Buy Narayana Hrudayalaya; target of Rs 920: Prabhudas Lilladher

Prabhudas Lilladher's research report on Narayana Hrudayalaya

We are increasing our FY24/25E EPS estimates by 3.7% and 5.8% as we factor in higher profitability from units in Health City, Bangalore. Narayana Hrudayalaya’s (NARH) profitability across India and Cayman was strong in H1FY23 (up 44% YoY) and we expect this growth momentum to sustain. The company plans to continue with its aggressive capex plan for next 2-3 years (guided capex of Rs.10bn annually in FY23E and FY24E.). More importantly capex spend would be towards its core and high performing regions such as Bangalore, Kolkata and Cayman. This enhances growth visibility.

Outlook

We expect EBITDA CAGR of 22% over FY22-25E.. Despite capex intensity going up, RoE/ RoCE will remain healthy at ~25%. Maintain ‘BUY’ rating with a revised TP of Rs. 920/share (earlier Rs900/share), based on 20x Sept 2024E EV/EBITDA for India business and 15x EV/EBITDA for Cayman hospitals. At CMP, stock is trading at attractive valuations of 16x EV/EBITDA (adj for IND AS) and 25x P/E on FY24E. Faster ramp up in new Cayman unit will be key.