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Narayana Hrudayalaya (NARH) reported EBITDA at Rs2.8bn (up 10% YoY), in line with our estimate. Cayman business reported strong profitability at Rs. 1.2bn; up 27% YoY. While India biz reported muted profitability at Rs. 1.7bn; up 4% YoY impacted by seasonality and certain rationalization of units in Q3. We expect growth from India region to recover momentum. The company reiterates its aggressive capex plan mainly towards its core and high performing regions such as Bangalore, Kolkata and Cayman which enhances growth visibility. Despite capex intensity going up, RoE/ RoCE will remain healthy at ~25%. Our FY25E and FY26E EBITDA broadly remains unchanged. We maintain ‘BUY’ rating with a revised TP of Rs. 1,435/share (earlier at 1,250/share), based on 23x FY26E EV/EBITDA for India business and 12x EV/EBITDA for Cayman hospitals. At CMP, stock is trading at valuations of 18.5x EV/EBITDA (adj for IND AS). Faster ramp up in new Cayman unit (operationalize from H1FY25) will be a key

* Muted growth in India business; Cayman was healthy: NARH reported pre IND AS EBITDA of Rs2.6bn (up 8% YoY). Company reported loss of Rs. 85mn (Rs. 60mn in Q2) related to NHIC and NHIL unit in Q3. Overall, margins came in 21.7%; declined 100 bps QoQ. India business adjusted for one offs reported EBITDA of Rs1.7bn; down 14% QoQ and up 4% YoY. Cayman reported healthy EBITDA of $14.4mn; up 26% YoY and flat QoQ. Cayman OPM was healthy at 47%.

* Healthy ARPOB at Rs. 38,630/day; turned net cash company: Revenue grew by 7% YoY (down 8% QoQ) to Rs12bn. ARPOB for India business was up 10% YoY to Rs. 38,630/day aided by better payor mix. Discharges were flat YoY (declined 11% QoQ) for India. Cayman revenues improved 9% YoY to $30.6mn (down 3% QoQ). Discharges and OP volumes were highest by 26% YoY and 25% YoY for Cayman aided by commercialization of new radiation block in Q1. However, Cayman ARPOB was declined by 5% YoY (9% QoQ). Reported PAT was at Rs1.9bn (up 22% YoY). During the quarter, NARH turned net cash company to the tune of Rs251mn vs net debt of Rs 675mn in Q2.

* Key con-call takeaways: (1) Capex – guidance of Rs. 11.4bn in FY24E of which Rs5bn incurred in 9MFY24. Guided capex of Rs. 10-12bn for FY25 pertains to new units at Bangalore, Kolkata, Raipur (India expansion capex at Rs. 4-4.5bn) and Cayman (Rs.1.5bn). Evaluating projects for organic & inorganic opportunities in its core regions as well as oversees. (2) CaymanNewly commissioned radiation oncology block at Cayman island progressing well. A new multi-specialty hospital at Cayman is on track to be commercialized by 1HFY25. (3) New units: New hospitals margins were at 4% vs 7% in Q2; where Dharmshila continues to see a healthy ramp up. Mgmt cited strong recovery in Q4. Mumbai unit expected to be positive by end of Q4FY24. (4) Narayana Health Integrated Care (NHIC) reported revenues of Rs. 53.7mn vs 52.5mn in Q2 with patient’s footfalls of +42.7K. (5) Revenue growth was muted in north and west region which witnessed impact from seasonality (6) Overall rationalization impact guided at 2-3% in Q3 as company exited MS Ramaiah unit. (7) Growth drivers would be higher throughput, digital initiatives and leveraging operational efficiencies. (8) Payor mix- Guided out of pocket mix to reach 40-50% in next 5 years. Currently at 20-22%.

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