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Improved realization led to growth in earnings On track to expand bed capacity

* Max Healthcare (MAX) delivered in-line 3QFY24 performance. Despite 3Q being a seasonally weak quarter, MAX had exhibited healthy mid-teens (15%) growth in both revenue and EBITDA. The EBITDA per bed continues to inch up, backed by payor mix/case mix optimization. The company remains on track with its bed expansion initiative.

* We raise our earnings estimate by 2%/4%/4% for FY24/FY25/FY26, factoring in a) improved ARPOB across institutional/international patients, and b) better operational efficiency. We also raise EV/EBITDA multiple to 28x (from 25x earlier) on the back of a) superior execution across both – operating hospitals as well as building hospitals, b) calibrated approach to drive profitable growth and deliver better-than-industry performance. Accordingly, we value MAX on SOTP basis (28x EV/EBITDA for hospital business, 20x EV/EBITDA for Max Lab, 4x EV/Sales for Max@home) to arrive at a TP of INR930.

* We remain positive on MAX as it remains one of the leading hospitals delivering consistent growth in earnings, driven by a combination of increased patient base as well as optimizing patient realization. Further, the potential for adding hospitals in the next five years is substantial, given a significant portion of it being brownfield projects. Reiterate BUY.

Volume of patients treated stable YoY/EBIDTA per bed trends upwards

* For 3QFY24, Max network revenues (including trust business) grew 15% YoY to INR16.8b (in line).

* EBITDA margin was flat at 27.6% (our est. 27.5%). ? Accordingly, EBITDA grew 15% YoY to INR4.7b (in line).

* Adj. PAT grew 20% YoY to INR3.4b (est: INR3.5b), led by strong operational performance and interest income in 3QFY24 (vs. interest expense in 3QFY23).

* EBITDA per bed (annualized) stood at INR7.6m (+14% YoY and +1% QoQ). ? In 9MFY24, Revenue/EBITDA/PAT grew 16%/17%/24% to INR50b/INR14b/INR10b. EBITDA margin expanded 30bp YoY to 27.4%.

* In 3QFY24, ARPOB stood at INR76.8K (+15% YoY/+3% QoQ). The growth in ARPOB was driven by a) a general improvement in ARPOB across all specialties and hospitals compared to 3QFY23, and b) an increase in the share of Oncology, contributing to both YoY and QoQ growth in ARPOB. The occupancy came in at 73% in 3QFY24 (vs. 77% in 3QFY23) and was 77% in 2QFY24.

Highlights from the management commentary

* The 15% CAGR in ARPOB over the past three years comprise price hikes (3%), increased OPDs (2%), oncology-led growth (3%), payor mix, and other specialities (6-7%).

* International patients formed 5.8% of the bed share and witnessed a notable 9% YoY increase in realization during the quarter.

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