Narayana Hrudayalaya - Improving Maturity Mix; New Hospitals To See Improvement In Near-Term: HDFC Securities

HDFC Securities Retail Research

‘Narayana Health’ brand is strongly associated with its ability to deliver high-quality, affordable healthcare services by leveraging economies of scale, skilled doctors, and an efficient business model.

Operating at lower average revenue per occupied bed compared to its peers, Narayana Hrudayalaya Ltd. has over the years implemented and followed unique cost control measures right from construction of hospital buildings to sourcing equipment and consumables.

India business ARPOB growth will not come from pricing, but from increased throughput and increased quaternary care in the overall mix.

Narayana Hrudayalaya is working on reducing ALOS by working on efficiencies and changing the clinical pathways to improve throughput.

The company has a steady expansion plan and is committed to refurbishing its flagship facilities in Bangalore and Kolkata, which will help to improve the quality of healthcare services offered to patients.

Narayana Hrudayalaya recently unveiled its new logo and announced a rebranding exercise across all its healthcare facilities. It stated that the transformation encompasses its network of super-specialty hospitals, heart centres and primary care facilities, signifying Narayana Health's unwavering commitment to building a healthier India.

Narayana Hrudayalaya has taken significant strides towards diversifying its portfolio by submitting an application to the Insurance Regulatory and Development Authority of India for its bundled insurance plans. This strategic move aims to bridge the gap between healthcare services and insurance, bringing more comprehensive and integrated solutions to patients and healthcare customers.

The group is soon expecting the approval for its insurance business, to be started by the end of the calendar year 2023. The integration of healthcare services and insurance can contribute to better health outcomes. Patients may have access to a wider range of preventive and diagnostic services, resulting in early detection and treatment of health issues.

Higher maturity mix in hospitals, steady performance of flagship hospitals in India and improving profitability of new hospitals (SRCC, Gurugram, Dharamshila) solidifies its position in India.

Prioritizing debottlenecking and brownfield expansion at its existing centres and expansion in Cayman support growth going forward.

Operationalising of new hospitals which would account for large part of the growth could pose risk on the margin front.

We expect revenue/Ebitda/profit after tax to grow at compound annual growth rate of 12.3%/12.2%/6.5% over FY23-25E.

Key triggers:

• India Business on strong footing.

• Strong performance led by flagship hospitals.

• Improving maturity mix; new hospitals to see improvement in near term.

• Cayman operations is on strong trajectory with improved operations and profitability.

• Acquisition in Bangalore to complement other specialties.

• Incorporation of Narayana Health Insurance Ltd. to explore integrated care segment.

Risks and concerns:

• Delay in project execution and challenges in expansion in adjacent territories,

• High competition,

• Operational risk,

• Exposed to regulatory risks inherent in the sector,

• Discontinuation of leases.

About the company:

Narayana Hrudayalaya is a healthcare service provider that operates a chain of multi-specialty hospitals in India and in the Cayman Islands.

Narayana Hrudayalaya has a network of 45 healthcare facilities, including 18 owned/operated hospitals (multi-speciality and super-speciality healthcare facilities which provide tertiary care), one managed hospital, three heart centres and 21 primary care facilities (including clinics and information centres) having 6,164 bed capacity.

The company has a strong track record of providing quality healthcare services at an affordable cost. Narayana Hrudayalaya was founded by Dr. Devi Shetty in 2000 and is headquartered in Bengaluru.

Narayana Hrudayalaya has a strong presence in the southern state of Karnataka and eastern India, with an emerging presence in western, northern and central India.

Narayana Hrudayalaya owns and operates Health City Cayman Islands, which is a 110-bed facility located in the Cayman Islands, Caribbean (contributes ~20% of the topline).

Narayana Hrudayalaya’s centres provide advanced levels of care in over 30 specialties, including cardiology and cardiac surgery, cancer care, neurology and neurosurgery, orthopaedics, nephrology and urology, and gastroenterology.

The business is attractively placed to create an affordable, globally-benchmarked quality-driven healthcare services model.

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