Hospital Stock Gain 32% From 52W-Low: Prabhudas Lilladher Sees More Potential After Management Meet; Buy?

One of India's top multispecialty private hospitals, Narayana Hrudayalaya (NARH) offers cutting-edge medical care. The organisation provides specialised care in over 110 specialities, including cardiac sciences, cancer treatment, orthopaedics, neurology, gastroenterology, liver and kidney transplants, etc., in 21 hospitals around the country. According to an update on the management meeting, Dr. Anesh Shetty, the CEO of HCCI Cayman, and Mr. Viren Shetty, the Executive Chairman of Narayana Hrudayalaya (NARH), were hosted by the broking company Prabhudas Lilladher for NDR in Mumbai. The management underlined its ambitious capital expenditure strategy and pledged to increase throughput during the following three to four years.

The hospital stock reached a 52-week-high of Rs 1,445.05 on (14/02/2024) and a 52-week-low of Rs 980.00 on (26/10/2023), at the current market price the stock has managed to correct around 32% from its 1-year low. However, Prabhudas Lilladher, a broking company, believes the stock has more upside potential because it has kept its "BUY" rating and raised its target price to Rs1,420 per share from Rs1,350 earlier.

"We hosted Mr. Viren Shetty (Executive Chairman) and Dr. Anesh Shetty (CEO - HCCI Cayman) of Narayana Hrudayalaya (NARH) for NDR at Mumbai. The management reiterated its aggressive capex plan and commitment towards growing throughput over the next 3-4 years through debottlenecking, refurbishment and better bed mix. In the medium term, NARH intends to add 1,500 beds through greenfield expansion across Bengaluru, Kolkata and Raipur, benefits of which will be seen from FY28/29. More importantly, capex spend would be mainly towards core and high-performing regions such as Bengaluru, Kolkata and Cayman, to enhance growth visibility," Prabhudas Lilladher said in a note.

Narayana Hrudayalaya Financials

As per Prabhudas Lilladher, NARH has delivered robust profitability with consolidated EBITDA margins improving by ~530bps to 23% over FY22-24. Going forward, we expect margins to be under stress due to the commercialization of the second unit in Cayman. However, margins are likely to improve from FY27E as the unit in Cayman ramps up and operational efficiency improves across India operations. Overall, we expect consolidated EBITDA to grow at 14% CAGR and PAT at 14% CAGR over FY24-27E.

Narayana Hrudayalaya Share Price Target

"We expect 14% EBITDA CAGR over FY24-27E. RoE/RoCE will remain healthy at ~24/21%, despite capex intensity going up. At CMP, the stock is trading at valuations of 18.4x EV/EBITDA (PRE IND AS) and 27.4x P/E on FY26E. Our FY25/FY26E EBITDA estimate stands reduced by 5%/4% as we factor in higher losses from the new unit at Cayman. Maintain 'BUY' rating with a revised TP of Rs1,420/share (earlier Rs1,350/share) as we roll forward, based on 23x Sep'26E EV/EBITDA for India business and 12x EV/EBITDA for Cayman. Faster ramp-up in the Cayman unit will be the key," the research analysts of Prabhudas Lilladher predicted in a statement.

About Narayana Hrudayalaya

With its headquarters located in Bengaluru and a network of primary, tertiary, and multispecialty healthcare institutions, Narayana Hrudayalaya Limited is a prominent supplier of healthcare services in India, having been founded in 2000 by Dr. Devi Prasad Shetty. Over 5,790 functioning beds and a capacity of over 6,250 beds is part of the company's network of 18 hospitals and 3 heart centers located throughout India, as well as its presence outside in the Cayman Islands.

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