Buy Narayana Hrudayalaya; target of Rs 250: ICICI Direct

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ICICI Direct's research report on Narayana Hrudayalaya

Q3FY19 results were a mixed bag with revenues and EBITDA above I-direct estimates while net profit was lower than I-direct estimates due to higher depreciation and tax rate • Revenues grew 32.2% YoY to Rs 732 crore (I-direct estimate: Rs 713 crore) mainly due to consolidation of Health City Cayman Islands (Cayman)and ramp up in new hospitals • EBITDA margins improved 136 bps YoY to 10.6% (I-direct estimate: 10.1%) mainly due to lower other expenditure. EBITDA grew 51.5% YoY to Rs 78.0 crore (I-direct estimate: Rs 71.8 crore)• Net profit declined 9.7% YoY to Rs 12.7 crore (I-direct estimates of net profit: Rs 15.2 crore). The delta vis-a-vis EBITDA was due to higher interest cost and tax rate (46.3% vs. 42.2% in Q3FY18).

Outlook

However, we remain positive on the stock as we believe the long term prospects remain intact on the back of asset-right model and affordability philosophy. We arrive at an SOTP target price of Rs 250 by valuing the matured hospitals and Cayman Islands at 8x of FY21E EV/EBITDA and other hospitals & other businesses at 1x FY21E EV/sales.

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