NARH have announced aggressive capex plan across India and Cayman operations over next 2-3 years. This enhances growth visibility beyond FY24 however in near term it may increase debt and impact return ratios. We maintain our estimates and ‘Buy’ rating with TP of Rs773/share, based on 20x FY24E EV/EBITDA for India business and 16x EV/EBITDA for Cayman hospitals. At CMP, stock is trading at 15.7x EV/EBITDA (adj for IND AS) and 26x P/E on FY24E. With strong performance at Cayman, steady pick up in mature India hospitals and ramp-up at new hospitals, we expect EBITDA CAGR of 18% over FY22-24E. Despite capex intensity going up, RoE/RoCE will remain healthy at 24% by FY24E.
In line EBITDA aided by Cayman: NARH reported Q4FY22 pre IND AS EBIDTA of Rs 1.64bn. Adjusted for one offs – St Lucia (Rs132n) and Jammu unit (Rs54mn), EBITDA came in at 1.4bn (up 13% YoY; down 10% QoQ), in line with our estimate. Cayman reported strong profitability with EBIDTA growth of 46% to Rs790m while India business (adj for Jammu) reported 20% QoQ decline in EBIDTA to Rs800mn. Losses from new hospitals came in higher at Rs82mn (up 71% QoQ). Jammu unit turned into positive EBITDA of Rs 54mn due to change in accounting treatment.§ Revenue grew by +12% YoY (down 2% QoQ) to Rs9.4bn. ARPOB (average revenue per occupied bed) for India business improved by 11% YoY (+4% QoQ) to Rs. 33,425 per day. International business contributed 4% to the total India revenues vs 6% in Q3. Cayman reported $24.4mn (flat QoQ) revenues in Q4. Net debt marginally increased by Rs.283mn to Rs2.4bn.§
Key con-call takeaways:-
(1) Expansion strategy and capex – a) Mgmt indicated the focus to remain on existing regions for the next 4-5 years especially in Bangalore and Kolkata., b) NARH guided capex of Rs. 10bn for FY23 (includes Cayman capex guidance of $50mn), greenfield expansion in Kolkata & Raipur, brownfield expansion in Bangalore. c) Mgmt guided to invest in international markets especially in Caribbean islands and evaluating new opportunities in North American region. d) Continue to explore bolt on acquisitions
(2) Mgmt stated Gurgaon hospital to take couple of months for break-even, Mumbai hospital to take more time given that the concentration is only on child care.
(3) Jammu hospital to continue to be treated as breakeven and cash flows will be reinvested. (4) Tax rate was higher on account of repatriation of dividend income from Cayman.
(4) Current ARPOB is sustainable in nature
(5) Occupancy was in the range of 52-55% for FY22.
(6) A sequential drop in the contribution of Cardiac procedures to 34.3% in Q4FY22 and 30.7% for FY22.
(7) Flagship hospitals reported EBITDAR of 27% in Q4FY22 and 23% for FY22.