Bed addition to drive growth
▪ Yatharth Hospital witnessed a strong operating performance as reflected in 31% YoY growth in revenue, on the back of a solid 42%/12% YoY growth in IP/OP volume, 8% points increase in occupancy to 60% YoY, and a 4% YoY jump in ARPOB to INR 30,652. December being a lean month, QoQ performance looks muted.
▪ Due to operating loss in newly acquired Faridabad hospital (May’24), EBITDA margin contracted 277bp YoY to 25.1% in Q3. Ex-Faridabad, EBITDA margin could have been over ~26%. Further, a 115% YoY rise in depreciation impacted the PAT to grow a marginal 3% YoY in Q3.
▪ Yatharth recently acquired two hospitals; (i) a 300+ bed hospital in Delhi and (ii) a 400-bed hospital in Faridabad for which a total CAPEX of ~INR250cr has been spent. These hospitals will get operationalised in Q1FY26 with an aim to break even by the end of FY26.
▪ During the quarter, the company raised INR625cr through QIP at INR595/share, mainly to pay off debt, fund recent acquisitions and purchase of medical equipment. Majority of which has already been deployed.
▪ We have marginally cut our FY25 estimates (by 6%) but broadly maintain our FY26/27 estimates. However, we cut our target multiple to 15x average FY26/27 EBITDA (earlier 20x) reflecting uncertainties related to the IT liabilities, and expenses related to acquisitions. We retain a ‘BUY’ rating on the stock with a revised target price of INR620 (earlier INR800).
Valuation and View:
Yatharth has shown a strong performance on a nine-month basis and is likely to see better growth in Q4 and beyond. We expect a revenue/EBITDA/PAT CAGR of 38%/33%/33% over FY24-27E on the back of an improving specialty mix and ARPOB, increased occupancy rates and its bed expansion plans. Post the QIP, the company currently has cash surplus of INR560cr, part of which would be deployed for bed expansions and procuring high-tech equipment. Despite a healthy operating performance, the stock of Yatharth witnessed a major correction following new related to action by IT, which also raised concern on corporate governance and management of funds raised during past two years. Post the classification by the management, the gravity of issues should materially reduce. It is also in process of recruiting topauditors to score on corporate governance. While we are confident of the company sustaining a healthy operating performance, we reduce our target multiple amidst a few uncertainties. We reduce our target multiple on the stock to 15x average FY26/27 EBITDA (earlier 20x) to attain a revised target price of INR620. We retain ‘BUY’.
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