Buy Jupiter Life Line Hospitals Ltd For Target Rs. 1,844 By JM Financial Services
JLHL delivered a strong quarter with beat on revenue, and EBITDA /PAT being in-line. The company reported Revenue/EBITDA/PAT of INR 3.5bn/781mn/439mn, which were +21%/+22%/-2% on YoY basis. The performance was accompanied by IPD/OPD volumes and ARPOB growth, mainly Pune and Indore units. The occupancy took a dip (60% vs 64% in 1QFY25) on account of increased capacities; however, the company saw a 5% YoY increase in absolute occupied beds. The company increased its gross-debt to ~INR 3.3bn for its expansion needs; thereby finance cost was increased during the quarter. Further, capitalization of recent bed additions has increased depreciation for the company. These actions are likely to temporarily increase the wedge between EBITDA and PAT. The greenfield expansion plans are on track, with Dombivli being the first project coming live in 1QFY27. However, the company expects a drag on EBITDA margins for FY27 owing to the same, with the breakeven for Dombivli unit expected in the second year of commissioning. The Pune-II and Mira units are expected to commercialise in CY28 and CY29, respectively. In our view, Jupiter has carefully chosen its target markets in the under-served micro-markets of Western India. Further, the new additions, along with maturing of Pune and Indore units, provides long runway for growth and value creation for investors. Over FY25-28, we expect the company to grow at 19%/20%/20% on revenue/EBITDA/PAT. Thus, we maintain BUY with a TP of 1844 (27% upside).
* Key metrics: +11.7% YoY growth seen in patient volume, with IPD/OPD revenue growth of +19.6%/+15.5% YoY. Volume growth has been primarily led by the Pune and Indore units. Occupancy diluted to 60.1% (vs 63.9% 1QFY25) because of increased bed capacity, in absolute terms there’s a 5% increase in occupied beds. ARPOB increased to INR 67.3k from INR 59.7k in 1QFY25 (+12.7% YoY), primarily owing to improved case mix (Pune and Indore) and price hikes.
* Expansion update: All three greenfield projects at same stage as previous concall. Dombivli (500 bed capacity) is progressing as scheduled and will be commissioned in 1QFY27. The second Pune hospital’s (500 bed capacity) construction is set to begin from 3QFY26 and is expected to operationalize by CY29. The company also commissioned a 1.2 MW solar power plant in MP. JLHL spent INR 50mn on this plant and expects to save INR 10mn on an annual basis for next 20-25 years. The management is exploring adding a 3MW solar plant in Maharashtra too.
* FY26 growth: The organic growth in the coming quarters will continue to be on the back of Pune and Indore units, with Thane operating at a mature hospital’s metrics. A peer hospital had recently started operations in Thane, but the management indicated that there has been no impact on Jupiter's volumes, occupancy or human resources in Thane. Further, theres is still scope for case mix optimization in the Pune unit.
* Suppressed margin guidance: The management expects the Dombivli unit to breakeven in its second year of operations. Thus, EBITDA margin compression is expected in FY27 on account of Dombivli. Further, a temporary wedge is aniticpated between the EBITDA and PAT for the near to medium term future owing to: 1. Increased debt to finance the greenfield heavy expansion plans; 2. Increased depreciation as the units gets commercialized with the associated revenue yet to catch up. Financial Summary
* Financial Highlights:
- Revenue at INR 3.5bn (+5.8%/+8.6% vs street/JMFe) and is +21.1% YoY
- Gross Profit of INR 2.8bn, +17.9% YoY, with gross margin at 80.3% (-92bps vs JMFe;
-218bps YoY) - EBITDA at INR 781mn (+3.2%/+7.0% vs street/JMFe) and is +22.4% YoY
- EBITDA Margin at 22.5% (-55bps/-34bps vs street/JMFe) and is +24bps YoY
- Depreciation increased on account of capitalization of newly added beds
- Finance cost increased due to debt taken to finance expansion; INR 3250mn gross debt with INR 6,000+mn in cash
- PAT at INR 439mn (-2.8%/-0.3% vs street/JMFe) and is -1.6% YoY
- The company guided for lower PAT margin for the remainder of the year, while preserving the EBITDA margin
- Project related CAPEX for 1Q at ~INR 400mn
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SEBI Registration Number is INM000010361
