Medanta Remains A 'Buy' As Jefferies Bets On Growth

A significant demand-supply gap bodes well for private hospitals like Apollo Medics and Medanta, according to Jefferies.

The latter is the largest private hospital in Uttar Pradesh's Lucknow, which is emerging as a healthcare hub in the region, the brokerage said.

Private hospitals enjoy higher average revenue per operating bed on patients who are either insured or pay in cash.

Here's what the brokerage said on Medanta — Global Health Ltd:

• Reiterated 'buy' on Medanta with a target of Rs 630, implying an upside of 26% from Wednesday's closing price.

• Lucknow is emerging as a healthcare hub for central/eastern UP region.

• Lucknow has seen improved road connectivity from adjoining towns like Kanpur, Allahabad, Gorakhpur and Varanasi, which are three to four hours drive.

• It has an estimated addressable market of 12 crore, according to the brokerage.

• Patients travelled to Delhi for healthcare needs, but with emergence of new private hospitals over the last five to six years, Lucknow is seeing strong demand.

• There is significant demand-supply mismatch in the region.

• Channel checks suggest a significant waiting time (eg. four years for cardiac operations) at government hospitals.

• This bodes well for private players.

• New government hospitals should become operational over the next few years, but unlikely to bridge the demand-supply gap in the region.

• Medanta's Lucknow Hospital, started in 2019, has a bed capacity of 950 beds, of which 475 have been operationalised at the end of 9M FY23.

• The hospital's occupancy is trending at 60%.

• Average revenue per operating bed is over Rs 58,000, entirely from cash and insurance patients.

• There is no contribution from institutional patients.

• Civil infrastructure is in place and majority costs to expand beds from 475 to 900+ has been incurred.

• The brokerage likes Medanta’s strong clinical excellence reputation and the growth visibility via its new facilities in Lucknow and Patna.

• Upside Risk: Given demand-supply dynamics, new bed expansion may be filled via cash/ insurance patients and can result in positive surprises.

• Downside Risk: Lower than estimated EBITDA CAGR from new beds being filled, with institution patients which have lower realisation versus cash/insurance patients.

Here's what the brokerage said on Apollo Medics:

• Apollo Medics, a subsidiary of Apollo Hospitals with 260 beds, also started in 2019 in Lucknow.

• It provides high-end tertiary care services and is running at 75-80% occupancy.

• The hospital has already reached mid 20s EBITDA margin within four years of operations, mainly coming from cash and insurance patients.

• Given already high occupancies, Apollo Medics is looking for land parcels in Lucknow to expand operations further.

Shares of Global Health gained 0.30% to Rs 500.25 apiece, while those of Apollo Hospitals Enterprise Ltd. declined 0.41% to Rs 4,302.75 apiece as of 11:34 a.m. This compares to the Benchmark BSE Sensex which was trading 0.13% higher.