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B2C and Wellness portfolios drive the beat

MHL logged yet another strong quarter, with revenue growing 13% YoY, driven by B2C revenue improving 18% YoY. Test volume growth was robust across the B2B and B2C portfolios, growing 9% YoY. In line with our thesis (link), MHL’s aggressive network expansion plans (25 labs in FY25) and focus on the specialty and wellness portfolio will support volume trajectory in the medium term, in our view. With industry-wide pricing stabilizing and improved customer awareness driving growth in preventive testing as well as the shift toward branded, organized operators, the management remains confident about the topline growing 13-15% over the medium term. We believe MHL’s strategy of ramping up the B2C portfolio and given the asset light nature of network bode well for margin trajectory. The improving margin trajectory, strong balance sheet, and healthy cash generation provide comfort on valuations. We retain our BUY rating on the stock, nudging up Jun-25E TP to Rs2,300/share (basis DCF), implying FY26E PER of 53x (in line with LTA of 55x).

Strong start to FY25

MHL reported a robust quarter with revenues growing 13% YoY. Patient volumes were reported at 3.04mn, up 7% YoY, with realizations improving 6%. B2C revenues drove overall revenues, growing 18.4% YoY with RPT increasing 9%, while B2B grew 12% YoY with RPT increasing 3% YoY. Strategic focal segments like Wellness/Specialized Testing grew 28%/14% YoY, respectively. On the back of higher contribution from the B2C business, EBITDA margin expanded by 244bps YoY to 25.2%. Reported PAT of Rs381mn was ahead of our estimates by 12%, buoyed by operating performance and decreased finance costs (-22% YoY). The company is debt free and has cash reserves of Rs1.37bn as of end-Q1FY25. Network expansion continues with 5 more labs and 66 new centers (Rural: 11; Franchise: 15; owned: 40) added in the quarter.

Outlook and risks

Improving awareness for preventive healthcare should bode well for premium operators like MHL, with its strong brand presence in focus cities, as evidenced in Q1FY25 results. The management continues to execute well in terms of network expansion, especially beyond Tier 1 cities. With Tier 3 cities growing well (highest in the portfolio), we believe MHL’s aggressive network expansion plans (adding 25 labs in FY25) are likely to support the volume trajectory in the near term. Focus on the specialty, wellness, and B2C portfolios should bode well for margins following the lab expansion program beyond FY25. We anticipate MHL clocking revenue CAGR of 14% and margins improving by ~300bps over FY24-27E. Improving balance sheet (net cash of Rs1.4bn), continued robust cash generation (FCF yield of 3%; OCF as a % of EBITDA at 93% in FY24), and improving return ratios (22% pre-tax ROCE) provide comfort on valuations. We retain our BUY rating on MHL with revised up Jun-25E TP of Rs2,300/sh (DCF basis), implying FY26E PER of 53x. Key risks: Increased competition in the organized market from growing hospital chains, shortage of manpower and skilled labor, predatory pricing from any market participants, and adverse regulatory ruling around pricing cap for healthcare services.

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