Medanta - Crafting A Differentiated Ecosystem In Healthcare: Motilal Oswal Initiates Coverage With A 'Buy'

Motilal Oswal Report

Medanta Operator Global Health Ltd. has multiple ‘firsts’ in its kitty as it ventured into the uncharted hospital territory successfully. It was the ‘first’ to set-up a large-scale, super specialty and single-location private hospital at Gurugram in CY09. It was also the ‘first’ private company to undertake Greenfield capex for super-specialty hospital at Lucknow (catering to central Uttar Pradesh) and Patna (catering to eastern UP/western Bihar) cities.

It has scaled up the developing hospitals significantly to achieve breakeven in the first year of their operations as against industry timeline of two-three years.

Further, Medanta’s organic bed capacity expansion plan is already in place until FY28, providing robust visibility of volume-led earnings growth over the next five years.

Overall, we expect its sales/Ebitda/profit after tax to register 14%/17%/26% compound annual growth rate over FY23-25 to Rs 35 billion/Rs 8.5 billion/Rs 5.2 billion. This would enable the return on equity to expand 120 basis points to 17.3% over FY23-25. Further, the company had a cash surplus of Rs 5 billion (as of FY23), providing scope for inorganic opportunities.

Given the healthy execution skill set, strong brand recall, and growth visibility in near future, we model a 10% premium to Medanta versus industry average of 21 times.

Thus, we assign 23 times enterprise value/Ebitda on 12 months forward basis to arrive at our target price of R 840. Initiate coverage with a 'Buy' rating on the stock.

Key downside risks

• Slower rate of bed additions: Any delay in scaling up the bed capacity in the Lucknow/Patna facilities may result in lower revenue for the company.

• Slower-than-expected medical tourist footfalls: Any unfavorable global development could result in a slower-than-anticipated increase in the number of international patients.

• Adverse effect of regulatory obstacles: The regulations regarding the pricing cap for services and patient charges could have an adverse impact on Medanta.

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