Yes agree Insurance is not easy. Lets see how they go after this business.BUt if they suceed it will be game changer
1 Like
I had done some work some time back my understanding is the cost of bed is key factor. I have not done deep dive in Narayana.
To understand the difference between Apollo and Narayana EBITDA/Bed pricing you could check cost per Bed Comparision.
As I understand the location - basically real-estate price and manpower cost get changed based on the location of establishment.
This sure looks like a promising frachise. Management seems solid. Good balance sheet. Good IT and Robotics solutions. Clinic and insurance are interesting. Cayman has a good potential. Being Bangalore sure would be positive for international customers and on the flip side, may engage lots of insurance patients. All considered , looks good.
Not invested now a d looking to add positions.
3 Likes
5 Likes
As others have already talked about NH, here are some insights i got during the latest concall:
They are expanding more in areas they already have a brand presence : Bengaluru and Kolkata. The reason is that they are capacity constraind here more than other regions. So short term ROI is expected to be higher rather than investing fresh in northern India.
Payor mix is very important. They could not get higher Qoq business from Jaipur because of some payor mix issues. It was not very clear on what exactly they are looking for.
Overall my perspective is that the company at least in India wants to be in the space of affordable care. Because of this reason markets probably wonât give them high multiples.
Caymen could be a different ball game where they might rebrand themselves more premium. That could mean re rating.
Overall what i love : prudent capital allocation and technology adoption, clean management and strong brand name in East and South India. My estimates for earning growth is 20 % pa over next 2-3 years
What I need visibility and being watchful : what is their strategy on North and West? Any insight will be helpful from others in this forum
Disc : invested
5 Likes
My impression about Payor mix is that they are looking for better receivables terms. (shorter cycle, not necessarily higher margin profile). I live in Jaipur, receivables parts of government schemes like RGHS can be stretched. Especially since there was state election at the end of 2023 year. Similar situation can occur this year as well due to general elections.
Stretched receivables can make cashflows from operations uncertain in terms of timeline. This can be discomforting especially since they are in heavy capital investment phase for next 2-3 years.
Disclosure: Invested.
Thanks @Kaustav_Gupta . If it is only the receivables part then the revenue can be recognized and cash flows could be realized later. So i am not sure how does it impact lower revenues from Jaipur (i get that cash flow part) qoq.
I am assuming that NH cannot deny such patients.
Perhaps i am missing something here.
1 Like
As a medical service provider, you can choose packages and say no to these as well. It is not mandatory. I am not looking from economic perspective like presence in market, but purely financial perspective. NH has lower revenues from Jaipur because they chose not to do this nature of business. Mentioned in concall.
just for example : Chemists Protest: Chemists Protest Non-Payment of Bills under RGHS: Jaipur | Jaipur News - Times of India
Private Hospitals: Remove Cap Of âš1,000 On Daily Drugs Under Rghs, Demand Pvt Hospitals | Jaipur News - Times of India
I listened to the Concall as well and your inputs are spot on. They are careful on payor mix + maximizing operations leverage. Jaipur is probably Hospital restricting the flow but manageable issue.
I also agree with 20% PA growth. They will maximize land bank but donât seem to be aggressive like Max or KIMS. For 20% Growth, what is the right valuation? I feel like there is no margin of safety now at 1350 rs. looking to invest in near future.
3 Likes
It is true that they are not aggressive. But 20% growth seems pretty good here. Also if you look at their EVEBIDTA, it is around 24 while for Max, it is close to 50.
I do not find the stock expensive.Though they are conservative in guidance, I think they should do good in long term.
11 Likes
Q3 FY24 Concall notes
Financial Performance:
- Consolidated Revenue: INR 12,036 million (+6.7% YoY, -7.8% QoQ).
- Consolidated EBITDA: INR 3,968 million (24.7% margin in Q3 FY24).
Cayman Units Business:
- HCCI and EICL Quarterly Revenue: USD 30.6 million (+8.5% YoY).
- Confidence in Caribbean business growth through strategic initiatives.
Financial Position:
- Strong balance sheet with INR 10.39 billion cash.
- Net cash position: INR 0.25 billion as of December 31, 2023.
Capital Expenditure:
- Outlay close to INR 5 billion till December 2023.
Clinical Achievements:
- Successful organ and bone marrow transplants, robotic procedures.
- Rare renal transplants and critical case recovery in Mumbai.
Digitization and Transformation:
- 8% QoQ throughput increase, 3.3% NH Labs turnaround time reduction.
- AADI app saves 2500 surgeon hours, NAMAH app saves 83 nursing hours monthly.
Narayana Health Integrated Care:
- Revenue crosses INR 53 million with 42,000+ patient transactions.
Q3 Domestic Business Performance
- Low Growth:
- Seasonality impact, notably in North and West regions.
- Higher impact in Gurugram; underperformance in Jaipur due to unviable RGHS reimbursements.
- Payor Mix Rationalization:
- Focus on improving payor mix (cash and insurance up by 2%, schemes down by 2%).
- Positive impact on margin despite challenges.
- Exit from M S Ramaiah and Bellary contracts for strategic focus.
- Impact of Jaipur Hospital:
- Unquantified but significant underperformance, particularly in North.
- Jaipur unit majorly contributes to the overall underperformance.
Capex Timeline:
- Cayman unitâs Capex almost complete; hospital commissioning expected in the first half of the next year.
- Bangalore and Kolkata units take 2-3 years for completion.
- Acquired land in Kolkata; permissions applied for building in Bangalore.
- Exploring additional capacity options in Bangalore and Kolkata.
New Hospitals Performance:
- Faced seasonality impact more than flagship units.
- Combined EBITDA around 4%, down from 7% in Q2.
- Dharamshila performed the best.
- Expecting a strong recovery in the last quarter to approach the target for the next two quarters.
Insurance Business Update:
- Received license in early January.
- Planning to go live next year, starting in Karnataka (Mysore) and gradually expanding to other geographies.
India Business Discharges:
- Single-digit growth observed in full-year discharges.
- Explanation: efforts to improve payor mix, focus on efficiency, and digital initiatives.
- ARPOBS growth noted despite lower discharges, attributed to throughput improvement.
Other Expenses Decrease:
- YoY decrease noted in other expenses.
- One-time factors impacting Q3, anticipation of saved expenses not necessarily deferred.
Lease Modification in Other Income:
- INR 159 million related to lease modification in other income.
- Explanation: periodic lease renegotiations with third-party partners, affecting non-owned hospitals.
Manpower Cost Increase:
- Double-digit YoY growth observed in manpower costs.
- Emphasis on challenges due to government actions on minimum wages.
- Solutions: operational efficiency, digitization, and NAMAH app implementation.
Wage Inflation History:
- 10-12% wage inflation observed for FY24, similar expectations for FY25.
- Explanation: post-COVID, increased inflation, recovery expected through efficiency and price adjustments.
Longer-Term Capital Allocation:
- Key Priorities:
- Focus on winning greater market share in Bangalore and Kolkata.
- Bulk of investment for the next decade directed to these geographies.
- Expansion Strategies:
- Strengthening existing hospital set through:
- Adding more beds.
- Adjacent capacity expansion.
- Combination of Brownfield and Greenfield investments in hospitals, clinics, and pharmacies.
- Strengthening existing hospital set through:
Assessment of Supply Side:
- Current Market Dynamics:
- Mature cities in India have an adequate supply of hospital beds.
- Shift in patient preference from unorganized to accredited hospitals.
- Majority of corporate healthcare groups concentrated in large cities.
- Demand Dynamics:
- Demographics favor growth with rising incomes and aging population.
- Opportunity set deemed tremendous despite existing competition.
Anticipating Insured Mix vs. Out-of-Pocket:
- Current Scenario:
- Organized payors constitute 20%-22% of the mix.
- Aspiration to reach industry peersâ numbers (40%-50%).
- Evolution Timeline:
- Acknowledgment that achieving peer numbers may take longer.
- Aspiration to transition from a legacy of providing low-cost, subsidized services.
Overall Strategy:
- Long-Term Focus:
- Commitment to long-term growth in key markets.
- Balancing expansion between existing and new facilities.
- Quality Over Quantity:
- Emphasis on high-quality beds rather than sheer quantity.
- Recognition of a shifting preference towards accredited healthcare providers.
- Demographic Advantage:
- Leveraging favorable demographics for sustained demand.
- Viewing competition as a part of the overall growth narrative.
Changing Patient Demand:
- Shift towards seeking routine surgeries closer to home.
- Corporate hospitals adapting to advanced procedures like heart and cancer surgeries.
- Strategic investments to expand accessibility for diverse diseases.
Impact on ROCE:
- Short-term dilution due to expansion efforts and increased footprint.
- Balancing financial considerations with growth opportunities.
- Moderate acquisitions to manage financial impact.
Tech Initiatives:
- Patient-facing app, NH Care, centralizes hospital services for convenience.
- Features include appointment booking, test payment, results viewing, and doctor information.
- Integration into NH Integrated Care Plan and QR code system in progress.
Research and Publications:
- Robust medical research wing with a focus on clinical and basic science research.
- Incentives for staff engagement in research, resulting in 200+ publications last year.
- Leveraging electronic medical records for comprehensive data analysis and clinical trials.
Tax Rate:
- Similar tax rate expected next year.
- Moderated by the mix between India and Cayman operations.
Capex:
- Next yearâs capex around INR 1000-1200 crores.
- Funding through bank borrowings, NCD raise, and internal accruals.
- Higher debt-to-EBITDA ratio expected in the medium term.
Capex Composition:
- General capex of approx. INR 450 crores. (India focused)
- Expansion-focused capex in Bangalore, Kolkata, and Raipur.
- Cayman-specific capex includes regular and new hospital expenses.
Sparsh Acquisition:
- Sparsh meeting projections, maintaining margins.
- Acquisition benefits include cost rationalization and additional capacity creation.
Cayman Expansion:
- New hospital in Cayman aiming to start by June.
- Frontloaded fixed costs mitigated by market familiarity.
- Anticipating swift climb over initial fixed costs due to high operating leverage.
17 Likes
Whats the potential impact of Supreme Court order on price cap for medical treatments? Narayana mostly does specialist treatments/complex heart surgeries, any impact on business performance or just an overhang?
If not much impact, then this correction in NH share on the back of this development offers good margin of safety, given the company is consistently growing at 20% EPS and valuation (EV/EBITDA) appears reasonable vs peers.
Any thoughts?
1 Like
They will be least affected as they already have one of the lowest ARPOBs
4 Likes
The impact of the regulation depends on how it is implemented. Unless we know it is hard to tell. The worst of the worst case scenario is going back to nationalization which is the stone age. The best case is provide insurance and not control prices. Between the two there is the option of more good quality public hospitals too.
I reckon government would not want to take the worst case scenario and would probably invest public hospitals or improve insurance coverage.
3 Likes
They are the lowest price and most frugal. However, in the latest management was hinting that they will move to expensive beds like increasing private rooms, etc. Moving towards premium services.
One thing is clear they are doubling down on the locations where their brand is well known rather than expanding to other cities. They have not been successful in extending the brands to other cities. This helps in realizing better returns quicker.
3 Likes
Is this fall unwarranted or am I missing something? Does this latest developments in overall healthcare sector impact NH that severely?
@Yusufi_Kapadia I think the overall Hospitals index is pricing in a potential negative outcome. NH price action is inline with that of the index.
5 Likes
Thanks for the info Ayan⌠fully agree with you.
I beefed up my position in NH, and hopefully the issue is transient and awaiting clarity from Health Ministry.
Anyways, this recent correction is a fantastic opportunity to accumulate a multi-year growth play, with excellent execution track record and transparent management.
Disclaimer: NH is now a top holding in my portfolio
5 Likes
Does anyone have any clue as to why NH is still continuing to fall with no bottom in sight? For all the other hospital sector players like Apollo, Fortis, Max, etc., I can see the intensity of the fall somewhat tapering down and indications of a bottom forming, while NH continues to fall steeply every single day.
Given that their P/E multiple is lower than other competitors and that their strategy is primarily centered around patient volumes and not pricing, I would think that any regulatory setback should affect them to a lesser degree. Am I getting something wrong here? Is NH overvalued with respect to competition?
7 Likes