New Delhi And Faridabad Hospitals Will Elevate Patient Care

Key Takeaways

• Recent acquisitions and technological advancements could drive revenue growth through increased bed capacity, high-value services, and pricing power in specialized procedures.
  
• Focus on high-value super-specialty services and a shift towards private payers could enhance ARPOB, net margins, and cash flow.
  
• Operational challenges and financial strains from hospital integrations may hinder profitability and liquidity, risking negative impacts on margins and earnings projections.

Catalysts

Owns and operates super-specialty hospitals in Delhi and Madhya Pradesh.

• The recent acquisitions of two hospitals in New Delhi and Faridabad, set to become operational soon, could significantly increase Yatharth's bed capacity. This expansion is likely to drive revenue growth as the new facilities begin generating patient intake and offering high-value specialty services.
  
• The integration of state-of-the-art medical equipment and advanced robotics systems is expected to elevate healthcare quality, attract more patients, and potentially allow for pricing power in specialized medical procedures, thus enhancing both revenue and earnings.
  
• An ongoing shift towards high-value super-specialty services, such as oncology, is enhancing ARPOB (Average Revenue Per Occupied Bed). Continued growth in these areas could result in increased overall revenue and improve margins due to the higher profitability of these services.
  
• The focus on reducing government business, which traditionally yields lower revenue per unit, and increasing private payer mix should positively impact net margins by increasing ARPOB as well as improving cash flow through reduced receivable days.
  
• Operational efficiencies and strategic empanelments, as seen in the Greater Faridabad hospital, if replicated across new acquisitions, could support margin expansion and contribute to quicker breakeven times, thereby improving earnings in the medium term.

Yatharth Hospital & Trauma Care Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Yatharth Hospital & Trauma Care Services's revenue will grow by 29.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.7% today to 15.1% in 3 years time.
• Analysts expect earnings to reach ₹2.7 billion (and earnings per share of ₹27.68) by about May 2028, up from ₹1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.4x on those 2028 earnings, down from 34.9x today. This future PE is lower than the current PE for the IN Healthcare industry at 39.8x.
• Analysts expect the number of shares outstanding to decline by 0.51% 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.

Yatharth Hospital & Trauma Care Services Future Earnings Per Share Growth

Risks

• The company faces operational challenges and financial strain due to the integration of the new hospitals, with the Greater Faridabad hospital currently contributing to a decrease in EBITDA margins, which could impact net margins if not addressed effectively.
  
• The income tax matter and provisional blocking of funds and assets present a risk of financial liabilities and distractions, potentially affecting the company’s financial stability and affecting earnings.
  
• Increased depreciation from new acquisitions and equipment could continue to affect profit growth negatively, as seen with the recent slower profit growth, which could impact net earnings in the short to medium term.
  
• While revenue growth remains strong, any lag in successfully restructuring and achieving break-even for newly acquired hospitals might delay profitability improvement, thereby affecting net margins and earnings projections.
  
• High dependence on receivables, particularly from the government segment, makes cash flow management challenging, and any further delay in collections could adversely affect the company’s liquidity and eventual return on equity.

Valuation

• The analysts have a consensus price target of ₹560.667 for Yatharth Hospital & Trauma Care Services based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹644.0, and the most bearish reporting a price target of just ₹410.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹18.1 billion, earnings will come to ₹2.7 billion, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of ₹471.25, the analyst price target of ₹560.67 is 15.9% 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.