Buy Krishna Institute of Medical Sciences Ltd For Target Rs. 725 - Prabhudas Liladhar Capital Ltd
New clusters to drive the next leg of growth
We visited KIMS’ newly commissioned 300-bed Thane hospital and met the management. We expect the unit to ramp up rapidly given its strategic location and the lack of large hospitals in and around Thane micro market. The management indicated that KIMS will continue to grow at double digits despite new bed additions. The company is on track to commercialize greenfield expansions in Bengaluru markets by Q2FY26. Further, new leadership team hiring across Karnataka and Kerala provides comfort for faster ramp-up in these clusters.
Given its lean cost structure and partnership with local doctors/ leadership outside Andhra Pradesh (AP) and Telangana, the management remains confident of achieving faster breakeven and +25% OPM across Maharashtra, Karnataka and Kerala clusters over the next 4-5 years. We expect 26% EBITDA CAGR over FY25-27E with healthy return ratios of ~21%. Maintain ‘BUY rating with TP of Rs725/share based on 27x FY27E EV/EBITDA. Delay in breakeven of new units will be a key risk to our call.
* Foray into high-potential MMR healthcare market: KIMS has recently commissioned its 300-bedded flagship unit spread across ~0.25msf of constructed area in Thane in May’25, marking a calibrated foray into the highpotential MMR market. About 100 beds are operational (40% occupancy), and the balance will be added in the next 12-15 months as occupancy scales up. Furthermore, KIMS can utilize the additional available FSI to increase bed capacity by 100 with incremental capex of Rs1.2–1.5bn.
* Thane is an attractive healthcare micro market: KIMS’ Thane unit is strategically located in Hiranandani Estate, in a dense, affluent residentialcommercial corridor, with an addressable population of ~3mn within a 10km radius and proximity to key commercial hubs (TCS, IDFC, Bayer, WeWork, etc.). Thane’s hospital ecosystem is highly fragmented, primarily comprising trust-based hospitals like Bethany and standalone players like Horizon and Tieten Medicity, which together account for ~550 beds. In contrast, corporate providers such as JLHL, FORH and APHS together account for only ~1,150 beds, highlighting a significant supply gap. Despite being a high-density urban zone, Thane exhibits undersupply in quality healthcare infrastructure with ~1.9 beds per 1,000 population, much lower than WHO standards
* Thane unit acquisition at less than Rs20mn/bed: KIMS has incurred Rs5.9bn to commercialize 300 beds in Thane unit, which includes land cost of Rs2.9bn. Further capex to the tune of Rs1.2-1.5bn will be required to commercialize additional 100 beds. This translates into acquisition cost of less than Rs20mn/bed including land, which is reasonable given the attractive location.
* Expect breakeven of Thane unit by Q4FY26: KIMS is in the process of hiring more doctors over the next 1-2months across cardiac, onco, etc., which will lead to diversification of the specialty mix and help improve occupancy. Further, the payor mix is largely cash, but as Thane unit gets empaneled with various insurance players over the next 4-6 months, volumes will ramp up. The management cited that Thane unit will break even at Rs110mn revenue/month. Overall, we expect Rs1bn and Rs2.2bn of revenue from Thane unit in FY26E and FY27E, respectively, with a high single-digit EBITDA margin in FY27.
* 2,500 beds planned in each new cluster: The management is looking at replicating the AP and Telangana model in Maharashtra, Karnataka and Kerala and will continue to explore various micro markets across these clusters. The management plans +2,500 beds in each cluster over the next 3-4 years. In the near term, KIMS will focus more on the asset light model for expansion and plans to increase its stake in these assets at 10-11x trailing EBITDA once balance sheet improves.
* Telangana cluster: KIMS has ~1,800 beds, including Sunshine units, in Telangana cluster with occupancy of ~61% in FY25. The company is leveraging its strong brand recognition in Telangana and will continue to add subspecialties. Further, the company has invested in new age medical equipment like Gamma Knife and robotic systems at competitive pricing to balance affordability and profitability. This will help attract high-end medical cases and improve IP volumes, translating into higher ARPOBs. Over the next 2 years, Telangana cluster will see 500-bed expansion at Kondapur along with likely O&M expansion in certain micro markets such as Banjara Hills. As per the management, monthly run-rate from Telangana cluster should increase from Rs1.8bn/month to +Rs3bn/month over the next 5-6 years aided by bed expansion, offering of more sub-specialties, and occupancy ramp-up in Sunshine units.
* AP cluster: KIMS has a strong presence in AP, covering 7 districts and generating ~Rs8bn of revenue annually with a total bed capacity of 2,214. The company enjoys 68% occupancy with ARPOB of Rs20k/day and OPM of 24- 25%. Focus is on adding oncology and mother-child specialties across units. The company will be adding 770 beds (~35% bed addition) over FY25-27E across AP cluster, through a combination of greenfield and brownfield expansions. The recent bed addition in Vizag has significant potential to scale up from current monthly revenue run-rate of Rs60-70mn to Rs150-200mn, aided by higher occupancy and ARPOB. The management expects monthly run-rate from AP cluster to increase from Rs800mn/month to +Rs2.5bn/month over the next 5-7 years aided by bed expansion, offering of oncology across units, and occupancy ramp-up in existing units.
* Karnataka and Kerala clusters: KIMS is aggressively expanding in Karnataka (Bengaluru) and Kerala markets with a target of 2,500 beds in each over the next 4-5 years. New leadership team hiring across these clusters provides comfort for faster ramp-up. In FY26, 2 greenfield projects with a total of ~800 beds in Bengaluru and 600 beds in Kerala, acquired through O&M, will be operationalized. Kerala cluster will continue to have a better payor mix with higher cash + international. The management believes both clusters will achieve a faster breakeven at the unit level given the strong team being hired and their strategic location.
* Financials: We expect 26% revenue CAGR over FY25-27E aided by bed expansion, improving occupancy across existing units, and steady ARPOB growth. We have factored in Rs180-200mn loss at each unit at EBITDA level for the first year across Thane and 2 Bengaluru units. Further, the recent addition of units across Vizag and Kerala clusters will add ~Rs1bn of EBITDA in FY27, which will help offset loss from new units that will be operationalized in FY26. Overall, we expect EBITDA to clock 26% CAGR over FY25-27E to reach Rs12.3bn. The management has guided for peak net debt/EBITDA of 2.5x and peak net debt of Rs20-22bn.
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