Motilal Oswal reiterates 'buy' rating for Max Healthcare, expects 15% upside; here's why
Motilal Oswal Financial Services, reiterates 'buy' rating for Max Healthcare with a target price of ₹660, and sees an potential upside of 15% for the stock from Wednesday's close price of ₹575. After gaining for three consecutive sessions, on Friday, Max Healthcare shares ended in red at ₹574 apiece, down 2.48% on NSE.
Max Healthcare's share price is presently trading at 24x FY25E enterprise value (EV)/earnings before interest, taxes, depreciation, and amortisation (EBITDA), according to the brokerage, which is higher than the company's historical average of 22x. Additionally, it is trading at a premium compared to its hospital peers.
The report states that in FY23/1QFY24, Max Healthcare's EBITDA per bed was ₹6.4 m/ ₹6.7 m. EBITDA per bed for Rainbow Childrens Medicare Ltd in FY23/1QFY24 was ₹6.0/6.6 m, placing it second overall.
Max Healthcare had the highest compound annual growth rate (CAGR) among peers for EBITDA per bed between FY19 and FY23, at 35%. "However, we expect Max Healthcare to continue trading at a premium on relative basis, backed by: a) significant land bank availability in high-demand areas of Delhi for brownfield expansion, b) focused approach to improve profitability per bed, and c) proven capability of strong turnaround of hospital assets," the brokerage said in its report.
Further, the brokerage stated that it really expects the valuation at the sector level to continue to strengthen in the future given the strong demand tailwinds resulting from increasing insurance penetration, stronger foreign patient flow, and c) enhanced healthcare awareness. “Currently, the hospital sector is trading at 21x FY25E EV/EBITDA as compared to 15-16x 12M forward EV/EBITDA in pre-Covid phase," said Motilal Oswal.
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