Prabhudas Lilladher has reiterated its Buy rating on Narayana Hrudayalaya (NARH) with a revised target price of Rs 1,420, up from Rs 1,350. The brokerage’s bullish outlook is underpinned by the company's aggressive expansion plans in India and improving operational efficiency, particularly in Bengaluru, Kolkata, and the Cayman Islands. Despite near-term margin pressure from a new unit in Cayman, the analysts expect strong growth in throughput and profitability in the coming years.
Key Takeaways from the Report:
- India Expansion: NARH plans to add 1,500 beds through greenfield expansion across Bengaluru, Kolkata, and Raipur, with benefits expected to materialize from FY28/29.
- Cayman Growth: A new 50-bed unit in Cayman is expected to be commercialized in Q3FY25, offering services like obstetrics, pediatrics, and oncology. While initially margin-dilutive, the unit is projected to achieve profitability within 6-8 quarters.
- Operational Efficiency: NARH is focused on improving throughput, refurbishment, debottlenecking, cost management, and digitalization to enhance profitability in its India operations.
- Financials: Prabhudas Lilladher projects a 14% CAGR for both consolidated EBITDA and PAT over FY24-27E.
- Valuation: The revised target price of Rs 1,420 is based on 23x September 2026 EV/EBITDA for the India business and 12x EV/EBITDA for the Cayman operations.
India Operations Poised for Growth:
NARH's India business is expected to be the primary driver of growth in the coming years. The company is operating at near-peak utilization levels in most of its hospitals, with room for improvement in Mumbai and Gurugram. The management anticipates margin improvement through a better bed mix, cost management initiatives, and expanding high-margin services like oncology and robotic surgery to a wider network. Furthermore, the company is exploring potential acquisitions of distressed hospital assets to accelerate its growth trajectory.
Cayman Expansion Presents Both Opportunities and Challenges:
The upcoming commercialization of a new 50-bed unit in the Cayman Islands presents a significant growth opportunity for NARH. However, the management acknowledges that this new unit will be margin-dilutive in the initial 3-4 quarters due to higher startup costs and lower initial utilization rates. Prabhudas Lilladher has factored this into its estimates, projecting a dip in margins before a recovery starting from FY27E. The faster ramp-up of this new unit is a key factor to watch in the coming quarters.
Potential Risks and Challenges:
The report highlights potential headwinds, including the possibility of reduced medical tourism from Bangladesh due to political unrest and the ongoing losses from the company's new integrated care and insurance initiatives. Attrition rates, particularly among nurses, remain a concern, and rising input costs could impact profitability if not fully passed on to patients through price hikes.
Outlook and Valuation:
Despite near-term challenges, Prabhudas Lilladher remains optimistic about NARH's long-term growth prospects. The brokerage anticipates strong free cash flow generation by FY27E, driven by expanding operations and improving profitability. The valuation methodology used is based on a sum-of-the-parts approach, assigning separate EV/EBITDA multiples to the India and Cayman businesses.
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