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Yatharth Hospital and Trauma Care Services Ltd (YHTCSL) incorporated in Feb 2008, is a super speciality hospital with 1405 beds across 4 facilities spread across Noida, Greater Noida, Noida Extension, and Jhansi. Noida Extension and Greater Noida are the 8th and 10th largest private hospitals in the Delhi NCR, respectively, in terms of the number of beds in FY23. YHTCSL has acquired the Orchha facility (305-bedded) multi-speciality hospital that started operation on April 10, 2022, and it is one of the largest hospitals in the Jhansi-Orchha-Gwalior region in terms of bed capacity. YHTCSL healthcare services including Centres of Excellence such as the Centre of Medicine, Centre of Cardiology, Centre of Neurosciences, Centre of General Surgery, Centre of Nephrology & Urology, Centre of Paediatrics, Centre of Gastroenterology, Centre of Pulmonology, Centre of Gynaecology and Centre of Orthopaedics & Spine & Rheumatology and other specialities.

Investment Rationale

* Introducing new specialities with high-margin will change the product mix: The company is shifting its mix from general medicine which is low margin business with a revenue share of 50% of shares in FY21 and subsequently improved to 31% in FY23, supporting to improve of the overall margin profile. The Noida Extension Hospital is taking the lead which will soon begin providing a full range of oncology treatments, including radiation and PET lines. While the Noida and Greater Noida hospitals will continue to offer the current oncology services for the treatment of cancer, YHTCSL aims to become the Noida Extension Hospital the centre of excellence for complete oncology therapy.

* Expanding into other regions will de-risk from regional concertation: The recent acquisition of the fourth Hospital in Jhansi Orchha in Madhya Pradesh (305 beds to the current capacity) indicates that YHTCSL is open to expanding its presence in regions other than Delhi-NCR and aiming to improve presence into new geographies. YHTCSL also looking for inorganic growth opportunities across Uttar Pradesh, Haryana, Punjab, and Madhya Pradesh for both types of acquisitionO&M and 100% equity purchase, with at least 300-400 bed size.

* Increased hospital maturity and an increase in international patients will translate to an improved ARPOB: The strategic location and proximity to Asia's largest airport which is coming to Noida will help YHTCSL to improve the share of international patients and improve the ARPOB. The completion of Noida airport is expected to be completed in the next few years. The company is planning to align its marketing strategies, especially digital marketing which will be targeting towards international patients. As the company is moving towards the super-specialty segment which will also be a contributor to higher ARPOB.

* Outlook & Valuation: We initiate coverage on YHTCSL led by 1) A leading super-speciality hospital in the Delhi-NCR, 2) Diversification into new specialities where the margin is higher than the current margin, 3) expanding into other regions through inorganic growth, and 4) Focus on increasing the share of international patients and improving ARPOB. We expect Revenue / EBITDA / PAT to grow at a CAGR of 20.0%/ 23.2%/ 26.6% during FY23-26E. We ascribe an OUTPERFORM rating on the stock with a target price of INR 523 and value the stock with 13x on FY26E EBITDA.

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SEBI Registration no.: INZ 000160131