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Yatharth delivers strong numbers, higher ARPOB, improved occupancy, and strategic imperatives raises our BUY conviction

* Revenue grew by 31.4% YoY but remained flat QoQ at INR 2.2 Bn (vs. consensus estimate of INR 2.3 Bn), driven by higher occupancy, ARPOB growth, and an increased share of high-specialty therapies, including oncology.

* ARPOB grew by 4.4% YoY to INR 30,652, with occupancy at 60% (vs. 52% last year).

* EBITDA grew by 18.3% YoY but was flat QoQ at INR 0.5 Bn, with margins contracting 277 bps YoY and remaining flat QoQ at 25.1% (vs. consensus estimate of 25.9%) due to operational losses at the new Greater Faridabad unit.

* PAT grew marginally by 3.4% YoY but declined by 1.5% QoQ to INR 0.3 Bn (vs. consensus of INR 0.4 Bn)

. Hospital expansion plan to drive growth, Sustain EBITDA Margins at 25.1% The company plans to operationalize the newly acquired hospitals in New Delhi (+300 beds) and Faridabad (400 beds) by 1st April 2025. The breakeven period is expected to be around 18-24 months. However, margin diminishing impact of these new facilities to be offset by higher margin delivering in existing facilities, particularly the Noida Extension and Greater Noida units, which will help to sustain the consolidated EBITDA margin at the current level of 25.1%.

Yatharth Set to Surpass 3,000 Bed Capacity Target by FY28 with Excess Funds from QIP Yatharth has already utilized INR 1,517 Mn for two recent acquisitions and INR 957 Mn for debt repayment from the QIP concluded in late December. The remaining INR 1,600 Mn will be allocated for the acquisition of another hospital or greenfield land. Given these acquisition plans, we anticipate the company will exceed its bed capacity target of 3,000 by FY28.

Majority Funds Released in Income Tax Matter; INR50-60 Cr Resolution Expected by CY25 The majority of the Income Tax funds have been released, with only INR60 crores still provisionally blocked. A new Assistant Commissioner has attached some company assets, but the company is cooperating to expedite the resolution. Management expects the provisional blocks to be lifted soon and anticipates no significant financial or operational impact, with the matter likely resolved by end of CY25.

View and Valuation: We have revised our FY26/FY27 EPS estimates downward by 21%/20% due to higher operating expenses, while maintaining a 'BUY' rating with a target price of INR 628, valuing the company at an EV/EBITDA of 14x on FY27 basis. We expect growth to be driven by a 10% annual increase in ARPOB (reaching INR 37,682 by FY27), improved occupancy (65% by FY27), strategic acquisitions which will increase the bed count by more than 3000 in FY28, and an increase in the share of oncology, which is contributing 10% of total revenue.

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