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In Q1FY25, HCG’s performance aligned with expectations on the revenue front. Revenue reached INR 5,256 million, marking a growth of 14.1% YoY and 6.3% QoQ, driven by a significant volume increase across modalities. EBITDA grew by 22.3% YoY but declined marginally QoQ to INR 909 million. The margin was at 17.3%, expanding by 117 bps YoY but contracting by 131 bps QoQ, driven by a high degree of operational leverage in the business. Adjusted PAT saw robust growth of 58.9% YoY but declined 32.9% QoQ to INR 121 million. The overall AOR declined by 130 bps YoY to 65.6%.

* Hospital Expansion Plans: The company’s ongoing capex in Whitefiled, Banglore (extension of COE) with 25 beds will be a comprehensive cancer care center in the North Bangalore market, expected to become operational by Q1FY26 with a total planned capex of INR 290mn. The Phase 2 of the Ahmedabad facility is almost complete. The company's future plans aim to add 350–400 beds to the existing facilities over the next 3-4 years, including projects in Bangalore and Ahmedabad, as well as 800-900 beds over the next five years. The aspiration is to grow faster than the industry growth and is also open to inorganic growth with over 80-90 beds, which should be EBITDA accretive from the beginning of the acquisition.

* Moving from Multi-specialty to Cancer care facility: With oncology as the company's dominant specialty, the majority of its multispecialty hospitals are aiming to become cancer care facilities. The company is also the largest oncology-focused hospital chain in a pan-India network. Additionally, they are constructing a facility in Hubli that will be equipped with PET scans and linear accelerators, enabling the provision of comprehensive cancer care.

* Emerging facilities demonstrating robust growth: The Borivali and Colaba centers in Mumbai, along with the Kolkata center, are the only ones classified as emerging, while the rest have been reclassified as matured centers. The emerging centers are showing robust growth trajectories. The Kolkata center, in particular, has performed exceptionally well, with a 73% YoY revenue growth, turning from red to green in profitability, resulting in a positive EBITDA with a 14% margin. Additionally, the South Mumbai hospital is well set to break even in the upcoming quarter and is on a path to scale up as a long-term enduring business. It is also the only facility in Western India with Cyberknife and Tomotherapy capabilities. The Borivali facility in Mumbai is also demonstrating strong potential in an attractive market.

* Outlook and Valuation: We project 17.0% CAGR in revenue and 21.4% EBITDA for FY24-26E. The near-term profitability might be impacted by ongoing initiatives, including capacity expansion in the existing facilities, acquisitions and higher debt. Factoring the above rationales, we value the stock (based on 13x FY26E EV/EBITDA), to arrive at a target price of INR 370, with a REDUCE rating on the stock.

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