Buy Max Healthcare; target of Rs 600: Motilal Oswal

Motilal Oswal's research report on Max Healthcare

Max Healthcare (MAXHEALTH) delivered a marginally better-than-expected operational performance in 4QFY23, aided by a steady improvement in average realization per operating bed (ARPOB) and an increased number of patients treated. Growth prospects remain robust on the back of price hikes, optimization of payor mix/case mix, and bed additions. Further, surplus cash provides scope for inorganic growth opportunities. We raise our earnings estimates by 6.5%/6% for FY24/FY25, factoring in 1) a tariff increase for patients from PSUs, 2) a faster ramp-up in occupancy for recently added beds at Shalimar Bagh, 3) ongoing cost management, and 4) scale-up in the non-captive pathology business. We value MAXHEALTH at INR600, based on SOTP (23x EV/EBITDA on 12M forward basis for hospital business, 17x EV/EBITDA for Max Lab, 2x EV/sales for Max @ Home). We remain positive on MAXHEALTH on the back of 1) significant land bank available in high demand areas of Delhi for brownfield expansion, 2) focused approach to improve profitability per bed, and 3) proven capability of a strong turnaround of hospital assets. Reiterate BUY.

Outlook

We raise our earnings estimates by 6.5%/6% for FY24/FY25, factoring in 1) a tariff increase for patients from PSUs, 2) a faster ramp-up in occupancy for recently added beds at Shalimar Bagh, 3) ongoing cost management, and 4) scale-up in the non-captive pathology business. We value MAXHEALTH at INR600, based on SOTP (23x EV/EBITDA on 12M forward basis for hospital business, 17x EV/EBITDA for Max Lab business, 2x EV/sales for Max @ Home business).

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