All around the world, cardiovascular diseases are considered to be a leading cause of death. In India, they account for nearly 27% of the deaths. What’s alarming is that, these numbers are further increasing every year.
In fact, in recent years, India has been witnessing a low-teens growth in the number of heart attacks, every year. And while that is unfortunate, lucky for us, advancements in technology and healthcare have been resulting in better ways to tackle this problem.
One such pioneer is Global Hospitals, which goes by the brand Medanta. Prominent in North and East India, and started by Dr. Naresh Trehan, a celebrated cardiovascular and cardiothoracic surgeon, this hospital is renowned for performing complex surgeries such as valve replacements, heart transplants, and triple bypass surgeries.
And while it’s a sad reality that an increasing number of people are going through health issues, in a purely capitalistic world, it just translates into an opportunity.
Differentiated Approach
Founded just in 2009, Medanta is already operating 5 hospitals - in Gurugram, Indore, Ranchi, Lucknow and Patna, across which is has 2,800 beds. Its success so far can be attributed to several things it is doing differently:
Identify populated areas which are under-served
Super specialty approach, with key specialties in cardiology, neurology, oncology, digestive, orthopaedics and urology
Presence across the entire value chain - from OPD to tertiary care
High Growth
The differentiated approach has helped Medanta grow its revenue at a sustained 30% CAGR, over the last three years. This has been led by:
Capacity - Medanta expanded its bed capacity from 2,200 in FY21 to 2,800 in FY24, through the launch of 2 new hospitals (Lucknow and Patna)
Footfalls - Saw a 15% CAGR, led by the new facilities, strong brand recall and strength in OPD/IPD
ARPOB - Or Average Revenue Per Occupied Bed saw a growth of 5% as Medanta increased its focus on higher revenue treatments
Better Profitability
But along with high-growth, the hospital business is one marked with strong profitability. Over the last 3 years, EBITDA margins for Medanta have gone from 14% to 24%, the increase attributed to operating leverage.
Like in any other business, new assets (hospitals in this case) tend to be a drag on margins initially. As they mature, operating leverage kicks in, and improves margins. While 2 out of 5 hospitals are still maturing, Medanta can see further expansion.
Compared to other listed hospitals like Narayana and Fortis, Medanta still has room for further margin expansion over time in the form of - price hikes and higher occupancy rates.
Strong Cash Flows
The true beauty of the business model gets highlighted by strong cash generation, which is reflected in an impressive Cash Flow from Operations to EBITDA (CFO/EBITDA) conversion ratio of around 75% for the industry.
Medanta does an even better job than the industry, clocking a number of 90%.
With this, every year, Medanta generates Rs. 900 to Rs. 1,000 crore in cash flow from operations. As of the end of FY24, it had a total cash of ~Rs. 1,200 crore on its balance sheet.
The ability to generate copious amount of cash benefits Medanta in further expanding its business, that too without using external sources of funding.
Expanding Aggressively
This has put Medanta in a heavy expansion mode. The hospital chain plans to increase its bed capacity from the current 2,800 to nearly 4,100 by the end of FY27, an increase of 40% of capacity.
This expansion includes new facilities in Lucknow, Patna, and Noida, each adding hundreds of new beds. The expansion strategy is not merely about adding numbers but enhancing the capacity to handle more high-complex cases, thereby driving higher revenue and profitability.
This massive expansion is expected to continue feeding into the high growth that Medanta has seen in the past.
Summing it Up
Medanta has found its differentiator - to open highly specialised hospitals in crowded, but under-served markets.
Since its IPO in November 2022, Medanta’s stock price has risen more than 3x, a testament to its robust financial health and strategic growth.
Going ahead, as the hospital chain pumps Rs. 1,000 crore into expansion, it is likely to see a 20% revenue CAGR for the next 3 years, driven by:
Bed capacity going from 2,800 to 4,100
5% CAGR in ARBOP, driven by a focus on high-complexity specialties
An increase in international patient inflow, from 6% of total revenue right now to 8%-10% in the coming years
And all of this coupled with profitability expansion, strong cash flows and minimal debt! What else would an investor want?
So as you screen this stock for it to potentially get add to your wealth, do take a minute to think about your heart, and set out a course-correction agenda for your health as well!
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