Buy Metropolis Healthcare Ltd for the Target Rs. 2,845 by JM Financial Services Ltd
Metropolis delivered a strong performance in 1QFY26, with rev./EBITDA growth of 23%/14% YoY, in-line with estimates. EBITDA Margins at 23.2% (-190bps YoY) beat our est by 88 bps. PAT at Rs 451mn was up 19% YoY and 8%/10% beat on street/JMFe estimates. B2C revenues grew by 16% YoY, with patient volumes +9% YoY and RPP +6% YoY, contributing to 56% rev., while B2B grew by 10% YoY with patient volumes +4% YoY and RPP +6% YoY, with incremental contribution from Core’s business. With the hiving off of institutional business and Maharashtra B2C business growing 16% YoY, mngt expects B2C mix to contribute +60% in medium term. Considering that the business has also come out of heavy expansion phase, with plans for next 1-2 years to only grow collection centres via franchise model, and improving growth and contribution of the preventive test portfolioTruhealth, EBITDA margins could expand by ~250bps over FY25-28. Overall, we expect the company to deliver 16%/20%/34% revenue/EBITDA/PAT CAGR over FY25–28. At 38x PE on FY27 EPS, the stock appears significantly cheaper than Dr. Lal (47x PE on FY27 EPS). Thus, we maintain a BUY rating with a target price (TP) of INR 2,537.
? Steady state organic business: MHL’s organic business reported robust performance in 1Q with rev. +13.2% YoY (vs 23.2% cosol.), 24.7% margins (vs 23.1% consol.) and 13% PATM (vs 11.7% consol). Group level margins were lower due to Core’s lower profitability and higher B2B share, which also brought consol B2C contribution down to 56% (vs 59% standalone). Organically, patient/test volumes grew 7%/8% respectively vs 11%/12% growth on group level.
? Strengthening inorganic expansion: Three acquired assets’ integration is progressing smoothly and initial synergies seen in lab consolidation, procurement, and cost rationalization. Scientific and DAPIC revenue growth in line with company and slightly better margins, while Core has turned EBITDA positive with low-single-digit margins in 1Q and targeting high-single-digit margins in FY26, mainly through cost synergies and integration clean-up before focusing on revenue growth. Ambika, acquired after 2 year lab-on-lease arrangement, had FY25 revenue of INR80mn, standalone EBITDA of INR18mn (9.4x EV/EBITDA), which reflect INR34mn (5x EV/EBITDA) due to internal synergies; will be merged with Metropolis’s Kolhapur lab to create a single strong regional hub. MHL continues to explore both small and large targets aligned with its culture and strategy. Integration of these assets is expected to support margin expansion in the near term and drive revenue acceleration from year two onwards.
? Expanding offerings: MHL is expanding its TruHealth portfolio (18% rev. contribution), by integrating blood diagnostics, non-blood vitals and basic radiology. Basic radiology like Xray, ECG, and sonography rolled out across 240+ locations, with expansion using assetlight model. The company is also piloting digital engagement tools such as personalized health journeys, test suggestions, and real-time tracking through its app to improve B2C stickiness. Growth is driven in Tier 2 and 3 towns through new collection centers and franchisee models. Additionally, Metropolis is building a Center of Excellence in onco diagnostics and focussing on high-end specialty tests (genomics and molecular onco).
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