PL Stock Report - Narayana Hrudayalaya (NARH IN) - Q2FY24 Result Update - Strong show; earnings upgrade continues - BUY

Narayana Hrudayalaya (NARH IN) – Param Desai – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs1,133 | TP: Rs1,250

Q2FY24 Result Update – Strong show; earnings upgrade continues

Quick Pointers:

- Booked Rs 60mn of one-time loss from Narayana Health Integrated Care unit.

- Margins improved on improved utilization, better throughput.

Narayana Hrudayalaya (NARH) reported healthy EBITDA at Rs3.1bn (up 26% YoY), 11% beat to our estimate. Both India (Rs1.9bn; up 28% YoY) and Cayman ($14.6mn; up 20% YoY) reported healthy profitability. We expect this growth momentum to sustain. The company reiterates its aggressive capex plan mainly towards its core and high performing regions such as Bangalore, Kolkata and Cayman which enhances growth visibility. Despite capex intensity going up, RoE/ RoCE will remain healthy at ~25%. Our FY24E and FY25E EBITDA stands increased by 7% and 4%.; respectively. We maintain ‘BUY’ rating with a revised TP of Rs. 1,250/share (earlier at 1,110/share), based on 22x Sept2025E EV/EBITDA for India business and 12x EV/EBITDA for Cayman hospitals. At CMP, stock is trading at attractive valuations of 18x EV/EBITDA (adj for IND AS). Faster ramp up in new Cayman unit (operationalize from H1FY25) will be a key.

- India and Cayman biz profitability continues to remains healthy: NARH reported pre IND AS EBITDA of Rs2.97bn (up 30% YoY). Company reported loss of Rs. 60mn related to NHIC and NHIL unit in Q2. Overall, margins came in 22.7%; improved 190 bps QoQ. India business adjusted for one offs continues to report healthy EBITDA of Rs1.9bn; up 18% QoQ and 22% YoY. Cayman reported strong EBITDA of $14.6mn vs $13.5mn/$11.7mn in Q1FY24/Q2FY23. OPM was of 46.2%, up 100 bps QoQ.

- Healthy ARPOB at Rs. 36,712/day; net debt increased by Rs675mn: Revenue grew by 14% YoY (6% QoQ) to Rs13.1bn. ARPOB for India business was up 11% YoY to Rs. 36,712/day aided by better payor mix. Discharges were higher by 8% YoY (9% QoQ) for India. Cayman revenues improved 8% YoY to $31.5mn (up 5% QoQ). Discharges were higher 2% YoY, while OP volumes were up by 26% YoY for Cayman aided by commercialization of new radiation block. Cayman ARPOB was up by 10% YoY (flat QoQ). Reported PAT was at Rs2.3bn (up 34% YoY). Net debt increased by Rs 675mn to Rs863mn.

- Key con-call takeaways: (1) Capex – guidance of Rs. 11.4bn in FY24E of which Rs3.94bn incurred in H1FY24. (2) Cayman- Newly commissioned radiation oncology block at Cayman island saw a meaningful traction. A new multi-specialty hospital at Cayman is on track to be commercialized by Q1FY25. The YoY growth in Cayman revenues was also aided by consolidation of ENT specialty acquired in March 2023 (3) New units: New hospitals contributed Rs 1.2bn of revenues (vs Rs. 1.1bn in Q1) with EBITDA at Rs. 87mn vs Rs. 60mn in Q1 (4) Brownfield expansion in flagship unit - NARH initiated the process to build hospital at already owned land in Health City. Overall plans to build 700 beds in 3-4 years in Bangalore. Added additional two floors in Howrah unit in Kolkata where 110 beds will be operationalized by end of Q4FY24. (5) Narayana Health Integrated Care (NHIC) reported revenues of Rs. 52.5mn with patient’s footfalls of +45K. (6) Tax rate guided at 10% for FY24. (7) Margin levers would be technology improvements such as faster online discharges, robotic surgeries, adding more ICUs, OTs, Labs and developing communication between doctors, nurses and patients which would help improve ALOS days.

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