Max Healthcare Rating- Buy - Continues to deliver stellar performance

Max Healthcare Rating: Buy | Continues to deliver stellar performance

Max Healthcare has delivered exceptional operating performance in last two years. We believe Max Healthcare still has levers which can positively surprise the street in coming years. In the near term, reduction of institutional beds can lead to earnings beat, Dwarka ramp can possibly provide another boost in FY24. The biggest factor not yet in any in street numbers is M&A and the possible synergies from it.

Max healthcare has more than doubled its Ebitda from Rs 5.9 bn in FY20 to Rs 13.9 bn in FY22 while its operating metrics of ARPOB (average revenue per occupied bed), occupancy, Ebitda per bed and ROCE (return on capital employed) remains the best in class in industry. Stock prices accordingly have shot up 4x since listing IPO in Aug-20. We believe the company can continue to deliver its stellar operating performance and continue to beat the street.

Our FY25 Ebitda growth for Max healthcare is currently modest at 8%, and most of the growth is assumed to accrue through scaleup of Dwarka facility. However, Max Healthcare will be adding bed capacity of 1,169 in FY25 and capacity of 869 will be brownfield. Our numbers are not factoring any Ebitda contribution from these beds as we are still 18-24m away from those timelines and construction delays can occur. Our numbers imply that these beds will be operating at just breakeven in FY25 but there could be a large beat to these numbers as the brownfield beds have the potential to be profitable in short time.

Max Healthcare’s management led by Abhay Soi has delivered better than what they have promised for past several years. As per reports, Max is competing to acquire Care hospitals KIMS Health and AMRI, however Max has not yet confirmed this. A large M&A and subsequent cost saving, or turnaround can lead to major changes in Max’s financial profile.