITDA expansion through disciplined execution and clinical differentiation. The platform operationalized 146 beds across its network during H1 FY27 alongside high-end medical technology investments to enhance asset utilisation and precision oncology capabilities. Margin expansion remains on track despite regulatory price caps, propelled by favourable payor-mix shifts—with non-institutional revenue share rising 300 bps to 69%—higher surgical complexity, operating leverage, and the steady operational turnaround of North Bangalore towards Q4FY27 breakeven. Further supported by substantial debt reduction and rights issue deployment, HCG remains well-positioned to pursue organic growth alongside selective inorganic opportunities

Valuation & Recommendation

In light of strong traction in oncology and HCG’s confidence in sustaining its growth trajectory of mid-teens revenue and high-teens EBITDA expansion through FY28–29, capex remains disciplined with Rs 128 Cr already incurred in H1 FY27 and 146 operational beds added to support expansion plans. Balancing trade margin headwinds with operating leverage and North Bangalore breakeven in Q4, we value the stock at 15.5x EV/EBITDA FY29E and retain our BUY rating on the stock with a target price of Rs 820/share, implying an upside potential of 37% from CMP.

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