Buy Narayana Hrudayalaya Ltd For Target Rs. 1,950 - Prabhudas Liladhar Capital Ltd
EBITDA beat aided by Cayman business
Quick Pointers:
* Reiterated expansion plan of 1,535 beds by FY29 with total capex requirement of Rs. ~30bn across locations in Bengaluru, Kolkata and Raipur.
* Rs650mn losses in FY25 from its clinics and NHIC business.
Narayana Hrudayalaya (NARH) reported EBITDA of Rs3.6bn (up 23% YoY) in Q4FY25, 5% above our estimates aided by higher profitability across Cayman units. The Cayman business reported profitability of Rs1.7bn, up 39% YoY and 28% QoQ. India business reported healthy EBITDA adjusted for NHIC losses, up 18% YoY. The management reiterated its aggressive capex plan and commitment towards growing throughput over the next 3-4 years through debottlenecking, refurbishment and better bed mix. In the medium term, NARH intends to add ~1,535 beds expansion through greenfield and brownfield across Bengaluru, Kolkata and Raipur. Our FY26E and FY27E EBITDA stands increased by ~3-4%. We maintain ‘BUY’ rating with a revised TP of Rs1,950/share, based on 25x FY27E EV/EBITDA (23x earlier) for India business and 20x EV/EBITDA (12x earlier) for Cayman hospitals. We factor in 24% EBITDA CAGR for Cayman operations over FY25-27E and thereby higher target multiple for Cayman business. At CMP, the stock is trading at 20x FY27E EV/EBITDA (adj for IND AS).
* EBITDA beat led by Cayman; India profitability in-line: NARH reported EBITDA of Rs3.6bn; up 23% YoY (16% QoQ); adjusted for NHIC losses it was up by 26% YoY. Losses in insurance and clinics business were to the tune of Rs242mn vs Rs144mn in Q3. Total Loss for FY25 was at Rs. 645mn. Overall, margins came in at 24.2%, increased 80bps YoY. India business adjusted for insurance and clinics, reported EBITDA of Rs2.16bn, up 18% YoY. India margins improved by 110bps YoY and 170bps QoQ to 19.4%. Cayman reported EBITDA of $19.7mn, up 37% YoY and 27% QoQ, with OPM of ~45%.
* Higher ARPOB aided India up 11% YoY: Revenues grew by 18% YoY to Rs14.8bn. ARPOB for India business grew 11% YoY to Rs46,301/day led by higher realization via bed upgrades (general to private/semi-private). IP volumes were flat YoY for India; impacted due to lower footfalls especially from Bangladesh, resulting from the political unrest and capacity constraints in existing hospitals. Cayman revenues increased 45% YoY to $44mn. Both IP and OP volumes improved by 27% and 24% YoY, respectively, for Cayman aided by ramp up in new unit. Reported PAT stood at Rs2bn (up 4% YoY). NARH’s net debt increased by Rs. 2.5bn QoQ to Rs5.3bn due to ongoing capex in India biz.
* Key con-call takeaways: Capex and expansion plan – Mgmt guided for a total capex outlay of ~Rs 7.5 bn, comprising Rs 3bn toward routine maintenance, replacements, and in-facility capacity enhancements, and Rs 4.5bn toward greenfield and brownfield expansions. A total of 1,235 greenfield beds in Kolkata & Bengaluru and 300 brownfield beds in Raipur will be added in the next 3-4 years. NARH’s focus for expansion remains in existing locations such as Bangalore, Kolkata and Raipur. Cayman - The new multi-specialty hospital is ramping up well and the current revenue base of $45M is sustainable with further growth potential. NARH is further exploring to expand into similar geographies in Caribbean market (e.g., Bahamas). India Hospitals units: hospitals are capacity-constrained; focus is on optimizing mix and procedure complexity. Reduction in bed count QoQ due to exit (e.g., Jammu region) and ward upgrades from general to private/semi-private. Guided for margin expansion to continue modestly with service and payer mix optimization. Working capital days increased due to delayed payments from government patients; expected to be reversed as collections normalize. New India units: NARH launched a retail chemotherapy center in Gurugram. The Mumbai facility is near break-even. Both the units are guided to be on an improving trajectory and expected to contribute more meaningfully going forward. Occupancy: India occupancy hovers between 60-65%. Integrated business (NHIC & NHIL): Losses in FY25 were at Rs. 650mn; break-even for each clinic expected in 18–24 months. Combined investment of Rs 4bn in NHIC & clinics. Currently Insurance business across Bangalore, Mysore and plans to expand in Kolkata, Raipur, Shimoga.
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