Max Healthcare - Acquisition Of 550-Bed Hospital, Sahara Aids Max To Provide Health Services In Lucknow: Motilal Oswal

Motilal Oswal Report

Max Healthcare Institute Ltd. announced the acquisition of a 550-bed hospital, Sahara India Medical, in Lucknow for an enterprise value of Rs 9.4 billion.

Considering the performance of Medanta and Apollo Hospitals Enterprise Ltd. in Lucknow, we assume Max Healthcare to achieve Ebitda margin of 30% over the next 12-18 months.

Accordingly, the 12 months forward enterprise value/Ebitda on 12% revenue growth/30% Ebitda margin would be 14 times, which is quite attractive compared to the valuation of hospitals in the listed space (~23-26 times 12 months forward EV/Ebitda.)

Further, with just incremental investment of Rs 1.5-2 billion, the capacity can be increased to 550 beds from the current operating capacity of 250 beds.

We raise our earnings estimates by 3% for FY25 to factor in the acquisition. We value Max Healthcare on the SOTP basis (26 times 12 months forward EV/Ebitda for hospital business, 18 times EV/Ebitda for MaxLab business and four times EV/sales for Max@home business) to arrive at a target price of Rs 780.

This acquisition should help Max Healthcare gain foothold in Lucknow and surrounding districts, and give ample land availability to expand at a single location.

Further, the scope of growth/profitability improvements makes the acquisition attractive. Reiterate 'Buy'.

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