Buy Yatharth Hospitals Ltd for Target Rs 1,350 by Choice Institutional Equities
Following YATHARTH's strategic partnership with Advent International, we interacted with the former’s management to gain deeper insights into the company's next phase of growth, capital allocation strategy and M&A roadmap. We discussed company’s plans with Mr. Yatharth Tyagi, Director, and Mr. Ashutosh Kumar Jha - Group Chief, Strategy, M&A & IR
The management reiterated confidence in sustaining 30%+ organic growth, with Advent-led acquisitions expected to provide incremental revenue and earnings over and above the existing growth trajectory. The company remains focussed on adding INR 2,000 Mn of EBITDA through strategic acquisitions, offering visibility for over 3x business growth over the next three years while sustaining margins at ~24%. In our estimates, we have factored in an additional ~1,200 beds by FY29 from the Advent investment, taking total capacity to ~6,000 beds by FY29.
Strategic Partnership with Advent
* The management emphasised that the Advent deal should be viewed as a long-term strategic partnership rather than merely a capital raise, with equal focus on capital support, operational value-creation and governance enhancement.
* The partnership significantly enhances YATHARTH's ability to pursue larger acquisitions targeting hospital chains instead of standalone hospitals.
Capital Allocation & Acquisition Strategy
* The INR 31,500 Mn capital infusion will be primarily deployed towards acquiring operating hospitals rather than funding greenfield expansion.
* The company intends to carry out 2–4 strategic acquisitions, with 3–4 assets currently under active evaluation at present and a meaningful capital deployment targeted in H2FY27.
* Acquisition decisions will be driven by EBITDA generation rather than bed additions, with management targeting the addition of INR 2,000 Mn of EBITDA in FY28.
* Acquisitions will primarily target high-performing running super-specialty hospitals with a minimum asset size of 200–250 beds, immediate EBITDA contribution, strong payer mix, higher ARPOB and superior operating metrics.
Expansion Roadmap
* The company continues to target ~5,000 announced beds over the next three years under its existing expansion plans. While the Advent partnership provides additional growth optionality, a portion of the capital may also be utilised towards achieving the planned 5,000-bed capacity.
* Expansion will continue through a cluster-based strategy, with North India remaining the primary focus while selectively evaluating opportunities in markets, such as Mumbai and Gujarat.
Specialty & Payer Mix
* Future acquisitions are expected to improve the overall portfolio quality through a stronger cash and private insurance mix, while reducing dependence on government business.
* The company continues to strengthen its high-end specialty portfolio, with oncology services being expanded across newer hospitals.
Corporate Governance & Capital Structure
* Promoters are bound by a 3-year lock-in, preventing share sale, while Advent faces permanent restriction against secondary market sale or selling to competition
* The investment will be infused in two tranches, INR 1,7500 Mn initially and INR 14,000 Mn after 15 months, allowing capital deployment to remain aligned with acquisition timelines while minimising idle cash.
Financial Growth Outlook
* The management reiterated confidence in sustaining its existing 30%+ organic growth trajectory, with incremental revenue and earnings from the Advent-led acquisitions expected to be over and above the existing growth guidance.
* The company projects EBITDA margin to remain broadly stable, with gradual improvement as newer hospitals mature and operating losses reduce.
* Combining the existing organic growth trajectory with incremental EBITDA from acquisitions provides visibility for more than 3x overall business growth over the next 3 years.
Valuation:
While maintaining our valuation multiple of 20x on Avg. of FY28-29E EV/EBITDA, we revise our target price to INR 1,350 (from INR 1,100) and maintain our ‘BUY’ rating on the stock.
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SEBI Registration no.: INZ 000160131
