Alpha | Narayana Hrudayalaya Ltd. – Equity Research Desk

March 31, 2024 . Equities Desk

Narayana Hrudayalaya Ltd. – Health for all. All for health.

Incorporated in 2000 and headquartered in Bengaluru, Narayana Hrudayalaya Ltd. (NH) is primarily engaged in business of rendering medical and healthcare services through its network of multi-speciality and super speciality hospitals spread across multiple locations in India and abroad.  The company owns and operates certain hospitals and also enters into management agreements with certain other hospitals in which it acquires the operating control. NH’s flagship unit Mazumdar Shah Medical Centre (MSMC), Bengaluru is India’s largest bone marrow transplant facility. The company’s cardiac care division is one of the largest paediatric cardiac programs in the nation. NH has expanded its footprint to international markets by establishing its healthcare business in Cayman Islands, British Overseas Territory. As of 31 December 2023, the company has 19 hospitals, 3 heart centres, 16 clinics and 1 dialysis centre and functions with operational bed capacity totalling 5,646. 

Products and Services

The company’s major areas of specialisation include cancer care, cardiac and gastro sciences, gynaecology, neurosciences and orthopaedics, renal sciences and transplants. 

Subsidiaries: As of FY23, the company has 14 Subsidiary Companies and 2 Associate Companies.

Key Rationale

  • Expansion plans – NH is establishing new facilities in Cayman, Bengaluru and Kolkata. The Cayman hospital is expected to be commissioned next year. With a focus to increase the market share, the company is looking for additional capacity options in Bangalore and Kolkata where it has better brand recognition but constrained at being in very few locations at the city. It is consistently looking for opportunities to grow in orthopaedic, spine and neuroscience.  The acquisition of orthopaedic hospital of Sparsh last year has aided in cost rationalisation and capacity transition in Bengaluru unit.     
  • Growth in Cayman – Cayman business achieved a growth of 8.5% YoY in operating revenue. The company achieved an 27% YoY improvement in profitability. The number of discharges increased by 26% during Q3FY24 YoY. However, the average revenue per patient declined YoY by 25%. Faster ramp up of the new radiation oncology block and multi-speciality hospital in Cayman Unit will be pivotal in the company’s international business. 
  • Q3FY24 – During the quarter, the company posted revenue of Rs. 1,204 crore, an increase of 7% compared to the Rs.1,128 crore of Q3FY23. EBITDA improved by 17% from Rs.254 crore of Q3FY23 to Rs.297 crore of the current quarter.  Net profit stood at Rs.188 crore, a growth of 22% from the Rs.154 crore of the corresponding quarter of previous year. EBITDA margin was at 25%. Average revenue per patient and patient footfall increased by 6% and 3% in the domestic business.
  • Financial performance – NH has generated a revenue and PAT CAGR of 15% and 63% over the period of 5 years (FY18-23). Average 5-year ROE & ROCE is around 18% and 16% for FY18-23 period. The company has strong balance sheet with a robust debt-to-equity ratio of 0.43.


Healthcare is one of India’s largest sectors, comprising of hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance and medical equipment. The industry is growing at a tremendous pace owing to its strengthening coverage, services and increasing expenditure by public as well as private players. The Pandemic has highlighted the need to improve the healthcare infrastructure, and as a result, the government has increased the budget allocation for healthcare by over 13% and announced the establishment of multiple medical and nursing colleges. Indian healthcare sector is cost-competitive compared to its peers in Asia and Western Europe. The low cost of medical services has resulted in a rise in the country’s medical tourism, attracting patients from across the world.

Growth Drivers

  • In the Union Budget 2023-24, the government allocated Rs. 89,155 crore (US$ 10.76 billion) to the Ministry of Health and Family Welfare (MoHFW).
  • The Indian government is planning to introduce a credit incentive programme worth Rs. 500 billion (US$ 6.8 billion) to boost the country’s healthcare infrastructure.
  • The hospital sector in India was valued at Rs.7,940.87 Bn in FY21 in terms of revenue & is expected to reach Rs.18,348.78 Bn by FY 2027, growing at a CAGR of 18.24%.
  • 100% FDI is allowed under the automatic route for greenfield projects in this industry.

Competitors: Max Healthcare Institute Ltd, Fortis Healthcare Ltd.

Peer Analysis

Among the above competitors NH has higher returns in both equity and capital employed indicating the company’s better efficiency in generating profits.


The company is focusing on payor mix rationalisation. The extent to which it must compromise on the client spectrum it can cater to as part of this is a key factor to lookout for. The company’s focus on better cash flow payor mix rationalisation has resulted in payor mix going up by 2% during the quarter but with a stagnation on revenue growth. The current quarter was affected by the seasonality impact of the healthcare industry, especially in the new hospitals in North and West India. It has secured license for the new insurance business. The company is trying to curb the manpower costs by improving efficiency of operations through strategically investing in digital initiatives.


The company’s focus on payor mix rationalisation, better cash flows, improving its presence geographically by expanding accessibility to patients, and digital initiatives and cost optimisations is expected to earn improved revenue and profitability margins for the company. We recommend a BUY rating in the stock with the target price (TP) of Rs. 1,559 41x FY25E EPS.


  • Regulatory risk – Healthcare is highly regulated, and changes in healthcare and associated policies can impact cash flows. For example, the company has a significant portion of manpower falling under minimum wage bracket. Any rise in minimum wage by the government will hike the manpower cost impacting margins and profitability.
  • Reimbursement delays – Changes in reimbursement policies from government and private payers can directly affect the cash flow. Reduced reimbursement rates or delays in payments can result in suboptimal payor mix eventually resulting in financial challenges.

Recap of our previous recommendations (As on 28 Mar 2024)

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