Analyst Corner: Narayana Hrudayalaya – retain ‘buy’ with Rs 330 TP

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Published: June 18, 2020 4:45 AM

Gross debt rose by Rs 30 crore in Q4. Dharmshila was Ebidta positive. Ahmedabad, Jamshedpur and Guwahati had Ebitdar margins of 9% in FY20.

After cost rationalisation, it expects break-even at 70% pre-Covid revenues.After cost rationalisation, it expects break-even at 70% pre-Covid revenues. (Representative image)

Narayana Hrudayalaya (NARH) reported a better-than-expected Q4. Revenues fell 3% y-o-y (JEFe: -1%). Margins moderated 127 bps y-o-y (+363 bps vs JEFe). After cost rationalisation, it expects break-even at 70% pre-Covid revenues. June could be closer to this, though still loss-making. Cayman is Ebitda positive after losses in April. We cut F21 Ebitda by 11% as we factor in an extended lockdown. Retain ‘buy’, given better medium-term outlook and positioning to capture latent demand.

April/May revenues stood at 35% of pre-Covid levels. June has seen some improvement, especially in Karnataka, where Covid cases are lower. However, it still expects the India business to be Ebitda loss-making in June. Cayman, though, has seen a strong rebound and after losses in April, May/June has turned Ebitda positive. It has taken cost rationalisation, including a 5-20% cut for non-medical staff, shift to revenue-linked pay to doctors vs fixed fees and lower overhead costs. Cayman hospital revenues fell 12% y-o-y. Margin, though, remained strong at 20.4%. Capex will be minimal in the current fiscal. SRCC Mumbai and Howrah hospitals are Covid hospitals, Dharmshila and Ahmedabad have 30 beds while RTIICS/Jaipur have 20 beds reserved for Covid. Net debt was Rs 530 crore as of March 2020.

Gross debt rose by Rs 30 crore in Q4. Dharmshila was Ebidta positive. Ahmedabad, Jamshedpur and Guwahati had Ebitdar margins of 9% in FY20.

We cut our estimates to factor in the extended lockdown. We now factor normalisation in August. We also factor for cost rationalisation. The management has also said it is not looking at further capex. Given the better positioning and the focus on execution, we retain our ‘buy’ with a TP of Rs 330, valuing it at 13.7x (20% discount to Apollo historical valuations) FY22 EV/Ebitda for India and 10x for Caymans.

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