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On an expansion spree

* Max Healthcare (MAXHEALT) has aggressively increased its bed capacity through both organic and inorganic routes over the past three years.

* Going forward, MAXHEALT plans to add 2,400 beds to its total bed capacity of ~6,700, with a capex of INR40-45b over the next 3-4 years.

* Despite heavy capex, the company has comfortably maintained its liquidity position.

* MAXHEALT has strategically expanded its presence in the UP market over the past six months and has established itself as a key player in this market.

* We value MAXHEALT on an SOTP basis (35x EV/12M forward EBITDA for the hospital business, 26x EV/12M forward EBITDA for Maxlab, and 6x EV/sales for Max@Home) to arrive at our TP of INR1,240. Reiterate BUY.

Expansion in the western and northern regions augurs well

* MAXHEALT has aggressively increased its bed capacity through both organic and inorganic means. Since FY21, the total bed capacity has risen by 931, reaching 4,302 beds, of which ~81% were added through inorganic means.

* Since FY21, the company has acquired five hospitals with a combined bed capacity of 1,950 at a total cost of INR30b. The acquired entities also include land parcels, which will allow for further expansion of bed capacity over time. This expansion has been financed through a mix of internal accruals and external debt. Despite such major investment, the company maintains a strong liquidity position, with scope for further expansion.

* Over the next 3-5 years, the company plans to increase its bed capacity by ~55-60%, with a total investment of INR40-45b.

* The synergies from current facilities, combined with a strong liquidity position, will support the company in achieving growth both organically and inorganically.

Emerging as a dominant player in UP

* UP is the most populous state in India with a per capita income of INR93k as of FY24, according to NSDP.

* Although UP is ranked second in terms of healthcare expenditure, still the state is underpenetrated in terms of good healthcare infrastructure.

* Earlier MAXHEALT had a strong presence in the Delhi-NCR region. Over the past six months, MAXHEALT has become the dominant player in the UP market with acquisition of Sahara Hospital and Jaypee Healthcare.

* With these acquisitions, MAXHEALT is well positioned to cater to the patient pool of western and central UP.

* Further, the company is planning to add more beds, increase clinical talents, and improving capabilities in niche therapies.

Valuation and view

* MAXHEALT registered a robust 96% CAGR over FY21-24. We expect 20%/ 18% EBITDA/PAT CAGR over FY24-FY26 fueled by a higher ARPOB, addition of new beds, and improved occupancy at existing hospitals.

* We value the stock on an SOTP basis (35x 12M forward EV/EBITDA for the hospital business, 26x EV/EBITDA for the MaxLab business, and 6x EV/sales for Max@home) to arrive at our TP of INR1,240. Reiterate BUY.

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