Narayana Healthcare's Q3FY19 results (Upgrade to Outperformer) - Cayman drives EBITDA; India operations turnaround sustains
Q3FY19 result highlights
- Revenues came in higher at Rs7.3bn (+32% yoy) ahead vs our est of Rs6.9bn; yoy growth was aided by Cayman consolidation. Indian revs grew +13.5% yoy to Rs6.28bn vs est 8% growth driven by strong 11% growth in Mature hospitals; Cayman revs came at $13.1m vs est $12m.
- EBITDA came in at Rs779mn (7% yoy; Rs730m in Q2) vs est of Rs686m; EBITDA beat was entirely due to Cayman contribution – Rs210m vs est Rs130m; Q2 was Rs126m
- Indian healthcare EBITDA was Rs569m (Rs604m in Q2; Rs427m in Q1) – in-line with est; grew 8% yoy; New hospital losses were flat qoq at Rs176m. Notably, Q3 is seasonally the weakest quarter for Indian healthcare. Therefore, almost flattish qoq EBITDA performance is pretty impressive.
- Led by 21.1% margins in Cayman, Consol OPM also increased to 10.6% (10.3% in Q1) vs est of 10%
- Interest Cost / Depreciation were in line; Tax rate stood higher at 46.5% (34.6% in Q2) vs est of 35%.
- NH reported profit of Rs127m vs (Rs136mn in Q2) est of Rs101m.
Key positives: Growth in existing hospitals, Cayman EBITDA
Key negatives: Continued losses across new hospitals
Impact on financials: We have increased our FY19/FY20 EBITDA est by 8%. FY20 / 21 EBITDA estimates are broadly unchanged.
Valuations & view
Post a phase of weak operational performance due to challenges emanating from sluggish growth in existing hospitals combined with losses in newly commissioned hospitals, NH has effected a remarkable recovery over the last couple of quarters. There is a sharp improvement in revenue momentum and profitability across existing hospitals while the losses in new hospitals have begun to stabilize. Strong profitability pick-up in Cayman unit is adding to the momentum. With its focus on affordable healthcare, NH is a differentiated model in the Indian healthcare space and is one of the most scalable business models in the landscape. We think that the recent challenges have helped to sharpen the operational focus within the firm which is positive from a medium term perspective. With 20% CAGR EBITDA growth over FY19-21e, valuations of 9.7x EBITDA (FY21e) are now attractive. Upgrade to Outperformer with a SOTP based price target of Rs262. ​
Narayana Hrudayalaya Limited is an India-based holding company. The Company operates a network of hospitals, diagnostic centers, clinical centers or test laboratories. The Company operates through Medical and Healthcare Services business segment. The Company offers medical, surgery, and diagnostics and support services. The Company provides services in the areas of cardiology; orthopedics; cosmetic surgery; anesthesia; imaging and radiology; nutrition and dietetics; physiotherapy; renal transplant; thoracic surgery; pediatrics surgery; medical oncology; surgical gastroenterology; dermatology; hematology; rheumatology; neurology; psychiatry and psychology, and others. The Company operates a network of over 20 hospitals (multispecialty and super specialty healthcare facilities), approximately seven heart centers and over 20 primary care facilities (including clinics and information centers), across India and a hospital at Cayman Islands with approximately 5,347 operational beds.
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