Global Health Ltd (“Medanta”) is one of the largest private multi-speciality tertiary care providers operating in the North and East regions of India, with key specialties of cardiology and cardiac science, neurosciences, oncology, digestive and hepatobiliary sciences, orthopaedics, liver transplant, and kidney and urology. Under the “Medanta” brand, they have a network of 5 hospitals currently in operation (Gurugram, Indore, Ranchi, Lucknow, and Patna), and 1 hospital (Noida), which is under construction. As of June 30, 2022, they provide healthcare services in over 30 medical specialties and engages over 1,300 doctors led by highly experienced department heads and, spanning an area of 4.7 million sq. ft. (“msf”), their operational hospitals have 2,467 installed beds.
Medanda was founded by Dr. Naresh Trehan, a world-renowned cardiovascular and cardiothoracic surgeon. He has been awarded the prestigious Padma Bhushan and the Padma Shri, the 3rd and 4th highest civilian awards in India, and the BC Roy award, in recognition of his distinguished contribution to medicine. Dr. Trehan is the driving force behind the hospitals. Medanta strive to deliver world-class healthcare by establishing institutes of excellence that integrate medical care, teaching and research all while providing affordable medical services to patients.
As at March 31, 2020, Medanta had 2,141 installed beds, which grew to 2,571 installed beds as per latest report by the company, representing a growth of 20%. Upon operation of their Noida hospital, Medanta expects the number of total installed beds to exceed 3,500 at the end of Fiscal 2025, which will cater to domestic and international patients as part of their strategy to capitalize on medical tourism.
Tertiary and quaternary care provider in India, recognized for clinical expertise in particular in dealing with complicated cases
For the last three years (2022, 2021 and 2020), GHL hospital in Gurugram has been rated as the best private hospital in India by Newsweek. It is also the only private hospital in India to feature in Newsweek’s list of the top 200 global hospitals in 2021 and was featured in the list of top 250 global hospitals in 2022 by Newsweek. It achieved this leadership position by the focusing of its experienced doctors on treating complicated cases and also ensuring at the same time the best quality of care. The hospital in Gurugram has been honoured with numerous awards including being featured in the list of world’s best specialized hospitals for cardiology and neurology in 2022 by Newsweek, the list of world’s best specialized hospitals for cardiology in 2021 by Newsweek and was ranked first for emergency/trauma, neurology, gynecology, and ranked second for cardiology, gastroenterology, nephrology, oncology and urology by ‘The Times of India’s Critical Care Study 2021’.
GHL focus on quality tertiary and quaternary care, treatment of lifestyle diseases, provision of value-based treatments and work on a high number of critical, complex cases. These procedures have included a number of complex surgeries, including a paediatric liver transplant for a three-month old infant in 2020, a 3D printed titanium spine implant procedure in 2017, and a successful intestinal transplant in 2013.
Strong industry tailwinds
Normalisation post Covid led to pent-up demand in FY22. However, we see strong footfalls continuing in FY23, which can be attributable to higher health awareness driven by higher testing post the pandemic and industry tailwinds. CRISIL Research expects India’s healthcare delivery market to grow at 13-15% CAGR over FY23-26 to INR 8.3trln in FY26. This is more structural in nature as increase in lifestyle-related diseases, aging population, increasing medical tourism, changing demographic profile and increasing government focus and expenditure is expected to drive growth. After almost 2 years of sluggishness, key metrics have meaningfully improved across the industry. Two major trends emerging post Covid are (1) Digitization; and (2) Providing diagnostic and pharmacy services outside of hospitals. Large-scale hospitals with world-class infrastructure and high-end medical equipment and technology.
Well-balanced hospital mix to drive healthy sustainable growth
Medanta has a well-balanced mix of mature, developing and planned hospitals, which offers sustainable long-term growth visibility. The company’s hospitals are strategically positioned in underserved areas such as Lucknow, Patna, NCR, Indore etc. which provides impetus to growth. We expect steady growth to come from sweating of mature assets (Gurgaon, Indore, Ranchi) thereby improving key metrics (ARPOBs/ occupancies) and margins. Increasing contribution from developing hospitals (Lucknow, Patna) will bolster revenues but newer capacities will keep margins in check in over the near term. Lucknow’s stellar success of achieving breakeven in the first full year of operations, 28%+ EBITDA margins and 30% revenue CAGR over FY22-25 demonstrates exceptionally strong execution capabilities of Medanta. We expect similar performance from Patna and remain highly optimistic of a faster ramp-up. Given their robust cash reserves of INR 5bn+, Medanta is also evaluating inorganic opportunities in Gorakhpur, Varanasi, Indore, etc.
Doctor led model with excellent positioning among peers
Medanta has a doctor-led model driven by skilled and experienced doctors in their specializations that aspire to achieve clinical excellence. At the helm, Medanta is led by Dr Naresh Trehan, a world-renowned cardiovascular and cardiothoracic surgeon. He has been awarded the prestigious Padma Bhushan and the Padma Shri, the third and fourth-highest civilian awards in India, and the Dr B.C. Roy award, in recognition of his distinguished contribution to medicine. The company’s large scale hospitals have world class infrastructure that is designed to optimize clinical flows, and is also patient centric focusing on quality and safety thereby improving brand recall. Medanta’s flagship facility has received numerous awards and recognition, and with high international patient footfalls, it only highlights their strong core competencies. Medanta has the 2nd highest ARPOB among peers only next to Max. Medanta’s occupancy rate has been gradually improving (now >60%) whereas margins are also competitive. Overall, we expect key metrics and return ratios to improve thereby increasing the scope for higher multiple.
Growth opportunities in existing facilities and diversification into new services, including digital health
GHL’s strength is its ability to leverage on land space, new products and services and digital health. The capital costs hospitals typically incur, while expanding/entering into top cities, is for the procurement of land in the city. It has an inherent advantage to expand services in the locations it is in. In terms of expansion capacity, as an example, the number of beds that can be added without significant further major investments in infrastructure is 100 beds at Gurugram Hospital, and 400-500 beds at Lucknow Hospital. In particular, at Gurugram Hospital, it has a remaining floor area of 103,703.22 square meter available at the Medicity plot as well as an additional land bank of 13 acres available for ancillary services (i.e., residential and guest house). The permitted usage at this additional land bank provides GHL with flexibility in complementing its core business
Q3FY23 Financial Performance
Global Health (Medanta) reported better than expected earnings in Q3FY23. Consolidated revenues grew 19% YoY to Rs.706.20 cr. The growth was driven by a combination of factors such as higher inpatient volumes, increase in bed occupied days, and change in specialty and payor mix. On the operational front, EBITDA surged 18% to Rs.171.9 cr YoY while net profit jumped Rs. 11.4 percent to Rs 80.60 cr demonstrating strong performance on all fronts.
Key Risks & Concerns
Capital Intensive Industry
The company operates in a capital intensive industry where failure to generate cash or higher revenues may impact company’s ability to invest for future.
Highly competitive industry
Hospital Industry is very competitive in terms of large players cornering major share in the market. Company has to compete with well established players like Apollo, Max Healthcare, which may prove to be challenging for the company.
Outlook & Valuation
GHL is a leading multi-speciality hospital company in the North and Eastern parts of India with consistent financial track record and a strong balance sheet. With bed capacity extended to 3,500 beds and a strong focus on clinical research and expertise, the company is expected to post consistent double-digit revenue growth in the coming years. The company’s profitability will consistently improve as operating performance of new hospitals gets better. Further, the company has higher average revenue per occupied bed (ARPOB) and higher margins as compared to some listed companies in the hospital space.
AT CMP of Rs.510, the stock is trading at 34.5x FY25E (EPS – Rs.14.7) and hence, we initiate a BUY on the stock.