Narayana reported results inline with expectation. The key positive was the strong topline growth of 20% led by growth across all regions. Margin improvement trend witnessed in 1Q continued in 2Q led by hospitals with <5yr maturity. We expect the strong growth & margin improvement trend witnessed in 1H17 to continue going forward, led by increased occupancy & inefficiencies in new hospitals. Retain buy.
Revenue growth at 20% was better than expected. Margins at 13% were inline with expectation up c100bps y-o-y. Net profit grew 149% led by lower losses in subsidiaries.
NH remains our preferred pick in the hospital sector. NH focus over FY16-18E is on improving efficiencies & occupancy in new hospitals. This is reflected in 1H results. We expect the improving maturity profile to drive 29% EBITDA growth, led by 17% revenue growth & 370bps margin improvement over FY16-19E, & RoEs to improve to 13%. Also, its medium term-growth drivers are stronger with a model that addresses tertiary care demand in non-metros & allows expansion at lower cost.
The stock is trading at slight premium to sector. The premium could sustain given strong near-term growth, better medium-term drivers and a model that allows expansion without B/S constraints. Retain buy with revised TP of R415 implying Dec-17 EV/EBITDA of 24x, a slight premium to peers. Risks: Key man risk.