Higher sales, occupancy to improve profit trajectory of Max Healthcare

Acquisitions, organic growth to improve profit trajectory

Shares of healthcare services major Max Healthcare Institute gained over 23 per cent since the start of this month and the stock crossed the Rs 1 lakh crore mark on Tuesday. On Wednesday, it closed 989.85 apiece at the NSE.

The gains were cornered on the back of a strong outlook for the sector and aggressive expansion plans for the chain led by acquisitions and organic growth.   

The company recently acquired a 64 per cent equity stake of Jaypee Healthcare (JHL) with an option agreement for the acquisition of the remaining 36 per cent equity stake through cash consideration, including refinancing of debts of JHL at an enterprise value of Rs 1,660 crore.

“Max Healthcare continues to enhance its presence in the NCR region and Uttar Pradesh as is evident from this deal and the Sahara hospital acquisition in the recent past. The network hospitals are running at 75 per cent plus occupancy,” said Sumit Gupta and Varad Patil of Centrum Research.

Going forward, the hospital chain needs to improve the profitability of the recently acquired hospitals in Lucknow (Sahara) and Nagpur (Alexis) along with JHL, the brokerage said, which has an ‘add’ rating with a target price of Rs 980. 

With the launch of Max Super Specialty Hospital in Dwarka, the company has added over 900 beds to its capacity so far and has successfully supplemented the momentum of growth in revenues and profitability before the augmentation of bed capacity through brown field expansion plans in FY26, the management said, while announcing the June quarter (Q1FY25) results on August 1.

Meanwhile, Max Healthcare has aggressively increased its bed capacity through organic and inorganic routes over the past three years. It plans to add 2,400 beds to its total bed capacity of Rs 6,700, with a capex of Rs 4,000-4,500 crore over the next 3-4 years. 

Despite heavy capex, the company has comfortably maintained its liquidity position.

Max Healthcare has strategically expanded its presence in the UP market over the past six months and has established itself as a key player in this market, Motilal Oswal Financial Services said in a company update.

The brokerage firm reiterates ‘Buy’ rating on the stock with a target price of Rs 1,240 per share. It expects an annual growth of 20 per cent in operating profit and 18 per cent in net profit over FY24-FY26 fuelled by a higher average revenue per occupied bed, addition of new beds, and improved occupancy at existing hospitals.

Max Hospital Nagpur and Lucknow have successfully met key post-merger integration objectives and are currently focused on expanding their service offerings through facility upgrades, bed additions, recruitment of top medical talent and advanced clinical programmes.

Both the facilities have demonstrated strong financial performance in Q1FY25, achieving robust growth in revenues and earnings before interest, tax, depreciation and amortisation (Ebitda) over the same period last year.

Prospects for the sector also remain ebullient, buoyed by the increased government expenditure, rising health insurance penetration, and a growing demand for healthcare services.

The Indian hospital sector's market capitalisation has increased nine-fold from Rs 375 billion in FY20 to Rs 3.5 trillion in FY24, owing to improved pricing, higher insurance penetration, and a focus on complicated treatments such as transplants. This trend is likely to intensify over the coming decade, Max Healthcare said in FY24 annual report.