Kotak downgrades Narayana Hrudalaya to 'reduce'

Kotak Institutional Equities forecasts the hospital’s EBITDA to grow at a CAGR of 15 percent for FY23-25 as it expects Narayana’s loss-making businesses to start making profits.

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26 Aug, 2025 12:21

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Brokerage house Kotak Institutional Equities has downgraded its rating on hospital chain Narayana Hrudalaya to ‘reduce’ from ‘add’ earlier, citing weak operating margins as one of the reasons. Narayana Hrudalaya’s EBITDA margin or operating profit margin improved the fastest among peers by 460 basis points year-on-year, but it trails peers by a mile.

Narayana Hrudalaya’s operating margin for FY23 stood at 16.7 percent, said the Kotak Institutional Equities note. Peers like Rainbow Hospitals and Max Healthcare reported 33.8 percent and 28.3 percent margins in FY23, respectively.

The private hospital chain’s Average Revenue Per Occupied Bed (ARPOB) is also low at Rs 34 per bed per day. This is almost two times lower than Max Healthcare’s ARPOB of Rs 60.4 per bed per day. Max Healthcare has the highest ARPOB among peers. ARPOB helps to find out revenue from every occupied bed.

Also read: Buy Narayana Hrudayalaya; target of Rs 1100: Prabhudas Lilladher
Problems

Narayana’s Return on Capital Employed (ROCE) has outperformed its peers. However this is due to the company’s operations in Cayman Islands.

Narayana's underperformance in its India business can be attributed to challenges beyond the Kolkata and Bengaluru markets, said the Kotak Institutional Equities report. The hospital chain's Gurugram hospital is not strategically located, which has hindered its performance. The Ahmedabad hospital faces difficulties in recruiting full-time doctors, resulting in poor performance. Additionally, Narayana's Dharmashila hospital in Delhi, which is focused on oncology, is experiencing a slowdown due to its expansion into new areas.

Kotak Institutional Equities forecasts the hospital’s EBITDA to grow at a CAGR of 15 percent for FY23-25 as it expects Narayana’s loss-making businesses to start making profits.

The stock was down 2.57 percent at Rs 984.57 at 14.45 pm on the National Stock Exchange.

Narayana Hrudalaya operates a chain of multi-specialty hospitals, heart centres, and primary healthcare facilities in India.

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