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Drug-cap dent temporary; HCG eyes high-teens profit growth:

HCG guides to mid-teens revenue growth and high-teens to 20% EBITDA growth in the next few years, with ARPP rising ahead of inflation. North Bangalore, EBITDA loss of which narrowed down from INR 75 Mn to INR 61 Mn, is projected reach monthly breakeven by Q4FY27. Gujarat is expected back to mid-teens growth in the next few quarters. The drug trade-margin cap implies a mid-to-high single-digit annualised EBITDA hit, only low-to-mid single digit in FY27, starting this month, with no material impact expected in FY28. Medical value travel, growing 25%, is estimated reach 4–5% of revenue, and the management sees margin catching up.

Revenue growth remains strong; PAT misses estimate

* Revenue came in at INR 7.3 Bn (vs. CIE est. of INR 7.4 Bn), up 13.1% YoY and 5.3% QoQ, supported by broad-based growth across clusters

* EBITDA came in at INR 1.3 Bn (in line with CIE est.), up 8.2% YoY and 9.1% QoQ. EBITDA margin came in at 18.2% (in line with CIE est.), contracted by 84 bps YoY and improved by 64 bps QoQ

*  RPAT came in at INR 0.16 Bn (vs. CIE est. of INR 0.26 Bn), flat on YoY and grew by 19% QoQ

Margin expansion poised to accelerate through better mix and operating leverage:

HCG’s shift towards complex, high-value oncology is structural. Robotic surgeries rose 37% YoY, and non-institutional revenue grew 21%, lifting its share to 69%. ARPP grew 7% overall and 14% in the South, driven by robotics, advanced radiation and theranostics. The management guides to ARPP growth ahead of inflation and the South’s playbook is being replicated in the West and East.

Multiple growth engines beyond the core:

The East revenue grew +23% on +18% volume growth, Maharashtra delivered mid-teens growth, and Kenya surged about 54% after new radiation capacity and addition of 13 beds. Medical value travel is growing about 25% and forecast reach 4–5% of revenue. Gujarat is expected to return to mid-teens growth by end of FY27, once the lowmargin institutional business ends. This geographic and service diversification lowers dependence on any single market. The management reiterates its midteens revenue growth and high-teens to 20% EBITDA growth guidance, with inorganic opportunities as upside.

Regulatory hit seems temporary, not structural:

The trade-margin cap on 137 anti-cancer drugs will cost an estimated mid-to-high single-digit of annualised EBITDA, starting in November. For FY27, it will be approximately low-to-mid single digit. The management expects no material impact from FY28 as it will offset the hit through trade-channel optimisation, volume growth, better utilisation and mix.

View and valuation: We anticipate Revenue/EBITDA/APAT to expand at a CAGR of 14.2%/16.5%/85.0%, respectively, over FY26–FY29E. Valuing the stock at an EV/EBITDA multiple of 18x (from 20x) on an avg. of FY28–29E, we retain our target price of INR 800 and ‘BUY’ rating on the stock.

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