Investors of Max Healthcare Institute Ltd are very happy. The impressive 164% gain in the share price since January shows that the company’s performance over the past two quarters has boosted investor confidence. The company, in a recent investor presentation, detailed its efforts towards increasing profitability.
The company is in expansion mode. It had recently acquired the rights to develop a 500-bed hospital on 3.5 acres of land adjacent to its existing hospital premises in South Delhi.
Max Healthcare plans to add over 2,300 beds to its capacity through brownfield expansion using existing land banks in Saket, Delhi and Nanavati, Mumbai.
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These additional features will result in less capital investment per bed and faster break-even.
However, analysts pointed out that bed addition is back-ended with 40% bed commissioning in FY15 and the remaining commissioning later.
Max plans to add another 1,000 beds where construction and ownership will be with the partner, with Max responsible for operations and management.
Max Healthcare’s hospital stays rose to 81 per cent in the June quarter, up from 70 per cent in the previous quarter. Analysts had highlighted that non-Covid beds, which constitute around 58% of the total, had seen a strong occupancy level of 84% in Q1 itself, which was impressive.
The company’s plans to develop asset-light adjuncts to foray into the diagnostic and home care segment are promising.
Diagnostic labs are highly competitive, but the home care segment offers more opportunities in growing diagnostic revenue.
Another positive is that the company aims to reduce the contribution of low-margin institutional business to 15% from the current 34%.
Max plans to achieve this through a steady pace of organic growth in the self-pay, insurance and corporate channels, as well as the return of international medical tourism.
Given that the ARPOB (average revenue per occupied bed) for the institutional business is 40% lower than other channels, converting it to an incremental earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 300-400 Aadhaar Number (BPS) will be unlocked. . One basis point is one hundredth of a percentage point.
Doctor costs are expected to go up, but still may not make a dent in margins.
“This gives us a 70 bps/100 bps increase in our margin estimates for FY22 and FY23,” said analysts at Jefferies India Pvt Ltd.
“We believe Max is entering a high growth phase led by expansion in Saket (Delhi) and Nanavati (Mumbai). With margin drivers, we expect 29% EBITDA CAGR (Compound Annual Growth Rate) over the next five years. We anticipate strong growth of Rs.
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