The New 152-Bed Raipur Facility Will Expand Patient Services In Underserved Areas

Key Takeaways

• Expansion into underserved areas and focus on complex treatments drive revenue growth, increase patient base, and enhance service offerings.
  
• Debt reduction strengthens financial health, improving net earnings and supporting growth and expansion plans.
  
• Expansion pressures from new hospitals and project delays, combined with reliance on cash and insurance patients, could limit revenue and impact margins.

Catalysts

Owns and operates a chain of multispecialty hospitals under the name ILS Hospitals brand name in India.

• The strategic expansion of GPT Healthcare into underserved areas, particularly with the new 152-bed Raipur facility and a planned 150-bed hospital in Jamshedpur, is expected to enhance the company's patient base and significantly increase revenue in the coming years.
  
• The company's focus on more complex, higher-margin treatments, such as oncology and robotic surgeries, is projected to continue increasing ARPOB (Average Revenue Per Occupied Bed), positively impacting both revenue and net margins.
  
• Ongoing efforts to reduce the average length of stay (ALOS) by optimizing case mix and utilizing advanced treatments and technologies are freeing up bed capacity, allowing for increased patient volumes without compromising service quality, which should bolster future revenue growth.
  
• The expected commissioning of radiation oncology components in Agartala Hospital in Q4 FY '25 and the planned full-fledged cardiothoracic setup at Dum Dum Hospital will expand service offerings and attract more patients, thereby boosting revenue.
  
• Reduction in finance costs due to decreased debt levels enhances the financial health of GPT Healthcare, leading to improved net earnings and providing additional cash flow to support future growth initiatives and operational expansions.

GPT Healthcare Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GPT Healthcare's revenue will grow by 16.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 14.4% in 3 years time.
• Analysts expect earnings to reach ₹926.5 million (and earnings per share of ₹11.27) by about March 2028, up from ₹498.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.5x on those 2028 earnings, up from 21.6x today. This future PE is lower than the current PE for the IN Healthcare industry at 36.8x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

GPT Healthcare Future Earnings Per Share Growth

Risks

• The company faced external challenges, such as the dispute in Bangladesh affecting international patient inflow and regional events like floods in Tripura, impacting overall productivity and potentially affecting future revenue growth.
  
• The expansion into the new Raipur hospital and plans for Jamshedpur could place pressure on margins initially, as these facilities may take time to reach profitability, affecting net margins in the short term.
  
• There is uncertainty regarding the Ranchi project due to delays in government approvals, which might impact the planned increase in bed capacity and revenue projections.
  
• The strategy to focus more on cash and insurance patients without participating significantly in government schemes might limit patient volume growth, impacting overall revenue.
  
• The length of stay reductions at hospitals are resulting in temporarily reduced bed occupancy rates, which, if not compensated by increased patient admissions, could negatively affect revenue.

Valuation

• The analysts have a consensus price target of ₹242.0 for GPT Healthcare based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹6.4 billion, earnings will come to ₹926.5 million, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of ₹130.94, the analyst price target of ₹242.0 is 45.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.