Buy Jupiter Life Line Hospitals Ltd For Target Rs. 1,720 - Prabhudas Liladhar Capital Ltd
In-line EBITDA; bed expansion on track
Quick Pointers:
* Potential bed expansion in existing Thane unit with likely additional FSI
* 78 beds added at Indore in Q4FY25; visibility of 2,500 beds by FY28/29.
JLHL’s Q4 consolidated EBITDA grew by 26% YoY (4% QoQ) to Rs783mn, largely in line with our estimates, aided by higher ARPOB. Its operational efficiency has been strong in the competitive markets of MMR. The company reported revenue/EBITDA CAGR of 20%/25% over FY22-25. Given its expansion plans, scale-up in occupancy and improving margins, growth momentum is expected to sustain over the medium term. We believe strategic greenfield expansions in densely populated micro-markets of western regions will drive sustainable growth. Our FY26E and FY27E EBITDA broadly remain unchanged, but PAT has been reduced by ~11% given the higher depreciation and interest charges. Overall, we see 20%/16% CAGR in EBITDA/PAT over FY25-27E with healthy return ratios of ~20%. Maintain ‘BUY’ rating with a revised TP of Rs1,720/share, valuing at 26x EV/EBITDA based on FY27E EBITDA.
* In-line EBITDA; PAT growth muted due to higher depreciation charges: JLHL reported EBITDA of Rs783mn, up 26% YoY. Margins improved by 260bps YoY (60 bps QoQ) to 24%. However, PAT growth was muted at 4% YoY due to higher depreciation and interest charges. Higher depreciation was driven by new bed additions at the Indore facility and lease-related right-of-use assets for the new Pune facility.
* Strong ARPOB; QoQ occupancy declines due to new bed addition at Indore: JLHL reported revenue growth of 13% YoY to Rs3.3bn, vs our estimates of Rs3.4bn. ARPOB improved 13% YoY to Rs65.5k per day, partly due to improvement in case mix and price hike taken in the self-payor category in Q4. FY25 ARPOB was at Rs60.6k, up 10% YoY. Average occupancy decreased by ~600bps YoY to less than 60%, due to addition of 78 beds at Indore unit. Occupancy at Thane and Pune units was stable QoQ. IP and OP volumes increased by 3% and 10% YoY, respectively.
* Key con-call takeaways: The company is on track to achieve its initial target of 2,500 beds across 6 hospitals in Western India in the next 3-4 years. It is also exploring more opportunities, which would be greenfield additions or in the form of acquisitions.
* Bed expansion – Total 3 greenfield projects are in the portfolio. These include 500 beds at Dombivli, construction of which is progressing well and ~250 beds are expected to be operational in Q1FY27. The second hospital in Bibwewadi, Pune, is at the excavation stage having received environmental clearance; construction is planned to commence post monsoon. In the case of the Mira-Bhayandar hospital, regulatory processes are underway for recently acquired 2 acres of land to build a 300-bed unit.
* Capex – Rs3.2bn has been spent in FY25, with Rs850mn toward Dombivli greenfield expansion, Rs400mn for brownfield expansion (Pune I and Indore), and Rs750mn toward Mira-Bhayandar land acquisition. JLHL had net cash of Rs2.8bn as of FY25.
* Thane unit expansion - Application has been submitted for additional FSI/floor, which is awaiting for environmental clearance and other statutory approvals. Further, Thane unit has been restructured in Q4 with 22 economy wards closed to make space for 2 new OTs, a cath lab, an expanded MRI facility, a daycare department, and ongoing OPD construction. This will potentially increase ARPOB and margins for the unit. The unit has seen zero attrition at the senior consultant level, despite new entrants in the market.
* Indore unit - During Q4, 78 beds were operationalized. Additionally, 11 beds are ready to be commissioned as occupancy ramps up to 60-65%.
* ARPOB growth guidance - Thane and Pune being mature units, ARPOB growth is expected to be inflation linked (5-6%). Indore may see higher ARPOB growth.
* Contribution from the insurance business increased to 55.8% in FY25 vs 54.9% in FY24.
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