Edelweiss Wealth Research Max Healthcare Institute
Praveen Sahay Research Analyst [email protected] Date: May 3, 2021
Max Healthcare Institute A sustainable growth story Max Healthcare Institute Ltd. (MHI) is one of India’s leading hospital chains with 16 facilities Praveen Sahay and ~3,400 beds. MHI was formed after the merger of Max Healthcare and Radiant (effective Research Analyst 1st Jun’20). The company’s major shareholders are Kayak Investments – an affiliate of KKR [email protected] (~49%) and Mr. Abhay Soi – MHI’s CMD (22%). Besides the core hospital business, MHI has also launched two related businesses that are run as separate business units (SBUs) – Max@Home (providing preventive and pre/post-hospitalization care at home) and MaxLab (offering diagnostics services). We believe MHI meets all our key investment considerations – it has a CMP: INR 227 superior case mix, brand power, quality of care, cost efficiencies and presence in premium Rating: Tactical BUY markets. We recommend a ‘Tactical BUY’ on the stock with a target price of INR293/share. Target Price: INR 293 Presence in premium markets with superior case mix leading to higher ARPOB Upside: 29% MHI is focused on the premium markets in India, namely Delhi NCR and Mumbai. The two metros deliver the highest average revenue per occupied bed (ARPOB) and are the most profitable markets in the country (72% of MHI’s beds are in Delhi NCR) due to high (a) demand-supply mismatch, (b) per capita income and (c) insurance penetration. MHI enjoys higher ARPOB compared to peers largely due to higher share of operational beds in metros/northern urban areas and a superior case mix. Moreover, MHI has the largest bone marrow transplant (BTM) Bloomberg: MAXHEALTH:IN programme in Asia and the largest Oncology programme in North India. Thus, MHI is further 52-week expected to generate higher ARPOBs on account of such complex treatments. 97 / 239 range (INR): Long-term structural cost-savings programme to boost margins further MHI’s focus on cost-saving initiatives and strategic capital management activities helped it to Share in issue (cr): 97 achieve operational efficiency and stable earnings. The company’s operating matrix too has M cap (INR cr): 21,145 improved QoQ – it recorded record-high quarterly EBITDA margin in Q3FY21, mainly due to its long-term structural cost savings programme. Thus, we believe MHI is geared up to achieve Promoter 75.25 industry-leading margins by FY23E, which coupled with higher growth would give management Holding (%) an opportunity to unlock synergies.
Expansion plan to help MHI sustain leadership position in premium markets Hospital availability in India is weak compared to the global average. Therefore, private hospital chains in India are more focused on increasing their reach and garnering volumes (patients) in the country. MHI has the means to execute brownfield capacity expansion in premium locations of South Delhi and Mumbai with minimal capex. This is a unique opportunity for MHI to expand capacity in the country without compromising its RoCE.
Outlook and valuation; Recommend Tactical BUY with 29% upside potential MHI’s new management has successfully addressed challenges that were earlier plaguing the company like high debt and bloated costs. Under the leadership of Chairman, Mr. Abhay Soi, (who has skin in the game with ~22% stake in MHI), the company has witnessed a spectacular turnaround. In less than two years, MHI’s EBITDA margin has crossed the 23% mark (for many years, it was languishing in single digits). Further, management is also focused on cost rationalisation, efficient utilisation of facilities, lighter balance sheet and expansion in existing geographies. We believe MHI deserves superior valuations because of its presence in premium markets and excellent business mix compared to peers. The stock is a ‘Tactical BUY’ with a target price of INR293/share (we have considered an average of DCF and EV/EBITDA to arrive at our blended target price).
Year to March (INR Cr) FY19 FY20 FY21E FY22E FY23E Revenue 2,671 4,026 3,718 4,429 5,314
YoY growth (%) 2.0 50.7 (7.7) 19.1 20.0 EBITDA 224 587 629 879 1,108
EBITDA margin (%) 8.4 14.6 16.9 19.8 20.8
Profit after tax 224 151 -5 443 702 YoY growth (%) 0.9 (13.4) 26.9 80.0 58.5
EPS (INR) 4.2 3.6 2.7 4.6 7.3 ROACE (%) 13.3 14.9 8.3 9.9 13.0
P/E (x) 54.4 62.9 83.4 49.5 31.2 Date: May 03, 2021 EV/EBITDA (x) 56.2 22.0 35.6 26.7 20.9
Edelweiss Wealth Research 1
Max Healthcare Institute Index
Table of Contents Page No. Structure ...... 3
Focus Charts ...... 4
I. Presence in premium markets with superior case mix leading to higher ARPOB ...... 7
II. Long-term structural cost-savings programme to boost margins further ...... 13
III. Expansion plan to help MHI sustain leadership position in premium markets ...... 16
IV. Rising insurance penetration in India to drive utilisation for hospitals ...... 22
V. Growing medical tourism in India to boost volumes for quality-focused players like MHI ...... 25
VI. Focused on investing and scaling MaxLab and Max@Home for future growth ...... 29
VII. GoI’s healthcare initiatives creating new markets for hospital chains...... 31
Outlook and valuation ...... 33
Risks ...... 36
Company Description ...... 37
Management Profile ...... 38
Timeline ...... 40
Financial Analysis ...... 41
Financials ...... 47
Annexure ...... 50
Edelweiss Wealth Research 2
Max Healthcare Institute Structure
Over FY20-23E, MHI is expected to clock ~10% revenue CAGR, led by (a) expansion in operational beds, (b) consistently high ARPOB, and (c) increased focus on other segments such as diagnostics. Further, the company should deliver 23.5% EBITDA CAGR along with margin expansion of ~620bps due to healthy revenue growth, cost saving measures and operational efficiency. PAT CAGR is expected at ~67% with healthy RoCE of ~13%.
MHI operates in India’s most premium MHI is focused on cost-saving initiatives The availability of brownfield markets (Mumbai and NCR), which deliver and strategic capital management capacity expansion in premium superior ARPOB in the country due to high activities, which has led to operational locations of South Delhi and (a) demand-supply mismatch, (b) per efficiencies and stable earnings. MHI is Mumbai with minimal capex, capita income, and (c) insurance expected to achieve industry leading provides MHI with a unique penetration. MHI enjoys higher ARPOB as margins by FY23, which coupled with opportunity to expand capacity compared to peers mainly due to (a) higher higher growth would give management without compromising its RoCE. share of operational beds in premium an opportunity to unlock synergies. markets and (b) superior case mix.
(INR cr) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY23E CMP/Target Revenue 4,026 3,718 4,429 5,314 RoCE (%) 14.9 8.3 9.9 13.0 EV/EBITDA 25.6x 293 Debt-to- EBITDA 587 629 879 1,108 0.3 0.4 0.4 0.3 Equity ratio EBITDA margin (%) 14.6 16.9 19.8 20.8 PAT margin (%) 3.7 -0.1 10.0 13.2
At target price, FY23E EV/EBITDA is At CMP, FY23E EV/EBITDA is 21x FY23E RoCE of 13% 25.6x
The stock is a ‘Tactical BUY’ with a target price of INR293/share.
Upside of 29%
Edelweiss Wealth Research 3
Max Healthcare Institute Focus Charts
Story in a Nutshell
Exhibit 1: Bed density per 10,000 people across countries Exhibit 2: Premium market expanding with rising urban population
India 14 Malaysia 19 Brazil 21 Thailand 21 Global Median: 29 Beds 40% United Kingdom 25 35% 31% 33% 26% 28% Vietnam 26 23% 18% 20% United States of America 29 China 43 Russian Federation 81 1960 1970 1980 1990 2000 2010 2015 2020P 2030P
0 20 40 60 80 100 Share of urban population (%)
Exhibit 3 (A): Low density of quality beds in large cities…
Total beds per 000' Population Quality beds per 000' Population
3.6 0.8 0.8 3.1 2.5 0.6 2.2
1.9 0.4 0.4
Chennai
Mumbai
Chennai
Mumbai
Delhi NCR Delhi
Bengaluru
Delhi NCR Delhi
Bengaluru Hyderabad Hyderabad Exibit 3 (B): …leading to higher ARPOB for large hospital chains
ARPOB (INR '000)
50 46 45 42
33
Chennai
Mumbai
Delhi NCR Delhi Bengaluru Hyderabad Source: Edelweiss Wealth Research
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Max Healthcare Institute Focus Charts
Exhibit 4: MHI leader in NCR and North India (bed capacity) Exhibit 5: Delhi-NCR receives 45% of medical tourists diversify the client base benefitting
Total beds (in North India) Others, 11% 3,043 Hyderabad, 7% 2,339 2,200
1,500 1,340 1,250 Mumbai, 1,100 1,000 12% 800 Delhi-NCR, 425 45%
Chennai,
Ivy 25%
Max
Park
Fortis
Metro
Nayati
Kailash
Medeor Institute
Medanta
Source: Edelweiss Wealth Research
Exhibit 6: MHI has highest ARPOB amongst listed peers… 50,000 46,358 43,443 45,000 38,807 40,000 35,000 32,400 29,560 28,926 30,000 25,573 25,000 20,000 15,000 10,000 5,000 0 Apollo Fortis Max NH HCG Shalby Aster DM (India FY16 FY18 FY20 Hospitals only) Source: Edelweiss Wealth Research
Exhibit 7: MHI’s bed build-up potential; focus on NCR and Mumbai 5676 100 85 200 600 200 1100
3391
Bed capacity Saket Nanavati BLK Patparganj Shalimar Mohali Potential bed (FY20) Complex Bagh capacity
Source: Edelweiss Wealth Research
Edelweiss Wealth Research 5
Max Healthcare Institute Focus Charts
Exhibit 8: MHI’s margin improvement through cost optimisation
Source: Edelweiss Wealth Research
Exhibit 9: MHI - Revenue and EBITDA margin Exhibit 10: MHI Premium valuation to continue 6,000 25% EV/EBITDA Band - Max Healthcare Institute Ltd. 25,000 5,000 20% 20,000 4,000 15% 15,000 3,000 10% 10,000 2,000 5,000 1,000 5%
0 0% 21-Jan-21
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E 04-Jan-21
11-Oct-20 28-Oct-20
07-Sep-20 24-Sep-20 07-Feb-21 24-Feb-21
01-Dec-20 18-Dec-20
21-Aug-20
14-Nov-20
13-Mar-21 30-Mar-21
Revenues (INR Cr) EBITDA Margin (%)(RHS) EV 16x 20x 24x 28x
Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
I. Presence in premium markets with superior case mix leading to higher ARPOB MHI’s focus is on the premium markets in India, mainly Delhi NCR and Mumbai, where quality healthcare services are in great demand. As MHI’s core market comprises of India’s urban population, which is continuously rising, it has planned further expansion in its NCR and Mumbai facilities. Currently, NCR accounts for 72% of MHI’s bed capacity.
NCR accounts for India’s urban population is the second largest in the world with 461mn urban dwellers while China 72% of MHI’s bed with 837mn urban dwellers (20% of the global total) has the largest urban population. The share of capacity India's urban population in relation to its total population rose ~31% in 2010, and this trend is likely to continue (according to a United Nations report, nearly 40% of India’s population will live in urban areas by CY30).
Also, upcountry patients in search of quality healthcare facilities and complex high-end procedures are driving occupancies for multi-specialized hospitals in metros and Tier-I cities. For instance, MHI draws 30% patients from upcountry locations, which consists of towns beyond the city of its operations. Also, a disproportionately large number of these upcountry patients require complex high-end procedures, which drives up ARPOB for tertiary care hospitals.
Exhibit 11: Premium market expanding with rising urban Exhibit 12: Rising income levels to drive premium healthcare population services
52.0%
24.0% 40% 35% 31% 33% 26% 28% 23% 18% 20% 7.5%
1960 1970 1980 1990 2000 2010 2015 2020P 2030P 2005 2018 2030E
Share of urban population (%) High & Upper mid Income profile in India (%)
Source: World Urbanization Prospects – The 2018 Revision, United Nations, World Economic Forum, Edelweiss Wealth Research
Exhibit 13: MHI bed distribution – focus on Delhi NCR Exhibit 14: MHI – leader in NCR and North India (bed capacity) MHI - bed distribution (%) as at Q3FY21 Total beds (in North India)
Mumbai, 3,043 10% 2,339 2,200 North 1,500 India, 18% 1,340 1,250 1,100 1,000 800 425
NCR, 72% Ivy
Max
Park
Fortis
Metro
Nayati
Kailash
Medeor Institute Medanta Source: Company, Edelweiss Wealth Research
Edelweiss Wealth Research 7
Max Healthcare Institute Investment Hypothesis
Multiple hospital chains operate in North India; however, MHI has the highest number of operational beds in the region (mainly across NCR), which provides it an edge over peers.
Exhibit 15: Competition in North India Exhibit 16: Bed capacity of listed players in metro cities
Shalby Ltd 38%
4,126 Narayana Hrudayalaya Ltd 68%
638 Max Healthcare Institute 82% 1,048 2,176 3,043 1,054 Healthcare Global Enterprises Ltd 33%
543 1,132 368 328 Fortis Healthcare Ltd 76% Fortis Max Apollo
Apollo Hospitals Enterprises Ltd 58%
East West North South
Source: Company, Edelweiss Wealth Research
Delhi and Mumbai not only have the highest ARPOB but are also the most profitable hospital markets in India (MHI’s 72% beds are in NCR), led by high (a) demand-supply mismatch, (b) per capita income, and (c) insurance penetration.
Exhibit 17 (A): Low density of quality beds in large cities…
Total beds per 000' Population Quality beds per 000' Population
3.6 0.8 0.8 3.1 0.6 2.5 2.2
1.9 0.4 0.4
Chennai
Mumbai
Chennai
Mumbai
Delhi NCR Delhi
Bengaluru
Hyderabad
Delhi NCR Delhi Bengaluru Hyderabad Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
Exhibit 18 (B): …leading to higher ARPOB for large hospital chains ARPOB (INR '000)
50 45 46 42
33
Chennai
Mumbai
Delhi NCR Delhi Bengaluru Hyderabad Source: Company, Edelweiss Wealth Research
MHI enjoys higher ARPOB as compared to peers mainly due to (a) higher share of operational beds in metro cities and northern urban areas, and (b) superior case mix. MHI has the largest bone marrow transplant (BTM) programme in Asia and the largest Oncology programme in North India. Thus, MHI is expected to generate higher ARPOB backed by such complex treatments.
Exhibit 19: MHI has highest ARPOB amongst listed peers… 50,000 46,358 43,443 38,807 40,000 32,400 29,560 28,926 30,000 25,573
20,000
10,000
0 Apollo Fortis Max NH HCG Shalby Aster DM (India MHI has the Hospitals only) highest ARPOB FY16 FY18 FY20 Source: Company, Edelweiss Wealth Research amongst listed peers Exhibit 20: …owing to geographical presence (higher proportion of MHI’s beds are in Delhi/Mumbai, which boast of highest ARPOB in India)
Gross ARPOB 51 44 42 38 28 (INR '000) 85% 72% 61% 54% % of operating beds in metro 18%
Max Healthcare Fortis (Hospital Apollo Hospitals Manipal Hospitals Aster Hospital India Business) (Hospital Business)
Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
Exhibit 21: Hospital chains are driving quality surge in North India
NABH accredited hospitals in North India
253
166
60
2015 2017 2020
Source: NABH, Edelweiss Wealth Research MHI’s superior case mix drives higher ARPOB Tertiary and quaternary care services for highly specialised categories or rare conditions (provided as in-patient) are only offered by a few hospitals like MHI. A competent hospital offering comprehensive care with exemplary service ranks relatively higher among patients, which in turn drives its ARPOB. A hospital should also have a diverse suite of services that caters to higher level MHI – clinical of specialty care. Many factors like availability of technology and doctors carrying out specialized focus centre of procedures are usually found only at large centres of excellence. The volume for these compex excellence services are driven to a large extent by referrals. Further, a stable clinical team ensures steady patient inflows. Also, a hospital can charge a premium if it has an experienced team with senior clinicians. Case mix expertise also serves as a sustainable model. Such a comprehensive structure is difficult to replicate, and therefore, tertiary-care chains like MHI that are focused on creating centres of excellence, should eventually emerge as sustainable businesses.
Exhibit 22: Centre of excellence – ortho offering by MHI Max’s Orthopaedics treatment offerings Knee replacement surgery Disc replacement surgery Revision knee replacement surgery Arthritis treatment Spinal fractures Back pain surgery Disc diseases Source: Company, Edelweiss Wealth Research
Exhibit 23: Complex treatments drive higher ARPOBs as well Max Healthcare Radiant Life Care Total Transplant 617 261 878 Robotics 289 377 666 Complex Surgeries Cardiac 25,753 5,718 31,471 performed in FY20 Neuro 7,158 1,388 8,546 Ortho 15,340 4,965 20,305 Onco 5,543 2,250 7,793 Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
Exhibit 24: Knee replacement (surgeries) – the big opportunity
Exhibit 25: The cardiac growth story in India (surgeries)
‘Centre of Excellence’ facilities has resulted in higher/premium OPD/IPD fees for MHI A wide range in consultation fees can be observed across private NABH accredited hospitals. Differences in doctors’ specialisation leads to variation in consultation fee among hospitals, with prices depending on affordability of the targeted patient population.
Exhibit 26: Premium consultation fees across MHI’s hospitals
Consultation fees across NABH hospitals (INR) MHI enjoys 1500 1500 premium 1400 consultation fees 1200 1200 1200 1000 1000 900 700 600 500 500
150
Felix - Noida Felix
Max - Dehradun - Max
Cygnus - Nangloi Cygnus
Lilavati - Mumbai Lilavati
Medanta Lucknow - Medanta
Max - Greater Noida Greater - Max
Max Patparganj, Delhi Patparganj, Max
Fortis - Flagship Gurgaon Flagship - Fortis
Max Shalimar Bagh Delhi Bagh Shalimar Max
Apollo - Flagship Chennai Flagship - Apollo
Apollo Gleneagles-Kolkata Apollo
Max - Flagship Saket, Delhi Saket, Flagship - Max Medanta - Flagship Gurgaon Flagship - Medanta Max Smart Saket, New Delhi New Saket, Smart Max Source: Practo, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
Superior case mix helping in faster recovery post lockdown and should benefit MHI During the nationwide lockdown in India (CY20) on account of the COVID-19 outbreak, restricted Higher contribution patient movement and fear of infections impacted hospital operations significantly. Proportion of comes from planned procedures plunged by ~80% while unplanned procedures declined by ~66%. speciality However, post lockdown, surgeries related to Oncology, Dialysis, Cardiac and Neuro are recovering treatments faster than other segments. Additionally, leading private hospitals are witnessing growth in the Gynaecology and Obstetrics, particularly due to local hospitals/nursing homes shutting down or becoming non-functional due to the Coronavirus outbreak.
Exhibit 27: MHI - Specialty Profile
Others, Oncology*, Others, 9.70% Oncology*, 6.90% 20.00% 21.00% Pulmonology Pulmonology, , 10.50% 3.50% OBGY and pediatrics, OBGY and 7.00% pediatrics, 4.50% MAS and MAS and general Cardiac Cardiac general surgery, sciences, sciences, 9MFY21 surgery, 5.40% 9MFY20 3.80% 10.00% 12.50% Internal medicine, Internal 8.10% medicine, Orthopedics, 20.20% 5.00% LTP, 2.80% Neuro Orthopedics, sciences, Renal sciences, Neuro 11.00% Renal 8.80% 9.00% sciences, LTP, 2.20% sciences, 10.00% 8.10% Source: Company, Edelweiss Wealth Research Note: Excludes OP and day care revenue, revenue from SBUs and other operating income * Includes chemotherapy and radiotherapy
Exhibit 28: Impact of the pandemic on different business models
Faster recovery post lockdown for value-centric hospitals
Source: Company, Edelweiss Wealth Research
Edelweiss Wealth Research 12
Max Healthcare Institute Investment Hypothesis
II. Long-term structural cost-savings programme to boost margins further MHI’s focus on cost-saving initiatives and strategic capital management activities helped the company to achieve operational efficiency and stable earnings. The company’s fixed costs (including MHIL consolidated and Radiant) stood at 57%/59%/59% of total expenses in FY18/FY19/ FY20. Additionally, the company’s operating matrix has improved QoQ – it recorded record high quarterly MHI’s EBITDA EBITDA in Q3FY21, led by increase in footfalls of OPD patients, higher IPD occupancy, a rise in margin doubled due surgeries in key specialities and slightly improved ARPOB due to Covid-19 patients. The significant to its cost savings EBITDA improvement was also underpinned by the long-term structural cost savings program programme initiated in FY20, which was followed by additional initiatives in FY21. Thus, we believe MHI is geared up to achieve industry leading margins by FY23, which coupled with higher growth would give management an opportunity to unlock synergies. However, the increasing number of Covid-19 cases in regions where MHI has concentrated presence will impact its profitability.
Exhibit 29: MHI is expected to have industry leading margins by FY23
MHI EBITDA margin (%) Hospital EBITDA per Ops Beds - MHI superior 2.0 21% 20% 1.5 17% 15% 1.0 12% 10% cr) (INR 8% 8% 0.5
- FY18 FY19 FY20 Apollo Fortis FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Max NH (excludes Heart centers) HCG (excludes Milann) Shalby Source: Company, Edelweiss Wealth Research
MHI has undertaken the following initiatives to improve operating margins…
Shutdown of unviable unit (Greater Noida), Realignment of roles and responsibilities, leading to personnel cost optimization, Reduction in corporate overheads, and Renegotiation of contracts across material and other indirect costs.
…resulting in EBITDA expanding by 620bps in FY20 ~INR220cr worth of initiatives were implemented with ~INR140cr flowing into EBITDA in FY20. Remaining ~INR80cr would be banked in FY21, and Increased high-end tertiary/quaternary procedures with hiring of new senior clinical teams.
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Max Healthcare Institute Investment Hypothesis
Exhibit 30: MHI’s turnaround – remarkable margin improvement post transaction in Jun’19
19.2%
15.4% 16.2% 16.8% 11.9% 11.6%
Cost saving Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 initiatives improved Actual EBITDA Margin Normalisation impact operating margins Source: Company, Edelweiss Wealth Research
Exhibit 31: MHI’s margin improvement through cost optimisation
Source: Company, Edelweiss Wealth Research
Sustainable initiatives drove MHI’s margin improvement; of this, only a part was captured in FY20.
Edelweiss Wealth Research 14
Max Healthcare Institute Investment Hypothesis
In FY21, further EBITDA expansion initiatives were undertaken… MHI undertook a performance improvement program in FY21 of over INR100cr, which led to an improvement in EBITDA over 9MFY21.
Exhibit 32: MHI’s operational improvement
Gross revenue improved…(INR cr) …with rise in inpatient occupancy rate
76.2% 1,160 +3.8%pt 1,094 +24.4% +6.0% 932 72.4% 67.8% +8.4%pt
Q3FY20 Q2FY21 Q3FY21 Q3FY20 Q2FY21 Q3FY21
EBITDA margin expanded… (INR cr) …with improvement in EBITDA per bed (INR lacs)
253 40.7
160 +76.5% +57.9% 27.1 +56.5% +50.3% 143 26.0
Q3FY20 Q2FY21 Q3FY21 Q3FY20 Q2FY21 Q3FY21
Improvement in ARPOB level… …ALOS remaining at same level
51.2 5.4 5.4 50.8 46.4 4.3 +1.1 +0.9% days +10.3%
Q3FY20 Q2FY21 Q3FY21 Q3FY20 Q2FY21 Q3FY21
Source: Company, Edelweiss Wealth Research
Edelweiss Wealth Research 15
Max Healthcare Institute Investment Hypothesis
III. Expansion plan to help MHI sustain leadership position in premium markets
(A) Dearth of hospital beds in India – an opportunity for hospital chains Hospital availability in India is weak compared to the global average. In India, available bed per 10,000 people is ~14 v/s the global median of 29 beds. India needs to increase its bed capacity (by about 2.1mn beds) to reach the global median (almost 4.0mn beds). The total number of government beds in India are estimated at ~0.7mn and private beds at ~1.2mn (62% of total). The listed large private hospital chains account for just 1.7% of total beds and ~2.7% of total private beds, provides huge opportunity for private hospital chains like MHI.
Exhibit 33: Hospital bed density per 10,000 people across countries
India 14 Malaysia 19 Brazil 21 Thailand 21 Global Median: 29 Beds United Kingdom 25 Vietnam 26 United States of America 29 China 43 Dearth of hospital Russian Federation 81 beds in country 0 10 20 30 40 50 60 70 80 90 an opportunity for hospital chains Source: Industry, Edelweiss Wealth Research
Exhibit 34: Expect private hospitals to increase market share India - Total Hospital Beds (1,899,228)
Government Hospital Beds Private Hospital Beds 713,986 (38%) 1,185,242 (62%)
Major Hospital Chain 32,020 (1.7%)
Source: CDDEP, Edelweiss Wealth Research
Exhibit 35: Market size of private hospitals is expected to reach ~USD120bn
120 +17% 81
36 22
2009 2012 2015 2020
Source: CDDEP, Edelweiss Wealth Research
Edelweiss Wealth Research 16
Max Healthcare Institute Investment Hypothesis
(B) Increasing lifestyle diseases and NCDs have pushed up demand for quality beds The need for hospital beds in India is rising due to lifestyle-related illnesses and non-communicable diseases (NCDs) increasing at a rapid pace in the country over the past few years. The contribution of NCDs to the disease profile has risen from 30% in 1990 to 55% in 2016. Statistics show that these illnesses accounted for nearly 62% of all deaths in India in 2016. Thus, the deficit in quality hospital beds in India is an opportunity for private hospital chains.
Exhibit 36: Disease epidemiology shifting towards lifestyle diseases Incidence of NCDs in ~7cr people screened since 2016 2015
2010
Rising lifestyle- Exhibit 37: NCDs to cause ~73% of deaths by 2030 related illnesses and non- 11% 11% communicable diseases (NCDs) in 62% India driving 73% expansion in hospital beds 28% 16%
2016 2030E
Communicable diseases NCDs Others
Source: Industry, Company, Edelweiss Wealth Research
Edelweiss Wealth Research 17
Max Healthcare Institute Investment Hypothesis
(C) Demand for quality beds to keep hospital chains in expansion mode… Private hospital chains in India are more focused on increasing their reach and volumes (patients) – most significant growth drivers. Hospital chains in India have been in expansion mode for many decades, which has resulted in their RoCE languishing at low levels. We believe RoCE of hospital business will remain restricted as hospital chains will continue with their expansion plans. This will keep prices in check as well, which in turn would support higher volume growth. We believe hospital RoCEs would only improve with improvement in pricing and with low capex per bed in the premium market. Continuous expansion in hospital Exhibit 38: Despite higher ARPOBs, top hospital chains earn lower RoCE due to continuous business restricting expansion returns
Source: Company, Edelweiss Wealth Research
Exhibit 39: Apollo’s RoCE fluctuation with capex cycle
1,000 14% 16% 13% 13% 12% 12% 12% 12% 14% 800 10% 11% 12% 10% 9% 9% 10% 600 7% 7% 8% 400 6% 4% 200 2% - 0% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Capex (INR cr) ROCE (%) (RHS)
Source: Industry, Company, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
(D) MHI - Benefits to accrue from healthy expansion plan MHI has a valuable land bank of approximately 7.2 acres in Saket, South Delhi. Additionally, it has statutory approvals for construction to expand its partner healthcare facility, Max Smart Super Speciality Hospital, Saket. Similarly, MHI has another land bank of 3.9 acres in Juhu, Mumbai, available for expanding one of MHI’s managed healthcare facilities, Dr. Balabhai Nanavati Hospital; MHI is in the process of receiving statutory approvals for the same.
The availability of brownfield capacity expansion in premium locations of South Delhi and Mumbai, provides MHI a platform to build ~1,700 beds in Max Smart Super Speciality Hospital, Saket and Dr. Balabhai Nanavati Hospital, Mumbai. This coupled with the possibility of adding ~600 beds by utilizing floor space in existing facilities can take MHI’s total brownfield expansion potential to ~2,300 beds across its network facilities. These land banks provide expansion opportunity to MHI Brownfield with lower capex, faster time to market and without any ramp-up period, enabling it to achieve expansion in higher return on incremental capital employed. premium markets MHI aims to utilise the available space within its existing facilities and build more hospitals over the on the anvil next 4-5 years. The company also plans to add incremental beds as extensions or additional wings
in some of its existing network healthcare facilities. In general, capex of INR1-1.2cr/bed is required in premium metros like Delhi and Mumbai; these cities also generate higher ARPOB compared to other geographies. However, with the brownfield expansion potential, MHI expects to incur capex of only INR40-50lacs/bed. This will lead to higher return on equity in the future.
Exhibit 40: MHI’s bed build-up potential; focus on NCR and Mumbai 5676 100 85 200 600 200 1100
3391
Bed capacity Saket Nanavati BLK Patparganj Shalimar Mohali Potential bed (FY20) Complex Bagh capacity
Source: Company, Edelweiss Wealth Research
Exhibit 41: MHI’s capex plan
MHI - Capex (INR cr) 500
400
300
200
100
- FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Investment Hypothesis
Exhibit 42: MHI’s RoCE back to normal level
14.3% 14.9% 14.6% 14.9% 13.3% 13.3% 11.1%
8.4% 6.7%
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company, Edelweiss Wealth Research
Most Indian hospital players have entered a consolidation phase after expanding operations significantly during FY12-18. While players are focused on increasing returns from existing assets, they are also looking to add capacities selectively through brownfield expansion rather than the capital-intensive greenfield expansion. MHI is ahead of its peers in brownfield expansion in the premium market. Exhibit 43: Expansion plans of peers
Beds in pipeline MHI’s bed 2300 expansion 1510 pipeline is most 1300 robust v/s peers
288 50
MAX ASTERDM FORH SHALBY NARH
Source: Industry, Company, Edelweiss Wealth Research
Exhibit 44: Capex trend has slowed for most players FY18 FY19 FY20 H1FY21 Major listed 7.6 players have 6.2 entered a 5.6 5.2 consolidation phase 2.9 INR billion INR 2.1 2.3 1.8 1.8 1.7 1.4 1.4 1.6 1.3 1.1 1.3 0.8 1.0 0.2 0.3
APHS FORH HCG MAXH NARH Source: Industry, Company, Edelweiss Wealth Research
Edelweiss Wealth Research 20
Max Healthcare Institute Investment Hypothesis
Case Study – Apollo Hospitals’ continuous expansion Hospital chains should have a focused approach towards expansion, and at the same time, maintain superior RoCE with healthy volume growth. For instance, Apollo Hospitals’ (India’s largest hospital chain) 10-year data clearly indicates its healthy investment cycle.
Exhibit 45: APHS’ expansion constinues Exhibit 46: APHS – RoCE improves with bed maturity
8000 2,000 2,000 25% 7000 20% 6000 1,500 1,500 5000 15% 4000 1,000 1,000 3000 10% 500 2000 500 5% 1000
0 - - 0%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Operating Beds Capex (INR cr) Capex (INR cr) ROCE (%)
Source: Industry, Company, Edelweiss Wealth Research
Exhibit 47: APHS Mcap move with RoCE 50,000 25% 45,000 21% 40,000 20% 35,000 54% CAGR 14% 30,000 13% 13% 15% 12% 12% 12% 12% 25,000 10% 11% 10% 9% 28% 9% 8% 20,000 10% CAGR 7% 7% 15,000 47% 10,000 5% 5,000 - 0% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Market Capitalisation ROCE (%) (RHS)
Source: Industry, Company, Edelweiss Wealth Research
Edelweiss Wealth Research 21
Max Healthcare Institute Investment Hypothesis
IV. Rising insurance penetration in India to drive utilisation for hospitals According to the Insurance Regulatory and Development Authority (IRDA), nearly 472mn people in India have health insurance coverage (as at FY19), as against 288mn people (as at FY15). Notwithstanding this robust growth, penetration of health insurance in the country stands at just 35-36% with private health insurance in India remaining hugely under-penetrated. A mere 8% of India’s population is covered in group and individual policies. Despite a low base, private health insurance coverage registered 12% CAGR over FY13-19. However, demand for health insurance is rising and we believe it would accelerate in the coming years due to increasing middle class population and the rising burden of new diseases. In India, out-of-pocket (OOP) spending is nearly at 62.6% of total health expenditure (global average is 20.5%). Most Indians largely depend on borrowings and household savings for funding healthcare expenditure. This provides tremendous MHI derives ~26% opportunity for improvement in health insurance penetration. revenue from TPA and corporate In FY20, Max Healthcare derived 25.7% of its revenue from TPAs and corporate patients (occupied patients 28.1% of operating beds). Therefore, rise in private insurance is good for MHI as it drives increasing utilisation.
Exhibit 48: Scope for improvement – low penetration of health insurance
600 37% 36% 40% 34% 35% 500 28% 30% 400 23% 25% 17% 17% 17% 300 359 357 20% 335 (mn nos) (mn 273 15% 200 214 10% 161 149 155 100 89 73 57 71 5% 30 34 34 48 0 21 24 21 25 29 32 33 42 0% 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Individual business Group (other than Govt business) Government sponsered schemes Coverage (RHS)
Source: Industry, Edelweiss Wealth Research
Exhibit 49: Population covered under health insurance
11.4% 12.5% 8.8% 8.0% 7.0% 7.0% 9.0% 15.9% 16.0% 19.0% 15.0% 16.5% 15.6% 16.8%
72.1% 71.8% 74.4% 76.1% 77.0% 74.0% 76.0%
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Government Sponsered Scheme including RSBY Group (Other than Govt Business) Individual Business
Source: Edelweiss Wealth Research
Edelweiss Wealth Research 22
Max Healthcare Institute Investment Hypothesis
Exhibit 50: Pradhan Mantri Jan Arogya Yojana provides demand impetus
Government’s focus on health insurance
Source: MoHFW, Edelweiss Wealth Research
Exhibit 51: Insurers’ remain brand neutral while growing their hospital network
12,000
10,000
8,000
6,000
Insurance 4,000 companies are 2,000 growing their -
hospital network
Tata AIG Tata
HDFC Ergo HDFC
Star Health Star
Raheja QBE Raheja
SBI General SBI
Magma HDI Magma
Bharati AXA Bharati
ICICI Lombard ICICI
Future Generali Future
Reliance General Reliance
Edelweiss Health Edelweiss
Max Bupa Health Bupa Max
Aditya Birla Health Birla Aditya
IFFCO Tokio General Tokio IFFCO
Bajaj Allianz General Allianz Bajaj
Manipal Cigna Health Cigna Manipal
Care (Religare) Health (Religare) Care
Digit Health Insurance Health Digit
Royal Sundaram General Sundaram Royal Universal Sompo General Sompo Universal
The New India Assurance Health Assurance India New The Source: Edelweiss Wealth Research
Edelweiss Wealth Research 23
Max Healthcare Institute Investment Hypothesis
Exhibit 52: Health premiums grew faster than lives insured
23% 24% 24% 21% 15% 21% 18% 19%
20% 20% 21% 16% 14% 5%
-6%
-22%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Health insurance coverage growth (% YoY) Health insurance premium growth (% YoY)
Source: Edelweiss Wealth Research
Over the last several months, there has been a surge in claims due to the Covid-19 pandemic, resulting in a number of insurers entering into strategic partnerships with established companies to offer Coranavirus insurance plans. New policies floated cover the cost of PPE kits along with other expenses incurred during the Covid treatment. This helps growth of the healthcare services sector.
Edelweiss Wealth Research 24
Max Healthcare Institute Investment Hypothesis
V. Growing medical tourism in India to boost volumes for quality-focused players like MHI Despite infrastructure constraints, India’s healthcare sector offers specialized surgeries with excellent success rates at prices that are considerably lower than that in other countries. Exhibit 58 shows the differential cost of various surgeries in different countries. According to the latest data Medical tourists available with the Ministry of Tourism, of the total foreign tourist arrivals in India, the proportion of account for >6% medical tourists has grown from 2.2% (0.11mn tourists) in 2009 to 6.4% (0.6mn tourists) in 2019. of tourist arrival in India India has emerged as the fifth most favoured destination for patients who cross borders to seek medical treatment. Healthcare costs in developed countries is relatively higher than that in India. Presence of technologically advanced hospitals with specialized doctors and facilities, and easily available e-medical visas makes India an attractive destination for medical tourism.
In 2017, India ranked 7th in the top-20 wellness tourism markets globally and 3rd in the top-10 wellness tourism markets in Asia-Pacific.
Medical tourists We believe MHI’s super-speciality hospitals that offer a wide range of healthcare services will be a account for ~15% significant beneficiary of the growth in India’s medical tourism. MHI’s focus on international of revenue for patients should help it to generate higher ARPOB. Also, MHI’s Radiant Hospitals get ~30% revenues from international patients compared to 15% for Apollo or Fortis. Post merger, MHI derives ~11% major hospital of its revenue from international patients and management expects this to increase in the coming chains years.
Exhibit 53: India-bound medical tourists logged in 31.2% CAGR over FY14-19
8.0 6.1% 6.4% 7.0% 7.0 4.9% 6.0% 6.0 5.0% 5.0 4.9% 4.0% 4.0 2.9% 2.4% 7.0 3.0% 3.0 6.4 5.0 2.0 4.3 2.0% 1.0 1.8 2.3 1.0%
- 0.0%
2014 2015 2016 2017 2018 2019
Foreign tourists for medical purpose (in lacs) % of total tourists (RHS)
Source: Edelweiss Wealth Research
The number of Foreign Tourist Arrivals (FTAs) in India on medical visa grew to an estimated 697,000 in 2019 from 495,056 in 2017. Historically, India’s medical visitors have come primarily from Afghanistan, Pakistan, Oman, Bangladesh, Maldives, Nigeria, Kenya and Iraq.
Edelweiss Wealth Research 25
Max Healthcare Institute Investment Hypothesis
~63% of medical tourism demand comes from neighbouring countries Nearly 88% of medical tourists arriving in India are from countries like Africa, West Asia and other South Asian nations. Also, medical tourists arriving from United Kingdom and Canada are on the rise, with long waiting periods for availing treatments prevalent in these regions.
Exhibit 54 - India is amongst top-5 medical tourist destinations
Foreign medical tourists in 2018 (mn)
1.8
1.2 0.9 0.9 0.6 0.5
Thailand Mexico Malaysia India Turkey Singapore
Source: Company, Edelweiss Wealth Research
Exhibit 55: 80% of medical tourists in India from South and West Asia in 2018 Others, 9%
North America, 3%
Africa, 8% India mainly attracts Asian medical tourists West Asia, 17% South Asia, 63%
Source: Edelweiss Wealth Research
Exhibit 56: Bangladesh accounted for 50% of India’s medical tourists in 2018
Others, 26%
Bangladesh, 50%
United States, 3%
Oman, 4%
Afghanistan, 7% Iraq, 9%
Source: Edelweiss Wealth Research
Edelweiss Wealth Research 26
Max Healthcare Institute Investment Hypothesis
Exhibit 57: Delhi-NCR receives 45% of medical tourists in India
Others, 11%
NCR – a hub for Hyderabad, 7% medical tourists
Mumbai, 12% Delhi-NCR, 45%
Chennai, 25%
Source: Edelweiss Wealth Research
Exhibit 58: India preferred due to quality services at reasonable prices South Medical Procedure India Thailand Malaysia Singapore Turkey US UK Korea Heart Bypass 7,900 15,000 12,100 17,200 13,900 26,000 144,000 NA Angioplasty 5,700 4,200 8,000 13,400 4,800 17,700 57,000 NA Heart Valve Replacement 9,500 17,200 13,500 16,900 17,200 39,990 170,000 NA Hip Replacement 7,200 17,000 8,000 13,900 13,900 21,000 50,000 NA Hip Resurfacing 9,700 13,500 12,500 16,350 10,100 19,500 NA NA Knee Replacement 6,600 14,000 7,700 16,000 10,400 17,500 48,000 50,000 Spinal Fusion 10,300 9,500 6,000 12,800 16,800 16,900 NA NA Dental Implant 900 1,720 1,500 2,700 1,100 1,350 2,800 NA Lap Band 7,300 11,500 8,150 9,200 8,600 10,200 NA NA Gastric Sleev 6,000 9,900 8,400 11,500 12,900 9,950 NA NA Gastric Bypass 7,000 16,800 9,900 13,700 13,800 10,900 NA NA Hysterectomy 3,200 3,650 4,200 10,400 7,000 10,400 NA NA Breast Implant 3,000 3,500 3,800 8,400 4,500 3,800 NA NA Rhinoplasty 2,400 3,300 2,200 2,200 3,100 3,980 NA NA Rhytidectomy 3,500 3,950 3,550 440 6,700 6,000 NA NA Liposuction 2,800 2,500 2,500 2,900 3,000 2,900 NA NA Abdominoplasty 3,500 5,300 3,900 4,650 4,000 5,000 NA NA Lasik (Both Eyes) 1,000 2,310 3,450 3,800 1,700 1,700 NA NA IVF Treatment 25,000 4,100 6,900 14,900 5,200 7,900 NA NA
Low Moderate High
Source: Edelweiss Wealth Research
Edelweiss Wealth Research 27
Max Healthcare Institute Investment Hypothesis
Exhibit 59: Increased quality care facilities in India
NABH accredited hospitals in India
713
482 Quality facilities drives medical 155 tourists in the country 2015 2017 2020
Source: National Accreditation Board of Hospitals, Edelweiss Wealth research
Exhibit 60: North India accounts for 36% of NABH accredited hospitals
NABH accredited hospitals in North India
253
166
60
2015 2017 2020
Source: National Accreditation Board of Hospitals, Edelweiss Wealth research
Exhibit 61: Number of quality hospitals – top-10 cities v/s other cities
NABH accredited hospitals
372 341
277
205
118
37
2015 2017 2020
Top 10 Cities Others
Source: National Accreditation Board of Hospitals, Edelweiss Wealth research
Edelweiss Wealth Research 28
Max Healthcare Institute Investment Hypothesis
VI. Focused on investing and scaling MaxLab and Max@Home for future growth In addition to its core hospital business, MHI has two SBUs, Max@Home and MaxLab. Max@Home is a platform that provides health and wellness services at home and MaxLab offers diagnostic services to patients outside its network. MHI has leveraged its brand reputation and clinical expertise to create and build on asset-light adjacencies.
MaxLab was launched in FY17 and offers diagnostic services to patients outside hospitals directly and through a network of partners such as clinicians, hospitals and nursing homes, pathology st MaxLab has a laboratories and third-party hospital laboratory management. As at 31 Dec’20, MaxLab had more huge opportunity than 100 partner collection centres, five company-owned collection centres, more than 120 phlebotomist on site, more than 130 pick-up points and 16 hospital-based lab management. for growth Further, MaxLab also has more than 350 active partner networks across both B2B and B2C channels with a wide test menu of more than 2,200 tests. It also undertakes third-party hospital laboratory management, apart from collecting samples from clinics and nursing homes. At present, MaxLab has operations in the NCR region, Chandigarh, Panchkula, Mohali and key cities in Punjab and Uttarakhand. Also, MaxLab has been working with the NCR government and district teams in the region to offer Covid-19 testing facilities, doorstep collection of samples and regular reporting of Covid-19 results. MaxLab has reported robust gross revenue CAGR of 105% over FY17-20.
Max@Home, launched in FY17, is the out-of-hospital service division of MHI focusing on making quality healthcare accessible to patients at their home or workplace. It provides health and wellness services at home through 12 service lines, including pathology, pharmacy delivery, physiotherapy, X-ray services for patients at home and critical care nursing to patients. Max@Home has emerged as a prominent provider of home healthcare services in the NCR region with 24/7 in-house customer support and more than 1,000 daily calls. Max@Home is supported by a back-ended service delivery digital platform to administer online care to patients and train frontline staff. Furthermore, it has leveraged technology to aid work from home (WFH) amidst the government-imposed lockdown by enabling doctors and support staff to provide video consultations for patients. Max@Home offers home management and monitoring services to Covid-19 infected patients with mild symptoms.
Going forward, MHI plans to build on both these adjacencies. MaxLab’s initial focus is to solidify its footprint in cities where Max Healthcare is already present. In the long term, it plans to expand into new cities and grow by opening new collection centres, partnering with local collection centres for sample collection and signing new hospital lab management contracts. Furthermore, it plans to leverage the increasing digitization of the healthcare industry due to Covid-19 by adapting its current back-end service delivery platform to remote and virtual enabled services; for instance, providing virtual assessment by a medical caregiver.
Similarly, Max@Home also plans to technologically enable and automate existing customer acquisition channels within its network by allowing customers to directly place a home care request over multiple online mediums (e.g. through mobile-based applications). MHI intends to utilise MaxLab and Max@Home’s plug-and-play approach to provide new services and scale its digital business for future growth.
Edelweiss Wealth Research 29
Max Healthcare Institute Investment Hypothesis
Exhibit 62: MaxLab – third largest player in NCR
Gross revenue (INR cr)
583
379
216
68
FY17 FY18 FY19 FY20
Source: Company, Edelweiss Wealth research
Exhibit 63: Apollo Hospitals’ diagnostics business delivered healthy growth
60 80% 140 45% 50 60% 120 40% 35% 40 40% 100 30% 30 20% 80 25% 20 0% 60 20% 15% 10 -20% 40 10% 0 -40% 20 5% 0 0%
FY17 FY18 FY19 FY20
Q2FY21 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q3FY21
Revenue (INR cr) % growth (YoY)(RHS) Revenue (INR cr) % growth (RHS)
Source: Company, Edelweiss Wealth research
Exhibit 64: Organised players have huge opportunities
Edelweiss Wealth Research 30
Max Healthcare Institute Investment Hypothesis
VII. GoI’s healthcare initiatives creating new markets for hospital chains The government’s initiatives is indirectly helping the private healthcare sector by creating new markets and geographies. According to Invest India’s Investment Grid, there are nearly 600 investment opportunities worth USD32bn (INR2.3lacs cr) in the country’s hospital/medical infrastructure sub-sector.
India currently has 1.4 hospital beds per 1,000 population. There is also a shortage of skilled health workers, with 0.65 physicians per 1,000 people (the World Health Organisation standard is 1 per 1,000 people) and 1.3 nurses per 1,000 people. An additional 3mn beds are needed for India to achieve the target of 3 beds per 1,000 people by 2025.
Further, another 1.54mn doctors and 2.4mn nurses are required to meet the growing demand for healthcare in India. We also expect more demand to be created on account of initiatives like Ayushman Bharat (PM-JAY), which will boost requirement for health personnel not only in larger cities but also in Tier-II/III cities and villages.
Exhibit 65: GoI’s initiatives to improve healthcare sector
Edelweiss Wealth Research 31
Max Healthcare Institute Investment Hypothesis
India spends too little on healthcare The low healthcare expenditure in India is primarily due to the under-penetration of healthcare services and lower consumer spending on healthcare.
Exhibit 66: Current healthcare expenditure (CHE) as % of GDP in India (2010-17)
3.75%
3.62% 3.60% 3.51% 3.53%
3.33% 3.27% 3.25%
2010 2011 2012 2013 2014 2015 2016 2017
Source: Edelweiss Wealth Research
Exhibit 67: Per capita current expenditure on health in USD (2017)
10,246 US$ 3,859 2,619 929
48 69 115 130 159 247 374
India
Brazil
Nepal
Vietnam
Thailand
Malaysia
Sri Lanka Sri
Indonesia
Singapore United Kingdom United
United States ofAmerica States United Source: Edelweiss Wealth Research
Edelweiss Wealth Research 32
Max Healthcare Institute Outlook and Valuation
Outlook and Valuation Improvement in demand and normalization of business should drive MHI’s performance going forward. MHI is trading at 21x FY23E EV/EBITDA against Apollo Hospitals’ historical 1-year forward average multiple of 18x (10 years: FY11-20) and 20x (last 5 years: FY15-20). We believe MHI deserves superior valuations because of its presence in the premium market and excellent business mix compared to peers. We have valued MHI at 25x FY23E EV/EBITDA, a premium of 25% to Apollo Hospitals’ 5-year average multiple of 20x. The stock is a ‘Tactical BUY’ with a target price of INR293/share (we have considered an average of DCF and EV/EBITDA to arrive at our blended target price).
DCF valuation In our DCF calculation, we have forecasted MHI’s overall business until 2025E, based on its current expansion plans for the hospital and ancillary businesses. Over 2025-2031E, we have assumed an annual growth of ~14% in EBIT and ~9% in the free cash flow (FCF). We have assumed a terminal growth rate of 5% and calculated weighted average cost of capital at 11.1%. Based on our DCF calculations and various assumptions, we have arrived at net present value (NPV) of INR300/share.
Exhibit 68: DCF assumptions Beta (x) 0.6 Risk free rate (%) 10 Risk Premium (%) 4.0 Cost of equity (%) 12.5 Cost of debt (%) 8.0 WACC (%) 11.1 Terminal growth rate (%) 5.0
Exhibit 69: DCF calculation (INR cr) FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31
NOPAT 444 418 593 796 967 1,146 1,317 1,334 1,534 1,733 1,941 2,174 Dep/amort. 209 213 220 224 234 245 281 285 328 370 415 464 NWC 159 62 (47) 55 42 43 47 52 57 63 69 76 Capex 598 5,897 105 411 449 452 450 450 450 450 450 450
FCF 1,409 6,590 871 1,485 1,692 1,885 2,096 2,120 2,368 2,616 2,875 3,164
PV 783 1,203 1,027 1,236 1,237 1,126 1,132 1,125 1,112 1,102 Total PV 29,971 Net debt 1,012 Equity value 28,959 Fully diluted no. of shares (cr) 96.6 Fair Value (INR/share) 300 Source: Edelweiss Wealth Research
Edelweiss Wealth Research 33
Max Healthcare Institute Outlook and Valuation
EV/EBITDA Band a. Max Healthcare
Exhibit 70: EV/EBITDA Band - Max Healthcare Institute Ltd. 25,000
20,000
15,000
10,000
5,000
04-Jan-21 21-Jan-21
11-Oct-20 28-Oct-20
07-Sep-20 24-Sep-20 07-Feb-21 24-Feb-21
01-Dec-20 18-Dec-20
21-Aug-20
14-Nov-20
13-Mar-21 30-Mar-21
EV 16x 20x 24x 28x
b. Apollo Hospitals
Exhibit 71: EV/EBITDA Band - Apollo Hospitals Enterprise Ltd.
65,000 55,000 45,000 35,000 25,000 15,000
5,000
02-Apr-12 02-Apr-13 02-Apr-14 02-Apr-15 02-Apr-16 02-Apr-17 02-Apr-18 02-Apr-19 02-Apr-20 02-Apr-21
02-Dec-12 02-Dec-13 02-Dec-14 02-Dec-15 02-Dec-16 02-Dec-17 02-Dec-18 02-Dec-19 02-Dec-20
02-Aug-15 02-Aug-12 02-Aug-13 02-Aug-14 02-Aug-16 02-Aug-17 02-Aug-18 02-Aug-19 02-Aug-20
EV 15x 20x 25x 30x
Edelweiss Wealth Research 34
Max Healthcare Institute Outlook and Valuation
Exhibit 72: Peer Valuation MCap CMP Revenues (INR cr) EBITDA (INR cr) PAT (INR cr) Company (INR (Rs.) cr) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E Max Healthcare 227 21,908 4,026 3,718 4,429 5,314 587 629 879 1,108 151 -5 443 702 Apollo Hospitals 2,985 42,893 11,247 10,570 13,695 16,001 1,587 1,168 2,226 2,664 324 94 818 1,280 Narayana Hrudayalaya 425 8,536 3,128 2,530 3,510 3,900 423 165 562 653 127 -46 228 288 Aster DM Healthcare 141 6,985 8,739 8,713 9,894 10,880 1,258 1,120 1,447 1,650 328 174 429 578 Healthcare Global 168 2,102 1,096 991 1,172 1,288 172 127 210 241 -107 -104 -16 27 Fortis Healthcare 205 15,575 4,632 3,912 5,185 5,858 610 346 792 941 12 -171 299 399 Shalby 115 1,232 487 415 526 6,000 82 86 106 124 28 48 52 61
PE (x) EV/EBITDA (x) RoCE (%) Company FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E Max Healthcare 62.9 83.4 49.5 31.2 22.0 35.6 26.7 20.9 14.9% 8.3% 9.9% 13.0% Apollo Hospitals 132.3 458.3 52.4 33.5 29.0 39.4 20.7 17.3 14.6% 8.2% 21.2% 25.1% Narayana Hrudayalaya 67.4 NM 37.5 29.6 21.8 55.9 16.4 14.1 NA NA NA NA Aster DM Healthcare 21.3 40.1 16.3 12.1 7.8 8.8 6.8 6.0 NA NA NA NA Healthcare Global NM NM NM 79.3 16.2 21.9 13.3 11.6 2.7% -2.2% 5.0% 8.5% Fortis Healthcare NM NM 52.1 39.0 27.3 48.2 21.0 17.7 4.2% 1.2% 6.3% 7.5% Shalby 44.6 25.6 23.7 20.1 15.6 14.8 12.0 10.3 NA NA NA NA Source: Edelweiss Wealth Research
Name of Company Operational Occupancy %Mcap %Operational MCap Rev/ Hospital Net Hospital %Beds %Rev (FY20) beds rate Share Beds /Beds op.beds Rev/op.beds Rev/op.beds Max Healthcare 2,376 73% 21.3% 10% 70% 8.79 12% 12.5 12.5 10.4 Apollo Hospitals 6,076 68% 43.7% 27% 69% 7.06 34% 18.5 9.4 8.3 Narayana Hrudayalaya 5,282 52% 8.7% 23% 92% 1.62 9% 5.9 4.8 3.7 Aster DM Healthcare 2,530 61% 7.1% 11% 69% 2.76 26% 34.5 6.4 - Healthcare Global 1,963 45% 2.1% 9% 95% 1.07 3% 5.7 5.3 - Fortis Healthcare 3,470 68% 15.9% 15% 87% 4.49 14% 13.3 10.8 8.0 Shalby 1,164 39% 1.3% 5% 58% 1.06 1% 4.2 4.2 3.1
Exhibit 73: Global Peers EV/EBITDA Revenue EBITDA Mcap Company Ticker Share Price Currency Country 2019-23 2019-23 (bn) 2020 2021 2022 CAGR CAGR
IHH Healthcare BHD IHH MK Equity 11.6 5.4 MYR Malaysia 22.6x 17.2x 15.2x 5% 8% Bangkok Dusit Med Service BDMS TB Equity 11.7 22.2 THB Thailand 25.9x 22.1x 19.5x 1% -8% Bumrungrad Hospital BH TB Equity 3.7 138.5 THB Thailand 38.4x 27.5x 22.9x -3% -5% Mitra Keluarga Karyasehat MIKA IJ Equity 2.6 2,600 IDR Indonesia 34.6x 29.7x 27.1x 7% 7% Raffles Medical Group RFMD SP EQUITY 1.7 1.2 SGD Singapore 25.3x 21.5x 18.6x 7% 5% Vibhavadi Medical Center VIBHA TB Equity 1.1 2.3 THB Thailand 37.8x 31.0x 27.4x 1% 8% Chularat Hospital CHG TB Equity 1.1 3.0 THB Thailand 25.9x 23.2x 20.8x 8% 11% Medikaloka Hermina HEAL IJ EQUITY 1.0 4,580 IDR Indonesia 16.2x 13.7x 12.2x 11% 16% China Resources Medical 1515 HK EQUITY 1.0 6.1 HKD China 7.5x 6.2x 5.6x 11% 11% Source: Edelweiss Wealth Research
Edelweiss Wealth Research 35
Max Healthcare Institute Risks
Key Risks Impact of Covid-19 pandemic Although the healthcare sector is at the forefront of treating Covid-19 patients, the hospital business has been substantially impacted due to an increase in cost of operations, reduction in OPD footfalls and admissions in IPD and decrease in revenues from international patients. The future impact of the Covid-19 pandemic on the hospital business will depend on the duration and scope of the pandemic, the geographies affected, its effects on economic activity in India and globally, and the nature and severity of measures adopted by the authorities. Given the second wave of Covid- 19, many state governments have already announced restrictions/lockdowns to control the spread of the virus. This will impact the hospital business in the near term.
Regulations pertaining to price controls MHI operates in a highly regulated industry and requires certain approvals, licenses, registrations and permits to conduct its business, including accreditation for some of its hospitals to maintain empanelment. In Feb’17, the National Pharmaceutical Pricing Authority (NPPA) introduced price controls for cardiac stents and in Aug’17, prices of knee and hip implants were also capped. Both events impacted MHI’s operating margins. Also, during the Covid-19 pandemic, treatment costs in private hospitals in Maharashtra and Delhi were capped to ensure affordable healthcare, which we believe might have impacted revenue and results of MHI.
Geographical concentration in North India A substantial portion of the company’s healthcare operations are concentrated in North India. As at Dec’20, out of MHI’s 16 network healthcare facilities, 8 hospitals and 4 medical centres were located in Delhi and NCR, while one hospital each is in Mumbai, Mohali, Bathinda and Dehradun. The company derived 72% of its revenue annually from Delhi-NCR operations in FY18, FY19 and FY20. Thus, a regional slowdown in NCR’s economic activity, any other developments such as political or civil unrest, disruption or sustained economic downturn that reduces the demand for healthcare services in these regions, could have a material adverse effect on MHI’s business, financial condition, cash flows and operations.
Delay in proposed expansion For the construction and development of hospital buildings, MHI is dependent on third party entities such as real estate developers and contractors, as well as the receipt of certain governmental approvals and access to sufficient funding. Any delay in receiving requisite approvals, sufficient funding or failure to identify relevant third parties could delay its project. However, MHI is expected to have sufficient funding in place as it already has a NCD issue in the pipeline. Thus, it is not expected to face any difficulty in identifying appropriate third-party contactors.
Edelweiss Wealth Research 36
Max Healthcare Institute Company Description
Company Description Max Healthcare Institute Limited (MHI) is India’s leading provider of healthcare services with 16 facilities consisting of ~3,400 beds. MHI is India’s second largest (in terms of revenues) quaternary care hospital and was formed when Max Healthcare and Radiant merged their healthcare businesses (effective from 1st Jun’20). MHI’s two facilities namely BL Kapur, New Delhi and Nanavati, Mumbai are under an operation and management contract while four are partner-healthcare facilities where MHI provides healthcare services in key specialities for a fee/revenue share. MHI’s major shareholders are Kayak Investments – an affiliate of KKR (49%) and Mr. Abhay Soi – CMD of MHI (22%). Besides its core hospital business, MHI has also embarked on two related businesses, which are run as separate SBUs. Max@Home (SBU-1) provides preventive and pre/post-hospitalization care at home and MaxLab (SBU-2) offers diagnostics services.
MHI operates 16 facilities with ~3,400 beds. MHI’s two facilities are under an operation and management contract while four are partner-healthcare facilities where MHI provides healthcare services in key specialities for a fee/revenue share. MHI Business model has emerged as a leader in Delhi-NCR with eight hospitals and four medical centres. MHI is now focusing on scaling up and unlocking value from MaxLab (its non-captive pathology business) and building Max@Home through the digital platform.
MHI’s focused on cost optimization. It is also looking to strengthen upcountry outreach and has plans to set up offices globally to facilitate direct-to-fly international patients. Another focus area for the management is brownfield expansion Strategic positioning across key hospitals in metros/proven geographies and partnerships through asset-light models (e.g., O&Ms in partnership with REITs) to expand domestic and international reach.
Competitive edge MHI is a leading player with occupancy of over 63.3% and ALOS of ~5.4 days in 9MFY21. It has industry leading ARPOBs as compared to its peers mainly due to higher share of operational beds in metro cities and northern urban areas.
The company has a very strong Balance Sheet with debt-to-EBITDA ratio of 1.5x (FY20). MHI generated free cash flow (FCF) of ~INR38cr, which is estimated to touch INR538cr in FY23, allowing it to undertake strategic investments without stressing Financial structure its Balance Sheet. The company has a potential to add ~2,100 beds at lower capex with faster time to market and no ramp- up period.
Key competitors Apollo Hospitals, Fortis healthcare, Narayan Hrudalaya, Healthcare Global, etc.
Given the growing need for quality healthcare services in an under-served country, the natural opportunity for business Industry revenue drivers growth is encouraging. Higher income, increasing health insurance penetration, rising non-communicable diseases and increase in medical tourists are the key demand drivers for MHI.
We believe MHI is a compounding story. It has planned strategic expansions in the coming years, whose full potential will Shareholder value be unlocked in the coming future. The stock is a ‘Tactical BUY’ with target price of INR293/share, which offers 29% upside proposition from its current market price (we have considered an average of discounted cash flow (DCF) and EV/EBITDA to arrive at our blended target price).
Edelweiss Wealth Research 37
Max Healthcare Institute Management Profile
Exhibit 74: Management Team of MHI Name Designation Profile Mr. Soi is an MBA from European University, Belgium, and holds Bachelor’s degree in Arts from St. Stephen’s College, Delhi University. He started his career as a restructuring professional with Arthur Andersen where he led their financial Mr. Abhay Soi Chairman & Managing Director restructuring business. Subsequently, he was part of the restructuring practice at E&Y and KPMG. He was the Promoter, Chairman and Managing Director of Radiant Life Care Private Limited. Prior to Radiant, he had co-founded the USD350mn Special Situations Private Equity Fund.
Mr. Sareen is a Chartered Accountant with over 30 years of experience. He is Mr. Yogesh Sareen Senior Director & Chief Financial Officer associated with Max since 2012 and has worked with Fortis Healthcare Limited in the past.
Ms Pakle is a Chartered Accountant with over 23 years of experience. She is Ms. Vandana Pakle Senior Director – Corporate Affairs associated with Max since 2010 and has worked with Radiant Life Care Limited in the past.
Dr Kaushik has more than 20 years of experience in the healthcare sector, including hospital operations, infrastructure planning, projects, IT, business development, Dr. Mradul Kaushik Senior Director – Operations & Planning service excellence, and quality management. Prior to Max, he has worked as the Director of Operations and Planning at Radiant Life Care. He is managing the BLK Super Speciality Hospital, Delhi and Nanavati Super Specialty Hospital, Mumbai.
Col. Cheha is a decorated army veteran with numerous awards and accolades to his name. After opting for premature retirement in Apr’08, he completed his certificate Col. HS Cheha Senior Director & COO (Cluster 2) course in Business Administration from IIM – Ahmedabad. Prior to Radiant Life Care he was COO at Fortis Hospital, NCR.
Dr Buddhiraja has over 27 years of experience in the medical field and holds an Group Medical Director MBBS, MD and DNB degrees. He joined Max Healthcare as a Consultant Physician Dr. Sandeep Buddhiraja Chairman – Institute of Internal Medicine in Jan’01 and is a founder member of Max. He has over 23 years of experience in the field of Internal Medicine.
Mr. Wajid holds an Engineering degree from NIT, Raipur, and has a post-graduate degree in Marketing from Aligarh Muslim University. He has more than 17 years of Senior Director – Chief Sales and Marketing Mr. Anas Wajid experience in diverse fields such as advertising, retail, healthcare, and media. In the Officer healthcare space, he has worked with Apollo Hospitals, Max Healthcare, Artemis Health Institute and most recently at Fortis Healthcare Ltd.
Mr. Bidani holds a PGDM (MBA) from IIM Ahmedabad and is a Chartered Accountant. He has over 27 years of experience with premier groups across FMCG Mr. Dilip Bidani Senior Director – Finance and services; of the 27 years, he has served as CFO/Board Member for over 13 years. He has been a part of Dr Lal PathLabs, Gurgaon as CFO.
Mr. Gupta has over 19 years of experience in Human Resource Management with a focus on designing and implementing people strategies that are aligned to Mr. Umesh Gupta Director – HR & Chief People Officer business strategy. Prior to Radiant Life Care, he was AVP – Human Resources for NCR region at Fortis Healthcare Ltd where he was overseeing people strategies for multiple hospitals. Mr. Singh is a GNIITian, a graduate from Delhi University, and holds a Master’s degree in IT from Karnataka University. He has also completed the management program on Healthcare Data Analytics from IIM, Ahmedabad. He has wide domain Mr. Prashant Singh Director – IT & Chief Information Officer expertise built over 24 years in healthcare IT. Prior to Radiant Life Care, he was AGM – Technology & Operations in Paras Healthcare. He has also worked in Sri Balaji Action Medical Institute (action group) and Tirath Ram Shah Hospital (Triveni Engineering and Industries Ltd). Mr. Sharma has a post-graduate degree in Law from the Law Faculty (Delhi University), LPC from The College of Law (London), and Master’s degree in Law from City University (London). He has over 27 years of diverse experience across Mr. Atulya Sharma Director – Legal, Comp. & Regulatory Affairs sectors and cultures such as manufacturing, investment banking, structured/project finance, private equity, and infrastructure.
Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Management Profile
Mr Abhay Soi – Man behind MHI
First generation entrepreneur with strong track record, backed by marquee sponsor Led financial restructuring at Arthur Andersen, E&Y and KPMG Co-founded a $350 million Special Situations Private Equity Fund for American billionaire Seth Klarman’s Baupost group Investments across sectors such as Mining, Financial Services, Agri-processing, Retail, Paper & Paperboards manufacturing, Textiles and Specialty Chemicals Successfully restructured Dr. B L Kapur Memorial Hospital, a leading Delhi hospital (-20)% EBITDA margin in FY11 to 18% in FY20 Led turnaround of Mumbai’s Dr. Balabhai Nanavati Hospital Mr. Abhay Soi (-15)% EBITDA margin in FY15 to 7% in FY20 Experienced private equity and turnaround Initiated the turnaround of Max Healthcare specialist EBITDA increased by over 70% in FY20
Exhibit 75: Shareholding
Kayak Investments Public & (KKR), 49% Others, 30%
Abhay Soi, 22%
Source: Company, Edelweiss Wealth Research
Fund holdings As on December 2020 Shareholding % Smallcap World fund, Inc 3.94% Wf Asian Reconnaissance Fund Limited 3.71% Briarwood Capital Master Fund, Ltd. 1.40% Ellipsis Partners Llc 1.27% Kotak Mahindra (International) Limited 1.12% Source: BSE
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Max Healthcare Institute Timeline
Exhibit 76: Major milestones Radiant’s journey
2009 2000 2014 2020 Dr. BL Kapur Memorial Radiant Life Care Pvt Dr. Balabhai Nanavati Radiant-Max Hospital, Rajendra Ltd founded Hospital, Mumbai Healthcare merger Place
Max’s journey
2002 2004 2000 ~Max Multi Specialty 1985 Max Super Specialty Max Multi Specialty Centre, Pitampura Max India founded Hospital, (East Block) Centre, Panchsheel park ~Max Multi Specialty Saket Centre, Noida
2011 ~Max Super Specialty 2006 Hospital, Bathinda 2007 2005 Max Super Specialty ~Max Super Specialty Max Hospital, Max Super Specialty Hospital, (West Block) Hospital, Mohali Gurugram Hospital, Patparganj Saket ~Max Super Specialty Hospital, Shalimar Bagh
2015 2014 ~Max Super Specialty 2012 2016 Max Multi specialty Hospital, Vaishali Max Super Specialty (Pushpanjali Crosslay) Max Institute of Cancer Hospital, Hospital, Dehradun ~Max Smart Super Care, Lajpat Nagar Greater Noida Specialty Hospital, Saket (Saket City)
2020 ~Radiant-Max Healthcare 2019 2018 merger Discontinuation of Max Max Medcentre, Lajpat ~Discontinuation of Max Multi specialty Hospital, Nagar (Immigration Multi Specialty Centre, Greater Noida Department) Pitampura
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Max Healthcare Institute Financials Analysis
I. Revenue to clock ~10% CAGR over FY20-23E MHI is expected to clock 9.7% revenue CAGR over FY20-23E led by major increase in operational beds (~10% CAGR).
Exhibit 77: Revenue growth
6,000 60% 50% 5,000 40% 4,000 30% 3,000 20% 10% 2,000 0% 1,000 -10% 0 -20% FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Revenues (INR Cr) Revenue Growth (%)(RHS)
Source: Edelweiss Wealth Research
II. EBITDA margin to improve with cost control and operational efficiency The company is expected to deliver EBITDA CAGR of 23.5% over FY20-23E with margin expansion of ~620bps, led by healthy growth in revenue, cost saving measures and operational efficiency.
Expect margin 1,200 Exhibit 78: EBITDA and EBITDA margin 25% expansion of 1,000 20% ~620bps over 800 FY20-23E 15%
600 (%)
(INR Crs) (INR 10% 400
200 5%
0 0% FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E EBITDA (INR Cr) EBITDA Margin (%) (RHS)
Source: Edelweiss Wealth Research
Exhibit 79: RoCE to improve with EBITDA margins
25% Bubble: Revenue 20% 15% 10%
5% EBITDA margin (%) margin EBITDA 0% 0 2 4 6 8 10 12 14 16 18 RoCE (%)
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: Edelweiss Wealth Research
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Max Healthcare Institute Financials Analysis
III. Expect robust PAT growth of 66.8% CAGR MHI’s PAT is expected at 66.8% CAGR over FY20-23E on account of revenue growth along with operating margin improvement/expansion.
Expect PAT CAGR Exhibit 80: PAT margin of ~67% over 800 14% FY20-23E 700 12% 600 10% 500 8% 400 6% 300 4% 200 100 2% 0 0% (100) FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E -2%
Net Profit (INR Cr) Net Profit Margin (%) (RHS)
Source: Edelweiss Wealth Research
IV. Fund raising reduced debt to comfortable level The company has negligible debt and comfortable debt-to-equity ratio of 0.3x. It has a healthy Balance Sheet, with borrowings of INR853cr in FY20 against FCF of INR38cr and operating cash flow (OCF) of INR636cr.
MHI has comfortable debt- 2,000 Exhibit 81: Debt-to-equity ratio 0.9 to-equity ratio of 0.8 1,500 0.7 0.3x 0.6 0.5 1,000 0.4 0.3 500 0.2 0.1 0 0.0 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Debt Debt to Equity (x)(RHS)
Source: Edelweiss Wealth Research
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Max Healthcare Institute Financials Analysis
V. Post-merger, return ratios should improve MHI’s Return on Equity (RoE) and Return on Capital Employed (RoCE) are expected to improve post the merger.
Exhibit 82: Return ratios
25
20
15
(%) 10
5
0
FY15 FY16 FY17 FY18 FY19 FY20
FY21E FY22E FY23E RoCE (%) RoE (%)
Source: Edelweiss Wealth Research
Exhibit 83: DuPont Analysis
2.3 2.4 0.5 0.4 2.8 2.7 1.8 1.8 0.7 2.4 0.4 1.1 1.0 2.4 1.8 0.9 0.9 1.1 16.6 14.9 11.6 10.1 10.2 11.2 8.5 8.4 9.4
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
EBIT Margin (%) Asset Turnover (x) Equity Multiplier (x)
Source: Edelweiss Wealth Research
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Max Healthcare Institute Financials Analysis
VI. Strong FCF expected in coming years OCF-to-EBITDA ratio has improved significantly over the years and is expected to be at higher levels. The company has improved its OCF and FCF significantly in FY20 and expects to maintain it.
Exhibit 84: Cash flows
2,000 400%
1,000 300%
- 200%
-1,000 100%
-2,000 0% (INR Crs) (INR
-3,000 -100%
-4,000 -200%
-5,000 -300% FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Operating cash flows (INR Cr) Free Cash Flow (INR Cr) OCF/EBITDA (%) (RHS)
Source: Edelweiss Wealth Research
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Max Healthcare Institute Financials Analysis
VII. Debt to EBITDA – Hospital sector
Net debt/EBITDA for MHI was 4x at end-FY20. Due to debt reduction and EBITDA improvement, FY22E net debt/EBITDA is expected at 0.7x.
Exhibit 85: Debt to EBITDA
6.0
5.0
4.0
3.0
2.0
1.0
- FY16 FY17 FY18 FY19 FY20
MHI Listed Hospital Companies Unlisted Hospital Companies
Source: Edelweiss Wealth Research
Exhibit 86: Debt to EBITDA Exhibit 87: Interest Service Coverage 3.8 5.6 5.4 3.4 5 4-5 2.9 4.3 4.2 2.5 2.5 3.5 3.3 3.1 2.5 2.3 2-3 1.5
1.6 1.7
FY16 FY17 FY18 FY19 FY20E FY21P FY16 FY17 FY18 FY19 FY20E FY21P Listed Unlisted Listed Unlisted
Source: Edelweiss Wealth Research Note: Companies in the listed entities - Apollo Hospitals Enterprise Ltd, Fortis Healthcare, Healthcare Global, Indraprastha Medical Corp, Kovai Medical Center, Narayana Health, Dr. Agarwals Eye Hospitals and Lotus Eye Care Hospital; Unlisted - Manipal Health, Global Health, Yashoda Healthcare, Columbia Asia, KIMS (Hyd), Global Hospitals, AMRI, Rainbow Children's Medicare, Wockhardt, Sterling Addife, Cloudnine Hospitals, Medics Synergie, Sahyadri Hospitals, Zydus Hospitals, Kailash Healthcare end Regency Healthcare
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Max Healthcare Institute Financials Analysis
VIII. Strong sales generation on incremental capex
Exhibit 88: Capex v/s Incremental Sales
1,600 1,400 1,200 1,000 800 600 400 200 - -200 -400 FY18 FY19 FY20 FY21E FY22E FY23E
Capex (INR cr) Incremental Sales (INR cr)
*FY21 revenue impacted due to Covid-19 lockdown Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Financials
Income statement (INR Cr) Year to March FY19 FY20 FY21E FY22E FY23E Income from operations 2,671 4,026 3,718 4,429 5,314 Direct costs 672 1,715 935 1,114 1,337 Employee costs 746 997 964 1,107 1,275 Other expenses 1,775 1,724 2,153 2,436 2,870 Total operating expenses 2,447 3,439 3,089 3,550 4,207 EBITDA 224 587 629 879 1,108 Depreciation and amortisation 0 209 213 220 224 EBIT 224 379 416 659 884 Interest expenses 0 213 171 166 104 Other income 0 0 0 0 0 Profit before tax 224 166 245 492 780 Provision for tax 0 -28 -1 49 78 Core profit 224 194 246 443 702 Extraordinary items 0 -43 -251 0 0 Profit after tax 224 151 -5 443 702 Minority Interest 0 0 0 0 0 Share from associates 0 0 0 0 0 Adjusted net profit 224 151 -5 443 702 Equity shares outstanding (cr) 54 54 90 97 97 EPS (INR) basic 4.2 3.6 2.7 4.6 7.3 Diluted shares (Cr) 53.7 53.7 90.5 96.6 96.6 EPS (INR) fully diluted 4.2 3.6 2.7 4.6 7.3 Dividend per share 0.0 0.0 0.0 0.0 0.0 Dividend payout (%) 0.0 0.0 0.0 0.0 0.0
Common size metrics- as % of net revenues Year to March FY19 FY20 FY21E FY22E FY23E Operating expenses 91.6 85.4 83.1 80.2 79.2 Depreciation 0.0 5.2 5.7 5.0 4.2 Interest expenditure 0.0 5.3 4.6 3.8 1.9 EBITDA margins 8.4 14.6 16.9 19.8 20.8 Net profit margins 8.4 3.7 (0.1) 10.0 13.2
Growth metrics (%) Year to March FY19 FY20 FY21E FY22E FY23E Revenues 2.0 50.7 (7.7) 19.1 20.0 EBITDA 0.9 162.2 7.1 39.7 26.0 PBT 0.9 (26.1) 48.0 100.9 58.5 Net profit 0.9 (13.4) 26.9 80.0 58.5 EPS 0.9 (13.4) (24.6) 68.5 58.5
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Max Healthcare Institute Financials
Balance sheet As on 31st March FY19 FY20 FY21E FY22E FY23E Equity share capital 537 537 905 966 966 Preference Share Capital 0 0 0 0 0 Reserves & surplus 749 2,016 3,372 3,815 4,517 Shareholders funds 1,287 2,553 4,276 4,781 5,483 Secured loans 390 853 1,880 1,830 1,480 Unsecured loans 0 0 0 0 0 Borrowings 390 853 1,880 1,830 1,480 Minority interest 0 0 0 0 0 Sources of funds 1,677 3,406 6,157 6,611 6,964 Gross block 653 1,234 7,134 7,239 7,674 Depreciation 174 383 596 816 1,039 Net block 479 851 6,538 6,423 6,635 Capital work in progress 10 28 25 25 0 Total fixed assets 489 879 6,562 6,447 6,635 Unrealised profit 0 0 0 0 0 Investments 770 2,182 1 1 250 Inventories 15 27 60 73 87 Sundry debtors 285 96 300 303 364 Cash and equivalents 4 122 32 280 219 Loans and advances 55 456 354 372 446 Other current assets 0 0 0 0 0 Total current assets 360 700 746 1,028 1,116 Sundry creditors and others 242 270 300 364 437 Provisions 12 48 92 109 131 Total CL & provisions 254 318 392 473 568 Net current assets 106 382 354 555 548 Net Deferred tax 0 0 -516 0 0 Misc expenditure 312 -37 -244 -391 -469 Uses of funds 1,677 3,406 6,157 6,611 6,964 Book value per share (INR) 24 48 47 49 57 0 0 0 0 0 Cash flow statement Year to March FY19 FY20 FY21E FY22E FY23E Net profit 224 237 497 443 702 Add: Depreciation 0 209 213 220 224 Add: Misc expenses written off 71 349 208 147 78 Add: Deferred tax 5 0 516 -516 0 Add: Others 0 0 0 0 0 Gross cash flow 299 795 1,434 294 1,004 Less: Changes in W. C. 106 159 62 -47 55 Operating cash flow 193 636 1,372 342 949 Less: Capex -20 598 5,897 105 411 Free cash flow 213 38 -4,525 237 538
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Max Healthcare Institute Financials
Ratios Year to March FY19 FY20 FY21E FY22E FY23E ROAE (%) 17.3 10.1 7.2 9.8 13.7 ROACE (%) 13.3 14.9 8.3 9.9 13.0 Debtors (days) 39 9 29 25 25 Current ratio 1.4 2.2 1.9 2.2 2.0 Debt/Equity 0.3 0.3 0.4 0.4 0.3 Inventory (days) 2 2 6 6 6 Payable (days) 33 24 29 30 30 Cash conversion cycle (days) 8 -13 6 1 1 Debt/EBITDA 1.7 1.5 3.0 2.1 1.3 Adjusted debt/Equity 0.3 0.3 0.4 0.3 0.2
Valuation parameters Year to March FY19 FY20 FY21E FY22E FY23E Diluted EPS (INR) 4.2 3.6 2.7 4.6 7.3 Y-o-Y growth (%) 0.9 (13.4) (24.6) 68.5 58.5 CEPS (INR) 4.2 7.5 5.1 6.9 9.6 Diluted P/E (x) 54.4 62.9 83.4 49.5 31.2 Price/BV(x) 9.5 4.8 4.8 4.6 4.0 EV/Sales (x) 4.7 3.2 6.0 5.3 4.4 EV/EBITDA (x) 56.2 22.0 35.6 26.7 20.9 Diluted shares O/S 53.7 53.7 90.5 96.6 96.6 Basic EPS 4.2 3.6 2.7 4.6 7.3 Basic PE (x) 54.4 62.9 83.4 49.5 31.2 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
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Max Healthcare Institute Annexure – Peer Comparison
Listed nine major hospital companies The nine listed hospital chains account for ~2% beds (largely quality beds) in India. Their average revenue per bed stands at INR1.2cr with an EV of ~INR4cr per bed.
Exhibit 89: Sector data (INR cr) Exhibit 90: Sector data (INR cr) 1,13,922 99,366 3.9 3.4
35,040 1.2 14,556 0.5 5,359 1,215
Revenue EBITDA PAT MCap Debt EV Rev/Bed Debt/Bed Mcap/Bed EV/Bed
Note: Considered major nine hospital companies to calculated sector data
Three major hospital chains have majority share in India’s organised hospital chain market. Market share of these three players is expected to increase further as they are currently in expansion mode.
Exhibit 91: Market share of major listed players
43%
32% 27% 28% 25% 21% 16% 14% 11% 12% 11% 11% 12% 5% 6%
%Rev %PAT %Mcap %Debt %Ops Beds
Apollo Hospitals Max Healthcare Fortis healthcare
Note: Companies considered - Apollo Hospitals Enterprise Ltd, Fortis Healthcare, Max Healthcare, Healthcare Global, Indraprastha Medical Corp, Kovai Medical Center, Narayana Hrudayalaya,Shalby, Aster DM.
Over the last few years, major listed players have reported consolidation in operational beds. With an increase in bed capacity, operational beds should also rise in the coming years. Exhibit 92: Operational beds of major players Number of operational FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 beds Apollo 5,774 6,321 6,724 6,940 7,176 7,246 7,491 8,300 Fortis 3,419 3,636 3,475 3,414 3,531 3,486 3,470 3,652 Max 1,472 1,680 2,272 2,330 2,378 2,376 2,376 3,233 NH 3,946 4,702 4,782 4,921 5,644 5,785 5,747 5,859 HCG 829 993 1,061 1,364 1,569 1,872 1,963 2,071 Shalby 414 421 690 731 1,050 1,052 1,164 1,200 Aster DM 1,335 1,772 1,976 2,653 2,744 3,092 3,438 3,438 Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Annexure – Peer Comparison
Over the last five years, consolidated revenue CAGR of seven major listed hospital chains stood at 14%. This is expected to improve in the coming years owing to better case mix, higher number of operational beds, and increase in healthcare services (apart from hospitals). Further, these seven hospital chains delivered revenue CAGR (only hospitals) of 11% over FY16-20.
Exhibit 93: Improvement visible in revenue of major players Revenue (INR cr.) FY14 FY15 FY16 FY17 FY18 FY19 FY20 Apollo 4,384 5,178 6,215 7,256 8,243 9,617 11,247 Fortis 3,666 3,966 4,199 4,574 4,561 4,469 4,632 Max NA 1,688 2,098 2,454 2,619 2,671 2,959 NH 1,095 1,389 1,614 1,878 2,281 2,861 3,128 HCG 451 519 584 700 831 979 1,113 Shalby 259 275 290 325 378 461 487 Aster DM 2,871 3,876 5,250 5,931 6,721 7,963 8,740
Exhibit 94: Major players – hospital revenue Hospital gross revenue FY14 FY15 FY16 FY17 FY18 FY19 FY20 (INR cr) Apollo 2,886 3,221 3,703 4,085 4,516 5,143 5,730 Fortis 2,795 3,207 3,428 3,712 3,683 3,527 3,752 Max NA 1,688 2,098 2,454 2,619 2,671 2,959 NH (excludes Heart 1,060 1,297 1,481 1,732 2,069 2,331 2,559 centers & HCCI) HCG (excludes Milann) 413 479 538 641 764 914 1,041 Shalby 259 275 290 325 378 461 487 Aster DM (India Hospitals 294 428 632 957 1,167 1,314 1,631 only)
Over FY16-20, the seven major hospital companies delivered average gross ARPOB of 5% CAGR,
largely due to improvement in their case mix. Barring Shalby, all hospital chains have witnessed improvement in gross ARPOB over last five years.
Exhibit 95: Major players – Gross ARPOB Gross ARPOB (INR/day) FY14 FY15 FY16 FY17 FY18 FY19 FY20 calculated Apollo 26,288 27,526 29,458 32,083 33,646 35,897 38,807 Fortis 30,685 34,521 37,432 39,726 40,822 41,370 43,443 Max NA 37,447 35,485 40,021 41,278 41,733 46,358 NH 15,252 16,533 17,453 21,040 20,748 22,750 25,573 HCG 25,184 24,705 27,165 27,461 29,971 30,620 32,400 Shalby 41,864 41,625 34,779 33,279 30,913 30,578 29,560 Aster DM (India NA 14,460 18,765 21,282 24,811 26,492 28,926 Hospitals only)
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Max Healthcare Institute Annexure – Peer Comparison
Over FY15-20, the average bed occupancy of seven major hospital companies remained stable at ~58% despite operational bed expansion of 6% CAGR over the same period.
Exhibit 96: Major players – beds occupancy Reported occupancy FY14 FY15 FY16 FY17 FY18 FY19 FY20 Apollo 71% 68% 63% 64% 66% 68% 68% Fortis 73% 70% 72% 75% 70% 67% 68% Max 74% 74% 71% 72% 73% 74% 73% NH^ 48% 51% 54% 51% 53% 53% 52% HCG 54% 54% 51% 47% 45% 44% 45% Shalby 41% 43% 33% 37% 32% 39% 39%
Exhibit 97: Major players – ALOS ALOS (days) FY14 FY15 FY16 FY17 FY18 FY19 FY20 Apollo 4.54 4.43 4.17 4.06 3.99 3.99 3.86 Fortis 3.80 3.64 3.56 3.56 3.48 3.39 3.24 Max 3.50 3.40 3.26 3.25 3.14 3.40 4.20 NH 4.87 4.45 4.32 4.00 4.20 3.90 3.50 HCG 3.15 3.07 2.93 2.86 2.39 2.25 NA Shalby NA NA NA 4.00 3.70 2.70 4.22 Aster DM NA NA NA 3.80 3.60 3.60 3.50
Exhibit 98: Major players – Gross margin (%) Gross margin % FY14 FY15 FY16 FY17 FY18 FY19 FY20 Apollo 51% 50% 51% 50% 51% 52% 51% Fortis 76% 76% 78% 78% 78% 79% 79% Max NA 72% 73% 75% 75% 75% 75% NH 74% 75% 76% 77% 76% 76% 76% HCG 70% 72% 74% 76% 77% 78% NA Shalby NA 98% 98% 98% 90% 91% 89% Aster DM 65% 68% 69% 68% 69% 70% 70%
Exhibit 99: Major players – doctors’ payout Doctor payout as % of FY14 FY15 FY16 FY17 FY18 FY19 FY20 Revenue Apollo 4% 4% 3% 5% 6% 6% 6% Fortis 16% 17% 18% 19% 20% 20% 21% Max NA 8% 8% 17% 17% 17% 16% NH 20% 19% 20% 21% 21% 21% 20% HCG 21% 21% 22% 22% 21% 22% NA Shalby NA 25% 26% 24% 24% 27% 26% Aster DM 8% 6% 6% 7% 8% 8% 8% Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Annexure – Peer Comparison
The operating margin of a hospital chain depends on maturity of its beds. Due to hospital companies being in expansion mode, their operating margin has not improved substantially.
Exhibit 100: Major players - EBITDA margin (%) EBITDA margin % FY14 FY15 FY16 FY17 FY18 FY19 FY20 Apollo 15.3% 14.2% 11.1% 10.0% 9.6% 11.1% 11.5% Fortis 1.3% 3.3% 4.9% 7.7% 6.0% 5.0% 13.2% Max NA 10.1% 10.2% 11.6% 8.5% 8.4% 15.0% NH 11.0% 11.1% 10.8% 12.2% 9.3% 10.1% 13.5% HCG 8.5% 14.7% 14.5% 15.0% 14.3% 12.8% 16.6% Shalby 24.2% 24.5% 19.1% 22.2% 20.7% 17.6% 16.9% Aster DM 15.7% 13.1% 8.5% 5.6% 9.1% 10.8% 14.4%
Exhibit 101: Major players – Gross Block Gross block/bed - Total FY14 FY15 FY16 FY17 FY18 FY19 FY20 (INR cr.) Apollo 0.7 0.8 0.9 1.0 1.0 1.1 1.3 Fortis 1.5 1.5 1.1 1.7 1.6 2.7 2.6 Max NA 0.9 1.0 1.0 1.0 1.1 1.1 NH 0.2 0.3 0.3 0.3 0.5 0.5 0.5 HCG 0.8 0.5 0.6 0.6 0.6 0.6 0.7 Shalby 0.6 0.7 0.6 0.6 0.8 0.8 1.0 Aster DM 1.1 1.5 1.6 1.7 1.8 1.9 2.0
Over FY14-19, the gross block per bed increased to INR 1.2cr from INR0.7cr. The soft growth in gross block per bed was due to expansion in Tier-II/III cities.
Exhibit 102: Hospital Gross FY14 FY15 FY16 FY17 FY18 FY19 block/bed - Total (INR cr.) Apollo 0.7 0.7 0.7 0.9 0.9 1.0 Fortis 1.4 1.3 1.0 1.6 1.5 2.6 Max NA 0.9 1.0 1.0 1.0 1.1 NH 0.2 0.3 0.3 0.3 0.5 0.5 HCG 0.8 0.5 0.6 0.6 0.6 0.6 Shalby 0.3 0.3 0.4 0.3 0.5 0.4 Aster DM* 1.1 1.5 1.6 1.7 1.8 1.9 *Includes India and GCC
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
MHI: 9MFY21 performance For 9MFY21, MHI’s gross revenue declined 17% v/s Apollo’s Hospitals business 20% decline (Apollo’s consolidated revenue down by 8% YoY), mainly on account of a fall in (a) international patients’ revenue contribution, (b) ARPOB, and (c) occupancies owing to the nation-wide lockdown. International patient contribution decreased to 3.0% (v/s 11.2% in 9MFY21). At the same time, TPA and corporate patients contribution increased to 32.6% (v/s 25.4% in 9MFY20). However, gross revenue recovered sharply in Q3FY21 (up 6% YoY and 24% QoQ).
Operating EBITDA for 9MFY21 was down 14% YoY to INR373cr (v/s INR433cr in 9MFY20), mainly due to drop in revenue contribution from high-end treatments like Cardiac, Orthopaedics, Renal or Neuro. However, EBITDA grew 58% YoY and 77% QoQ in Q3FY21 (record high quarterly level in previous three years), led by higher OPD patient footfalls, IPD occupancy, increase in surgical cases in key specialities and improved ARPOB.
EBITDA margin (over net revenue) expanded to 14.7% in 9MFY21 (v/s 14.4% in 9MFY20), due to MHI undertaking structural cost initiatives. EBITDA per bed remained flat (+1.1%) at INR24.5lacs (v/s INR24.2lacs).
MHI reported net loss of INR204cr in 9MFY21 (v/s net profit of INR83cr in 9MFY20), mainly due to transaction cost and loss on fair valuation of pre-merger holding of Radiant (INR244cr). However, Q3FY21 PAT surged 246% YoY and 275% QoQ to INR135cr.
Bed occupancy stood at 63.3% in 9MFY21 (v/s 73.4% in 9MFY20), largely due to lower occupancy during Apr-Aug’20, post which occupancy rates reached pre-Covid levels. Occupancy for Q3FY21 stood at 76.2% (v/s 72.4% in Q3FY20).
ARPOB was down 3% YoY to INR48.5k in 9MFY21 (v/s INR50.0k in 9MFY20), due to low international and OP revenue and lower ARPOB from Covid-19 patients. In Q3FY21, ARPOB grew 10% QoQ to INR51.2k (v/s INR50.8k in Q3FY20) due to rise in non Covid-19 occupancy in tower specialties (has recovered to ~90% of last year levels).
ALOS increased to 5.4 days in 9MFY21 (v/s 4.3 days in 9MFY20). ALOS for Q3FY21 and Q2FY21 also stood at 5.4 days. OP consults stood at 9.29lacs in 9MFY21 (v/s 18.57lacs in 9MFY20). Over 25,800 OPD (~7% total) and 900 IPD patients from economically weaker section were treated free of charge in Q3FY21.
Net debt (including put option liabilities) declined by INR121cr during Q3FY21 and stood at INR1,867cr as at 31st Dec’20 (v/s INR1,988cr as at 30th Sep’20).
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
Exhibit 103: Financial details
INR cr 9M FY20 9M FY21 YoY growth
Gross revenue 3,272 2,702 -17% Net revenue 3,018 2,540 -16% Direct cost 1,285 1,073 -16% Gross Profit (Contribution) 1,733 1,467 -15% Gross Profit (Contribution) margin 57.4% 57.8% 33 bps Indirect cost 1,300 1,094 -16% Operating EBITDA (post Ind AS-116) 433 373 -14% EBITDA margin 14.3% 14.7% 34 bps ESOP (Equity-settled scheme) 0 14 Movement in fair value of contingent consideration and amortisation of contract assets 18 -1 Transaction cost and loss on fair valuation of pre-merger holding of Radiant 24 244 One time policy harmonization impact 0 5 Reported EBITDA 392 111 -72% EBITDA margin 13.0% 4.4% (862bps) Finance cost (net) 161 137 -15% Depreciation and amortisation 157 164 4% Profit before tax 75 -190 Tax -9 13 Profit after tax 83 -204
Financial Position Net Debt 1,867
Kay operational details ARPOB 50,000 48,500 -3% Avg Inpatient occupancy 73.4% 63.3% -10% ALOS (days) for discharged IP patients 4.3 5.4 26%
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
Performance improvement post-merger Prior to the merger, MHI reported loss in three out of six quarters. Post-merger, the company’s financial performance improved with bottom line recovering significantly. In Q3FY21, PAT tripled to INR135cr (v/s INR47cr in Q3FY20). MHI reported loss only once post-merger, which can be attributed to the Covid-19 led pandemic and ‘Transaction cost and loss on fair valuation of pre- merger holding of Radiant’ of INR244cr.
Exhibit 104: Revenue and profitability
1,200 240 Pre-merger Post-merger 1,086 1,014 1,008 1,000 140 881 135 753 800 708 714 40 664 677 641 47 47 36 19 21 573 600 (7) (7) 2 (60) (38)
400 (160) (355) 200 (260)
- (360) Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Net Revenue (INR cr) Net profit (RHS)
Source: Edelweiss Wealth Research
Prior to the merger, the company witnessed low EBITDA margin, which fluctuated between 5-12% till Q1FY20. In Q2FY20, MHI recorded highest pre-merger EBITDA of 14.2%. Post-merger, the company’s EBITDA margin improved and ranged between 16-23% (except for Q1FY21). In Q1FY21, the company witnessed negative EBITDA due to one-off expense and the pandemic. However, Q2FY21 saw the company’s EBITDA margin experiencing V-shaped recovery. The company reported EBITDA margin of 23.3% in Q3FY21.
Exhibit 105: EBITDA and EBITDA margins
300 253 25% Pre-merger Post-merger 15% 200 160 157 143 107 5% 85 84 100 65 63 29 -5% - -15%
-25% (100) -35% (200) -45%
(300) (249) -55% Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
EBITDA EBITDA margin (RHS)
Source: Edelweiss Wealth Research
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
Operating matrix – quarterly MHI’s gross ARPOB increased to pre-pandemic level of INR51.2k in Q3FY21 (v/s INR50.3k). Bed occupancy also recovered to pre-pandemic level in Q3FY21. Strong ARPOB improvement was driven by favourable mix, specialty mix and price increases. Also, further increase in ALOS boosted the company’s top line after being hit by the pandemic, resulting in improved EBITDA margin and tripling of bottom line.
Exhibit 106: Pre-merger Post-merger Operational data Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Avg. Inpatient Occupancy 73% 74% 74% 72% 71% 74% 74% 76% 73% 75% 74% 70% 45% 68% 76% ARPOB 44,940 43,959 43,425 43,810 44,045 43,398 43,881 47,118 49,289 49,607 50,252 47,200 47,200 46,400 51,200 Physicians 2,847 2,854 2,862 2,882 2,968 3,023 3,136 3,057 3,108 3,213 3,221 4,400 Employees 8,884 9,202 9,171 9,605 9,388 9,597 9,715 10,165 10,217 10,152 9,982 15,000 Patients (mn) 3.73 3.91 4.07 4.23 4.23 4.39 4.39 4.66 4.8 4.94 5.07 ALOS (days) 4.34 4.3 4.5 5.5 5.4 5.4 Source: Edelweiss Wealth Research
9MFY21 performance of hospitals MHI’s revenue growth of 6% better than industry (sector up 1% YoY in Q3FY21) Combined revenue of seven large India listed hospital chains declined 20.6% YoY in 9MFY21. Comparatively, the revenue decline for MHI was lower (-17.4% YoY). In Q3FY21, MHI’s revenue grew 6%, higher than most peers and higher than the combined revenue growth, which declined a tad (1.3%).
Exhibit 107: Revenue of seven large listed Indian hospital chains grew 1% YoY in Q3FY21 7.5% 6.0% 7.0% 0.3%
-3.8% -4.6% -4.9% -11.2% -10.0% -17.4% -20.1% -24.6% -26.8% -33.3% APHS ASTERDM FORH HCG MAXH NARH SHALBY
9MFY21 Q3FY21
Source: Edelweiss Wealth Research
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
MHI – second highest EBITDA in 9MFY21 and highest in Q3FY21 Among the seven listed Indian hospital players, MHI reported the highest EBITDA in 9MFY21. Also, MHI witnessed the lowest fall in EBITDA (-14% YoY) as compared to peers; combined EBITDA plunged 53% YoY. Further, MHI reported record high EBITDA of INR253cr in Q3FY21, which is also the second highest EBITDA amongst the seven Indian hospitals players. MHI’s EBITDA grew at a higher rate of 58.1% YoY, compared to the combined EBITDA growth of 7% YoY.
Exhibit 108: EBITDA (INR cr) grew 7% YoY in Q3FY21 and fell 53% YoY in 9MFY21 for the seven large listed Indian hospital chains
367 373 288 253
114 132 116 112 89 61 51 48 32
-11 APHS ASTERDM FORH HCG MAXH NARH SHALBY
9MFY21 Q3FY21
Source: Edelweiss Wealth Research
MHI’s EBITDA margin expanded due to higher ARPOB… ARPOB of most Indian hospital chains declined in Q1FY21 and Q2FY21 due to almost nil international patients and decline in OPD volumes. Also, the high Covid patient volumes led to lower ARPOBs. In Q3FY21, ARPOB of most players recovered due to rise in non-Covid patients. In Q3FY21, MHI’s ARPOB grew 1% YoY, which led to EBITDA margin expansion.
Exhibit 109: ARPOB recovered for most large players in Q3FY21
9% 8% 9% 9% 6% 4% 5% 1%
-1% -3% -2% -4% -4% -5% -6% -7% -7% -7% -9%
-16%
-25% APHS ASTERDM FORH HCG MAXH NARH SHALBY
Q1FY21 Q2FY21 Q3FY21
Source: Edelweiss Wealth Research
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
Second highest ALOS amongst peers MHI reported highest ALOS amongst the seven larger listed Indian hospital chains. Shably has the highest ALOS (5.5 days in Q3FY21), followed by Max (5.4 days in Q3FY21). Most of the players have experienced increase in ALOS in Q3FY21 when compared to FY20 ALOS and is mainly due to covid led volumes. MHI’s ALOS increased to 5.4 days in Q3FY21 from 4.3 days in FY20, leading to rise in the EBITDA margin for Max.
Exhibit 110: Increase in ALOS due to Covid patients
5.9 5.5 5.4 5.5 5.4 5.1 5.1 4.6 4.5 4.0 4.4 4.3 4.2 3.9 3.6 4.0 3.9 3.8 3.5 3.5 3.3 3.8 3.5 3.2 2.2 2.3 2.3 2.2
APHS ASTERDM FORH HCG MAXH NARH SHALBY
FY20 Q1FY21 Q2FY21 Q3FY21
Source: Edelweiss Wealth Research
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
Highest occupancy rate amongst peers MHI has the highest occupancy rate amongst the seven large listed Indian hospital chains. In FY20, prior to the pandemic, MHI’s occupancy rate stood at 73%, followed by 68% each for Apollo and Fortis. In Q3FY21, occupancy rate for MHI reached 76% i.e., pre-covid level. This is the highest amongst its peers, followed by Fortis and Apollo with 64% and 63% occupancy, respectively.
Exhibit 112: Occupancy rates have reached pre-Covid level in Q3FY21
73% 76% 68% 68% 68% 63% 61% 61% 64% 56% 57% 57% 52% 45% 45% 44% 43% 41%44% 41% 38% 37% 38% 32% 34% 22% 17%
APHS ASTERDM FORH HCG MAXH NARH SHALBY
FY20 Q1FY21 Q2FY21 Q3FY21
Source: Edelweiss Wealth Research
Occupancy supported by higher Covid and non-Covid volumes MHI’s occupancy rate ranged between 70-76% for entire FY20 (barring Mar’20 due to the pandemic). Occupancy rate plunged sharply towards end-Mar’20 to 30-35% due to the nation-wide Covid-19 induced lockdown. Occupancy rate witnessed a V-shaped recovery and reached pre- Covid level in Sep’20. Nov’20 witnessed all-time high occupancy.
Exhibit 113: MHI is seeing sharp recovery in occupancy rates since April-May lows 79% 79% 76% 76% 76% 76% 77% 73% 73% 72% 72% 71% 70% 72% 71% 66% 61% 59% 61%
43%
33%
Jul-20 Jul-19
Jan-20
Jun-20 Jun-19
Oct-19 Oct-20
Apr-20 Apr-19
Feb-20 Sep-19 Sep-20
Dec-19 Dec-20
Aug-19 Aug-20
Nov-19 Nov-20
Mar-20 May-20 May-19 Source: Edelweiss Wealth Research
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Max Healthcare Institute Annexure – MHI: 9MFY21 performance
Geographical presence – metros impacted the most Hospitals located in metros have been more impacted by the Covid-19 led lockdown and travel restrictions. These hospitals have higher dependence on outstation patients (both domestic and international). Total hospital revenue of Fortis declined 4.9% YoY, while that of FMRI and FEHI declined at a higher rate of 13% and 8%, respectively, in Q3FY21. Similarly, Apollo’s hospital revenue declined 3.8% YoY, at a lower rate compared to drop in its Chennai & Bangalore cluster’s hospital revenue. However, the revenue decline in Q3FY21 is not as significant as that in Q2FY21 due to recovery in occupancy rates and higher ALOS across hospital chain players.
Exhibit 114: Fortis - YoY revenue growth % Exhibit 115: Apollo - YoY revenue growth %
1% 5% 6%
-8% -6% -4% -13% -13% -12% -18% -19% -30%
-34% -33% 9MFY21 Q3FY21
9MFY21 Q3FY21 Chennai & others Hyderabad & others FMRI FEHI Others Bangalore & others Others
Exhibit 116: NARH - YoY revenue growth % Exhibit 117: HCG - YoY revenue growth % 6% -0.3% -1.4%
-10% -14%
-24%
-36%
-48% -11.2% -13.3% 9MFY21 Q3FY21 9MFY21 Q3FY21
Bangalore Kolkata Others Bangalore CoE HCG Centers - total
Source: Edelweiss Wealth Research
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Max Healthcare Institute Annexure – Company Update
Exhibit 118: MHI - Network Structure as at 31st Dec’20
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Max Healthcare Institute Annexure – Company Update
Exhibit 119: Strong presence in metros
~72% beds
~28% beds
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Max Healthcare Institute Annexure – Company Update
Exhibit 120: List of Network Healthcare Facilities
Name Location Beds Description Max Super Speciality Hospital, (West Block) Saket Delhi 201 Tertiary and quaternary care hospital Max Super Speciality Hospital, (East Block) Saket Delhi 320 Tertiary and quaternary care hospital Max Smart Super Speciality Hospital, Saket Delhi 250 Tertiary and quaternary care hospital Dr. B L Kapur Memorial Hospital Delhi 538 Tertiary and quaternary care hospital Dr. Balabhai Nanavati Hospital Mumbai 328 Tertiary and quaternary care hospital Max Hospital, Gurugram Gurugram 72 Secondary care hospital Max Super Speciality Hospital, Patparganj Delhi 402 Tertiary and quaternary care hospital Max Super Speciality Hospital, Vaishali Ghaziabad 378 Tertiary and quaternary care hospital Max Super Speciality Hospital, Shalimar Bagh Delhi 280 Tertiary and quaternary care hospital Max Super Speciality Hospital, Mohali Mohali 220 Tertiary and quaternary care hospital Max Super Speciality Hospital, Bhatinda Bathinda 200 Tertiary and quaternary care hospital Max Super Speciality Hospital, Dehradun Dehradun 182 Tertiary and quaternary care hospital Max Multi Speciality Centre, Panchsheel Park Delhi Specialty clinics with outpatient and day care services Max MedCentre, Lajpat Nagar – Immigration Department Delhi Specialty clinics with outpatient and day care services Max Institute of Cancer Care, Lajpat Nagar Delhi Specialty clinics with outpatient and day care services Max Multi Speciality Centre, Noida Noida Specialty clinics with outpatient and day care services
Exhibit 121: Strategy highlights
Focus on developing high-end tertiary and quaternary care programs Scale up and unlock value of MaxLab – Invest in top-rated clinicians and retain its non-captive pathology business existing clinicians and senior leadership Continue to build the Home healthcare Set up offices globally to facilitate direct- business through the digital platform to-fly international patients Strengthen upcountry outreach Continued focus on cost optimization
Brownfield expansion across key hospitals in metros and in proven geographies Partnerships through asset-light models (e.g., O& Ms in partnership with REITs) to expand domestic and international reach Opportunistically look at inorganic expansion (large acquisition and/or string of pearls)
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Max Healthcare Institute Annexure – Company Update
Exhibit 122: Porter’s Five Forces analysis
The threat of new entrants The threat of substitution is low
Emerging threat to large tertiary care is Public hospitals are less expensive but from decentralization of quality Threat of new Threat of quality is compromised and wait time healthcare beyond a few large hospitals entrants substitution is also very high. and metros led by PE funded new players that have gained share of Industry rivalry secondary care/ basic tertiary care procedures. Industry rivalry is Private equity investments for high due to rise in emerging healthcare have dried up, accredited hospitals limiting the threat of additional backed by PE and competition. decentralization of quality healthcare The most sustainable barrier against services beyond competition is clinical excellence. Bargaining metros. Bargaining The bargaining power of suppliers is The bargaining power of buyers power of power of high (patient) is low Buyers Suppliers The bargaining power of suppliers is Bargaining power of patients is low high as the quality of products and because of trust, loyalty, and timely delivery is very crucial in the unavailability of quality healthcare sector. services. Complex/high-end treatments/ surgeries are recommended by consultants leading to few or no choice for the patient.
Exhibit 123: MHI - a sustainable growth story
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Max Healthcare Institute Annexure – Company Update
Exibit 124: Merger transaction structure overview Step 1: Acquisition of Life’s 49.7% stake in MHIL
Step 2: Composite scheme of amalgamation
Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Annexure – Company Update
Swap / Entitlement Ratio: Element 1: Max India shareholders received 1 share of Advaita for every 5 shares of Max India based on share entitlement ratio.
Element 2: Radiant shareholders received 9,074 shares of MHIL for every 10 shares of Radiant based on the share entitlement ratio.
Element 3: Shareholders of Max India received 99 shares of MHIL for every 100 shares in Max India based on the share swap ratio.
Transaction equity value: Radiant had acquired 49.7% stake initially in Jun’19 in MHIL at INR80/share. Source: Company, Edelweiss Wealth Research
Exhibit 125: Reconciliation of number of shares No. of equity shares Pre-merger (FY20) 537,244,328 Allotment to Radiant and Max India 901,284,070 Total 1,438,528,398 Existing share capital held by Radiant and Max India cancelled -533,995,874 Post-merger (Dec’20) 904,532,524 Source: Company, Edelweiss Wealth Research
Exhibit 126: Abridged income statement MHC Radiant Proforma consol Particulars (INR Cr) FY19 FY20 FY19 FY20 FY19 FY20 Revenue (gross) 2,921 3,212 999 1,159 3,920 4,371 Revenue (net) 2,671 2,959 928 1,067 3,599 4,026 Direct Costs 1,122 1,223 444 492 1,565 1,715 Gross Profit 1,549 1,736 484 575 2,033 2,311 Gross Profit margin (%) 58.0% 58.7% 52.2% 53.9% 56.5% 57.4% INDIRECT COSTS: Personnel cost 733 767 208 230 942 997 Other Indirect overheads 438 401 150 193 588 593 Corporate cost 141 125 8 10 149 134 Operating EBITDA (Post INO AS 116) 238 444 118 142 356 587 Operating margin 8.9% 15.0% 12.7% 13.3% 9.9% 14.6% Transaction I One-time costs 37 43 37 43 Finance cost (net) 129 170 53 43 182 213 CASH PROFIT 109 274 28 56 137 331 EBITDA (PreiND AS 116) 238 410 118 135 356 545 EBITDA Margin 8.9% 13.8% 12.7% 12.7% 9.9% 13.5% Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Annexure – Company Update
Exhibit 127: Operational and financial KPIs MAX RADIANT LIFE PROFORMA
HEALTHCARE CARE CONSOLIDATED FY19 FY20 FY19 FY20 FY19 FY20 # of Total beds 2488 2,505 886 886 3,374 3,391
# of Operational beds 2376 2,367 867 867 3,243 3,234 Occupancy 73.80% 73.40% 67.6% 70.00% 72.1% 72.5%
METRICS OPERATING OPERATING ARPOB ('in 000) 45.6 50.5 46.5 52.2 45.8 51.0
Gross revenue (INR cr) 2,921 3,212 999 1,159 3,920 4,371
Contribution (INR cr) 1,549 1,736 484 575 2,033 2,311 Operating EBITDA (INR Cr) 238 444 118 142 356 587
METRICS
FINANCIAL FINANCIAL 12.70 9.9% 14.6% Operating margin 8.90% 15.00% 13.30% %
1,163 1,744 Net 3rd party debt (INR cr0 1,247 1,005 -84 739 Net 3rd party debt pre Ind AS 116 (INR cr) 1,247 781 -84 719 1,163 1,500
(1) Calculated on the basis of gross revenue | (2) Post Ind AS 116 adjustment; positive P&L impact of INR35cr in MHC and INR7cr in Radiant in FY20 | (3) Before one-time and transaction costs of INR37cr in FY19 and INR43cr in FY20 for Radiant | (4) Calculated on the basis of net revenue | (5) Excludes put option liability for purchase of shares from minority (INR586cr) and present value of contingent consideration payable to BLK/Nanavati Trusts over the term of the O&M agreements: Mar’20 INR247cr and Mar’19 INR256cr.
Exhibit 128: Fund raising details
Fund Raise INR cr No. of shares (cr) CMP QIP 1,200 6.14 195.40 NCD 550 NA NA Total 1,750 Source: Company, Edelweiss Wealth Research
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Max Healthcare Institute Annexure – Company Update
QIP details Issue size INR1,200cr comprising 61,412,482 equity shares of the company
Floor Price & Issue Price INR195.40/equity share
Equity Shares outstanding post-merger and prior to 904,532,524 fully paid-up equity shares the QIP
Equity Shares outstanding 965,945,006 fully paid-up equity shares; dilution of 6.7% post QIP
Net proceeds to be used for: (i) part financing funding requirements, (ii) meeting the capital expenditure and working capital requirements of the company, subsidiaries, managed Use of Proceeds healthcare facilities and partner healthcare facilities and affiliates, if any, including investment or increasing stake in existing or future subsidiaries, JVs and affiliates, (iii) repayment of debt, (iv) expansion and modernization, and (v) general corporate requirements or any other purposes
Completion date 10th Mar’21
NCD Issue The Board has approved the offer, issue and allotment at an appropriate time, non-convertible debentures (NCDs) aggregating up to INR550cr, to investors by way of private placement, during the period of one year commencing from the date of passing of the resolution (1st Sep’20), on such terms and conditions, as may be deemed fit and appropriate by the Board.
Contigent liability (INR427cr) Present value of Deferred/Contingent consideration payable stood at INR427cr in Dec’20 Present value of contingent consideration payable to BLK/NanavatiTrusts over the term of the O&M agreements: Mar’20 INR247cr and Mar’19 INR256cr
Put option (liability of INR586cr) Crosslay Remedies Ltd (CRL) @ INR98.71cr for 16.81% Share purchage agreement with Saket City Hospital @ INR487cr for 42.8% stake
Exhibit 129: QIP Fund utilisation (till Apr’21) INR crores 42.8% stake in SCHL 482
16.84% stake in CRL 82
Paid-up capital of new wholly owned subsidiary 5
Total 569 Source: Company, Edelweiss Wealth Research
Edelweiss Wealth Research 69
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220 200 180 160 140 120
(Indexed) 100 80 60
40
Jan-21
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Nov-20 Mar-21 MAX Sensex
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EBL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies), mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. EBL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with EBL.
EBL or its associates may have received compensation from the subject company in the past 12 months. EBL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. EBL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or EBL’s associates may have financial interest in the subject company. EBL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk.
Research analyst has served as an officer, director or employee of subject Company: No EBL has financial interest in the subject companies: No
EBL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No
EBL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report.
There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years. A graph of daily closing prices of the securities is also available at www.nseindia.com
Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
Additional Disclaimer for U.S. Persons
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Disclaimer
Edelweiss is not a registered broker – dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Edelweiss is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Edelweiss, including the products and services described herein are not available to or intended for U.S. persons.
This report does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules.
Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.
Additional Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).
This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person.
Additional Disclaimer for Canadian Persons Edelweiss is not a registered adviser or dealer under applicable Canadian securities laws nor has it obtained an exemption from the adviser and/or dealer registration requirements under such law. Accordingly, any brokerage and investment services provided by Edelweiss, including the products and services described herein, are not available to or intended for Canadian persons. This research report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services.
Disclosures under the provisions of SEBI (Research Analysts) Regulations 2014 (Regulations) Edelweiss Broking Limited ("EBL" or "Research Entity") is regulated by the Securities and Exchange Board of India ("SEBI") and is licensed to carry on the business of broking, depository services and related activities. The business of EBL and its associates are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance. There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years. This research report has been prepared and distributed by Edelweiss Broking Limited ("Edelweiss") in the capacity of a Research Analyst as per Regulation 22(1) of SEBI (Research Analysts) Regulations 2014 having SEBI Registration No.INH000000172.
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