Led by Dr Naresh Trehan, renowned cardiologist, Global Health Ltd (Medanta) is amongst the top private hospitals in North India, specialising in cardiology and cardiac science, neuroscience and oncology. Medanta’s strong positioning in North India along with expansion in underserved areas like Lucknow and Patna should drive 17% revenue CAGR along with 70bp margin expansion over FY22-25e. We believe Medanta will close the valuation gap with peers, helped by Ebitda growth and ROCE trajectory. We initiate coverage on Medanta with a ‘Buy’ rating and a PT of `550.
Medanta’s mature hospitals (called as GHL) comprising facilities of Gurugram, Indore and Ranchi accounted for 81% of its revenue and 77% of its total operational bed capacity in FY22. Over the last three years, Medanta has expanded its network to Lucknow and Patna. Medanta’s expansion into Central and East India along with a 550-bed expansion is underway in Noida .
Medanta’s ARPOB (average revenue per occupied bed) is second only to Max Healthcare’s, and its Ebitda margins are largely in-line with those of other hospitals groups. Its margin profile should remain largely stable despite a decline in contribution of high-margin cash patients as new hospitals ramp up. Medanta’s ROCE should move upwards as asset utilisation across hospital assets improves.
We like Medanta’s strong clinical excellence reputation and the growth visibility via its new facilities in Lucknow and Patna. We value Medanta at 20x FY25estimates EV/Ebitda, which is at 9%/7% discount to Max/Apollo trading multiples, as we believe the company will bridge the current valuation gap with peers on strong Ebitda growth, robust balance sheet and improving ROCE profile. Key risks: (a) High dependence on Chairperson Dr Naresh Trehan, (b) increasing competition in Delhi-NCR region.