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HDFC Securities
Max Healthcare (Buy)
Target: ₹410
CMP: ₹369.65
Max Healthcare’s annual report 2020-21 reflects the first year of consolidated financial statements of the combined entity - Max and Radiant. In this report, while financials are not comparable due to merger, we analyse the qualitative characteristics and key components of the company’s balance sheet and P&L.
The management commentary reinforces its intent to grow aggressively by additionally employing asset light models of expansion and exploring inorganic opportunities. Key financial highlights include: recognition of goodwill and intangibles worth ₹2,450 crore and nearly ₹2,300 crore (both together account for about 85 per cent of net worth) pursuant to purchase price allocation exercise in relation to Max’s assets consequent to reverse merger; and structural cost savings in material, doctor fees and other expenses.
We revise our estimates to reflect new bed expansion plans and forecast 17 per cent/24 per cent revenue/EBITDA CAGR over FY21-28e. Based on our long term projections, we see about 95 per cent upside potential over the next five years (refer to our recent initiation: Max Healthcare – a three-act play: growth, quality, returns for the detailed thesis).
We revise our target price to ₹410/share, based on March 24 EBITDA (from March 23).
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