Buy This Mid-Cap Multibagger Hospital Industry Stock for 30% Potential Upside

Leading brokerage firm Edelweiss Broking Limited has given buy rating to the stock of Max Healthcare Institute Ltd for a potential gain of 31%. The company said it will continue to focus on growth through planned beds expansion, improving AROPB and enhancing occupancy. In key takeaways, the management is confident of strong growth in the coming quarters, maintaining a healthy margin, increase in foreign patients and improvement in the payer mix.

1. Stock outlook

The current market price of the stock is Rs 361.60 apiece. The 52-week high and low of the stock is recorded at Rs 458 apiece and Rs 236 apiece. According to Edelweiss, if you buy the stock at current market price of Rs 361 you can get a target price of Rs 470 with a gain of 30%. The stock has given multibagger returns. In the last 5 years the stock has given a positive return of 223% while in one year, the stock has given a return of 46%.

Current Market Price	Rs 361
Target Price	Rs 470
Potential Gain	30%
52-week high	Rs 458
52-week low	236
5 year return	+223%

2. Key Takeaways

The company focus on reducing institutional business (pricing at 30-40% discount to other segments) which accounts 31% of MHI's occupied beds (FY22) has been reduced from 34% within year. The company added an oncologist team in Nanavati Hospital, Mumbai, which will increase oncology contribution at the company level from approximately 22%. The company expects this to drive ARPOB.

The company took price revision of 7-8% for TPA in FY22, which happens once in two years. General Insurance Public Sector Association (GIPSA) accounts for around 50% of the TPA (third-party administrator) patients in MHI. MHI generally takes a 2.5-3% price hike in a year. The company does not foresee price competition in the market wherein it operates.

3. Global patients contribution surging

The management communicated the contribution of international patients rose MOM with the resumption of international air travel and expected it to reach the pre-COVID-19 level in the coming months. In Q4FY22, this contribution increased to nearly 8% compared with 11-12% pre-COVID-19.

For instance, BLK-Max Hospital derived about 24% of its revenue from international patients (pre-COVID-19), which started gaining good traction.

4. Focus on boosting EBITDA per bed

The company doubled its operating EBITDA (earnings before interest, taxes, depreciation, and amortizationin) FY22, with EBITDA per bed (excluding the revenue from COVID-19 vaccination and related antibody tests and Max Lab operations) increased to INR53.9lacs (+78% YoY) in FY22. EBITDA per bed is expected to improve further with improvement in clinical mix, rise in international patients and growth in occupancy.

5. Valuation

According to Edelweiss, "The management is focusing on optimising capacity utilisation in existing facilities/resources and patient mix, increasing ARPOB (Average Revenue Per Occupied bed), executing planned expansion efficiently, (d) scaling up capital-light businesses, (Max@Home and MaxLab) and scouting potential targets for M&As. At a CMP of INR359, the stock is trading, at FY24E EV/EBITDA of 19x. We maintain our positive outlook on the company, keeping in mind its asset-light strong expansion plans with superior RoCE and sector-leading ARPOB. We maintain our BUY rating with a target price of INR470 per share (DCF-based)."

6. About Max Healthcare Institute Ltd

Max Healthcare Institute Limited is one of India's largest healthcare organizations. It operates 17 healthcare facilities (3400+ beds) across the NCR Delhi, Haryana, Punjab, Uttarakhand and Maharashtra. It has a market capitalization of Rs 35,061 crore.

Disclaimer

The above stock is picked from the brokerage report of Edelweiss Broking Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.