Buy Max Healthcare Ltd for the Target Rs 1,410 by Motilal Oswal Financial Services Ltd
Healthy growth despite elevated costs Strong occupancy and robust bed expansion reinforce long-term growth visibility
* Max Healthcare (MAXH) delivered slightly better-than-expected revenue and in-line EBITDA in 1QFY27. However, adj. PAT was below expectation (13.5% miss) due to higher depreciation and interest costs.
* After two quarters of subdued revenue growth, MAXH delivered healthy YoY growth in revenue in 1QFY27, driven by an increase in the number of treated patients and better realization.
* Despite oncology drugs-related impact, MAXH showcased healthy YoY growth in revenue, led by higher volumes at existing hospitals and ~630 bed additions in the past 12 months.
* Occupancy remained strong at 75% despite 13% YoY addition in beds over past 12 months.
* In addition to superior occupancy at existing sites, MAXH has been adding beds through brownfield, greenfield and acquisition. Multiple projects announced till date are expected to add ~2,800 beds (~50%+ bed addition over current capacity) over FY27-29. The capex outlay over FY27-29 is expected to be INR61b.
* We reduce FY27 estimate by 4%, factoring in the increase in opex related to the recently commissioned hospitals. We continue to value MAXH on SoTP basis (33x 12-month forward EV/EBITDA for hospital business, 30x 12-month EV/EBITDA for lab business and 11x EV/sales for Max@home business) to arrive at a TP of INR1,410.
* Considering superior operating efficiency at current hospitals and a robust capex path, we believe MAXH is well placed to maintain long-term growth momentum. Maintain BUY.
Front-loading of opex affects earnings growth YoY
* In 1QFY27, Max network revenue (including the trust business) grew 15.3% YoY to INR28.3b (our est. INR27.3b).
* Gross margin expanded 70bp YoY to 75%.
* EBITDA margin contracted 55bp YoY to 24.6% (our est. 25.6%), due to an increase in other expenses (up 130bp as a % of sales).
* EBITDA grew 13% YoY to INR7b.
* Adj. PAT remained flat YoY at INR3.7b (our est. INR4.3b), due to higher interest and tax outgo on YoY basis.
* EBITDA per bed (annualized) stood at INR7.1m for the quarter.
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