Shares of Global Health Ltd. gained after Jefferies initiated coverage with a "buy", citing strong brand equity achieved through clinical excellence.
Jefferies has set a price target of Rs 550 apiece on Global Health shares, implying an upside of 23%.
The strong positioning in North India, specialising in cardiology and cardiac science, neuroscience, and oncology, has led the healthcare provider company to adopt a 'doctor-led' model of management, comprising over 1,100 doctors, which has led to high clinical excellence and created strong brand equity, the research house said in a Dec. 23 note.
Adding to this, Medanta's mature hospitals (called as GHL) comprising facilities of Gurugram, Indore and Ranchi accounted for 81% of its revenue and 77% of its total operational bed capacity in FY22, the note said.
The company has expanded its network to cities like Lucknow and Patna, which are underserved and have a dense population, Jefferies said.
"We expect a 17% CAGR in revenues over FY22-25E, led by ramp-up of Lucknow and Patna hospitals along with steady growth from mature hospitals", the research house said.
"Medanta's expansion into Central and East India along with a 550-bed expansion underway in Noida should de-risk it from any adverse policy decisions impacting Delhi/NCR region".
"Medanta's average revenue per occupied bed, or ARPOB, is second only to Max Healthcare's, and its Ebitda margins are largely in-line with those of other hospital groups," Jefferies said.
Adding to this the margins of healthcare provider company should remain largely stable despite a decline in contribution of high-margin cash patients as new hopitals ramp up, the note said.
"Medanta's ROCE should move upwards as asset utilization across hospital assets improves".
"We value Medanta at 20x FY25E EV/Ebitda, which is at a 9%/7% discount to Max/Apollo trading multiples, as we believe the company will bridge the current valuation gap with peers on strong Ebitda growth, a robust balance sheet, and an improving ROCE profile," Jefferies said.
High dependence on Chairperson Dr Naresh Trehan and increasing competition in Delhi-NCR region are the key downside risks, according to the research house.
Shares of the company rose 0.92% to Rs 450.45 apiece as of 10:38 a.m., compared to a 1% decline in the benchmark Nifty 50.
The one analyst tracking the company maintains a "buy" rating. The average 12-month consensus price target implies an upside of 22.20%.
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