Target: ₹1,000
CMP: ₹1,272.95
Narayana Hrudayalaya (NH), like most industry peers, is in the midst of an expansion cycle to support long-term growth. It has spent ₹1,700 crore in the last two years on upgrading services and capabilities in India, and a new hospital in the Cayman Islands. It earmarked ₹1,600-crore capex from FY25e towards adding beds and improving existing facilities, and it expects a similar amount over the next one-two years. While it hasn’t specified the number of beds it will add, we believe it will grow its bed capacity by 25-30 per cent in India by end of the capex cycle.
With the opening of its new hospital in the Cayman Islands, NH expects to offer diverse services, such as short-stay surgeries, trauma care, labour and delivery suites, a neonatal intensive care unit, kidney dialysis care, diagnostic imaging services, etc. to attract more patients and boost growth. While we are positive on its prospects for long-term growth, we believe it will take time before it scales up the operations at the new hospital and, meanwhile, there will be a notable cost drag. In India, we believe its current initiatives will result in improved efficiency; however, we believe a notable pick-up in its growth trajectory is two-three years away, as only then will new units commence operations.
Our DCF-driven target price of ₹1,000 implies downside of 27.4 per cent. We believe the current price doesn’t adequately reflect the drag on the EBITDA margin from costs related to the new Cayman Islands hospital, spending on India operations, and the execution risk for its planned expansion. NH is trading at a 25.4x EV/EBITDA multiple based on our FY26e EBITDA estimate, a 22.4 per cent premium to its two-year average.
