Buy Metropolis Healthcare Ltd for the Target Rs 675 by Emkay Global Financial Services Ltd
Metropolis Healthcare (MHL) reported another strong quarter, with revenue growing 17% yoy and EBITDA margin expanding to 24.7% (up by 145bps yoy). The management reiterated its FY27 guidance of 14-15% revenue growth and EBITDA margin expansion of 120-150bps, along with margin trajectory improving toward 27-28% over the next 2-3 years. We believe MHL has multiple levers supporting profitable growth:
1) Accelerating network expansion, especially in Tier 2+ towns to improve center-to-lab ratio, resulting in better utilizations
2) Focus on productivity gains via lab automation, vendor consolidation, and procurement efficiencies
3) Leveraging Specialty (40% of revenue, +17% yoy) and TruHealth offerings (18% of revenue, +22% yoy), along with genomics platform scale-up to aid clinician engagement and promote differentiation among branded players. Buoyed by the ongoing shift toward organized operators, we expect 15% revenue CAGR and bake in ~270bps EBITDA margin expansion over FY26-29. We increase our FY28 EBITDA/PAT estimates by ~3%/6% and raise our Jun-27E TP (DCF-based) by 8% to Rs675 from Rs625, implying FY28E PER of 45x and FY28E EV/OCF of 33x (vs 40x for Dr Lal Pathlabs); maintain BUY.
In-line performance; margin trajectory improves
MHL reported a healthy performance, with revenue growing 17% yoy, owing to patient volumes/realizations increasing 11%/5% yoy to 3.69mn/Rs1,219 per patient. B2C revenue grew 18% yoy, driven by micro-marketing strategies, expansion into Tier-3, and use of tech for improved patient conversion. B2B revenue grew 15% yoy, driven by specialty-led growth and widening clinician network. TruHealth and Specialty segments grew 22%/17% yoy, on the back of growth in radiology-integrated wellness and Core Diagnostics (Core)’s platform. EBITDA grew 24% yoy to Rs1.1bn, with margin expanding by 145bps to 24.7%. Core maintained high-single-digit margin, while other acquisitions exceeded company-level margin. PAT grew 26% yoy to Rs567mn, on the back of strong operating performance. MHL’s center-to-lab ratio improved yoy from 21:1 to 24:1.
Outlook and risks
We believe MHL is well positioned to benefit from favorable industry tailwinds, including a shift toward quality branded players and growing demand for specialty and preventive wellness testing. The management’s medium-term guidance (14-15% FY27 revenue growth; 27-28% margin over next 2-3Y) provides comfort on MHL’s ability to sustain and improve its current growth and margin trajectory. Additionally, MHL now plans to strengthen its presence in existing markets by deepening network footprint, which should improve lab utilization and customer experience (lower TATs). This, in addition to its differentiated positioning in the specialty and wellness testing space, should aid volume trajectory. We model 15% revenue CAGR, with EBITDA margin expanding by ~270bps over FY26-29. Robust cash generation (87% OCF/EBITDA in FY26), a net-cash balance sheet (Rs1.8bn as of Mar-26), and improving return ratios (FY28E ROCE at ~20%) provide comfort on valuations. Key risks: Pick-up in competitive intensity and any adverse regulatory ruling on healthcare service pricing cap.
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