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Narayana in Q1FY25 posted results marginally below our estimates. Consolidated revenue increased 8.7% YoY and 4.8% QoQ to INR 13,410 mn. The company reported the highestever revenue on a quarterly basis with profitability sustained at high levels, which is on account of improvement in realizations and increased patient footfalls. The performance improvement is supported by strong growth in business across our flagship units, and other hospitals, and steady improvements in the performance of our newer hospitals. Cayman Island saw a revenue increase of 4.8% YoY to INR 2,674 mn and India’s business surged by 9.7% YoY to INR 10,855 mn.

* India Business: The ARPP for IP at INR 130,000 reflected a growth of 5.8% YoY and remained flat QoQ. The same for OP was reported at INR 4,400, up 4.8% YoY and 2.3% QoQ. The ALOS declined marginally sequentially to 4.3 days. The facilities always operates in the range of 60-65% on a midnight occupancy, while daycare and daytime occupancy is higher. No new beds will be commercialized in FY25, and the company expects to increase the OP and daycare capacity. Narayana Hrudayalaya Aditi insurance business was launched in Mysore in late June.

* Cayman Business: The ARPP for IP was USD 31,900, reflecting a growth of 3.2% YoY, and for OP was USD 1,500, showing a growth of 15.4% YoY. A new hospital in Cayman Bay was inaugurated in July, and the inflow of patients is expected to start before the end of Q2FY25. The primary motive of the new facility is to offer new services which is currently not being delivered in the facility, including trauma care, obstetrics, women’s health, neonatal intensive care, etc.

* Robust expansion keeps the growth intact: The expansion strategy is concentrated in Bangalore and Kolkata. The company had incurred a capex of INR 2.8bn for the purchase of land in Banglore for the greenfield expansion, regular maintenance, new equipment purchases, etc. For the Kolkata expansion, the cost of the first phase is around INR 1000cr for the 350 beds. NH will have around 8-10 lakhs square of construction coming up by the end of Q3FY25. The management is optimistic that it will continue to improve efficiency, generate double-digit revenue growth, and make significant use of the current facilities.

* Outlook and Valuation: We believe that the growth of the company will be driven by the new facility on Cayman Island, focus on increasing the OP and daycare capacity, and focus on the NCR region which is higher in ARPP compared to other regions, but the margins will remain subdued due to higher fixed cost for the Cayman Island. After factoring in the above rationales, we value the stock (20x EV for FY26E EBIDTA), to arrive at a TP of INR 1,405 with a BUY rating.

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