Reduce Global Health Ltd For Target Rs. 1,300 By Emkay Global Financial Services Ltd
Global Health (Medanta)’s Q1FY26 revenue was better than street/our estimates, with the developing portfolio maintaining its healthy trajectory (revenue grew 36% YoY on volume growth). Despite ARPOBs slipping 3% YoY (on higher contribution of scheme-based patients in Lucknow), margin performance remained robust in the developing portfolio (up by 480bps YoY). Q2FY26 will see launch of the Noida (300-bed) and Ranchi units; in our view, the launches will lead to flat margin in FY26, as operating leverage due to ramp up in the developing portfolio is offset by the initial drag in the Noida unit (Rs30mn in Q1). Lumpy bed adds (~2,000 in FY29) owing to the greenfield nature of the expansion could pose execution-related risks, thereby inducing volatility in both—growth and profitability, in our view. We expect revenue CAGR of 15% in FY25-28E, as Medanta adds ~33% of existing bed capacity within 2Y. Factoring in the Q1 beat, we raise FY26E/27E EBITDA by 2%/4%, resp, and nudge up Jun-26E TP by ~11% to Rs1,300 (from Rs1,175), based on 27x Jun-27E pre-IndAS EV/EBITDA (in line with the sector’s); retain REDUCE.
Strong quarter; developing portfolio drives the beat
Medanta posted better than expected revenue at Rs10.3bn (up 20% YoY). EBITDA was up 19% YoY, while EBITDA margin dipped slightly by 19bps YoY to 22% due to higher rise in employee cost (up 27% YoY). Reported PAT was Rs1.6bn (up 50% YoY), due to a Rs196mn adjustment toward reversal of interest liability on EPCG. Adj PAT stood at Rs1.4bn (up 27% YoY), with a steep 23% drop in interest cost. Overall ARPOB was up 4% YoY, with the matured portfolio’s ARPOBs up 9% YoY. Group OBD increased 13%, led by developing facilities (up 39% growth). Overall IPD/OPD volumes were up 14%/13% YoY, respectively. International patient revenue stood at Rs636mn (up 34% YoY).
Earnings call highlights
1) Update on projects: Ranchi hospital (110-bed) started operations in Jul; Noida hospital (550 beds) is on track for commissioning in a few weeks (300-bed, in phase-1); Mumbai hospital (500-bed) received approval for additional FSI; architectural plan for Pritampura hospital (~750-bed) submitted for approval. 2) Medanta is considering a conservative tariff hike, particularly in Lucknow and Patna, for select specialties. 3) ARPOB growth in matured hospitals benefitted from the higher specialty case mix (oncology) and reduction in ALOS due to improved efficiencies. The mgmt believes that 3-7% growth in ARPOB should be considered normal. 4) ARPOB decline in developing hospitals was led by 11% ARPOB decline in Lucknow due to increase in scheme business and partly offset by 8% ARPOB increase in Patna owing to ALOS reduction. 5) Medanta onboarded 150 doctors (incl 30 senior doctors) majorly for its existing hospitals; 15-20 of these doctors will be employed at the upcoming Noida unit (employee cost of Rs30mn in Q1). 6) The new Ranchi unit will be merged with the existing unit with a common campus, allowing for expansion of the specialties portfolio and renovation at the old unit.
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