Healthcare Sector Check - Hospital Pricing At The Center Of Dispute: Motilal Oswal

Motilal Oswal Report

Hospitals stocks have corrected by 7-14% over the past week, following an order from the Supreme court of India. We continue to believe in the structural tailwinds of the hospitals sector, as healthcare services continue to remain inadequate across various parts of India. The growing health awareness, rising incidences of illnesses, and increasing insurance penetration pave way for higher investment opportunities for delivering improved healthcare services.

We believe Max Healthcare Institute Ltd., Global Health Ltd. (Medanta), and Apollo Hospitals Enterprises Ltd. are well-positioned to provide the healthcare services on the back of-

1. Significant Doctor talent pool,

2. diversified case mix, catering to a wide patient base, and

3. the availability of land for brownfield expansion.

We re-iterate our Buy rating on these hospitals.

We value Max Healthcare on an SOTP basis (28 times enterprise value/Ebitda for hospital business, 20 times EV/Ebitda for Max Lab, four times EV/sales for Max@home) to arrive at a target price of Rs 930.

We value Medanta at 28 times 12 months forward EV/Ebitda to arrive at a target price of RS 1,460.

We value Apollo Hospitals on an SOTP basis (27 times 12 months forward EV/Ebitda for healthcare services, 12 times 12 months forward EV/Ebitda for backend pharmacy, 20 times 12 months forward EV/Ebitda for front-end pharmacy, two times EV/sales for Apollo 24/7 and 25 times EV/Ebitda for Apollo Hospitals) to arrive at a price target of Rs 7,400.

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