Share price of Medanta Global Health continue to gain for the second straight day. After appreciating 23 per cent on the listing day on Wednesday, it rose 5 per cent today.

Following the listing, the stock’s valuation has increased to 60 times FY22 earnings compared to 46 times at the time of IPO. This is inline or higher than much larger peers—Apollo Hospitals (60 times FY22 earnings), Max Healthcare (67 times), Fortis Healthcare (39 times) and Narayana Hrudalaya (44 times).

At the time of IPO, we recommended investors to subscribe to the issue.

The stock now demands superior execution of optimistic expansion plans to justify the current valuation. It implies that investors with normal growth expectations can book profits from the issue at the current price.

Global Health operates five multi-speciality tertiary care hospitals in NCR and East India under the “Medanta” brand with 2,467 installed beds as of June, 2022.

The established centres of the group with more than four years of operations are in Gurugram (1,391 beds), Indore (175 beds) and Ranchi (200).

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Lucknow (473) and Patna (228) are the developing centres with scope for further expansion while the facility in Noida (550 beds) is expected to be commercialised by 2025.

Backed by a strong brand and a product mix with higher proportion of complicated procedures, Global Health has industry leading AROPB (average revenue per operating bed) of ₹59,000 in FY22.

Assuming an optimistic scenario, Global Health should be able to deliver 20 per cent earnings growth till FY25 which implies a PE of 30 times on FY25 expected earnings.

This includes a 5 per cent CAGR growth in ARPOB till FY25 and 7 per cent CAGR in beds/volume (16 per cent in developing centres and 3 per cent in established), and margins continuing at the higher range of 21-22 per cent level.

From FY25, the growth should trend lower due to a high base, even as ARPOB growth may continue.

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This implies superior execution till FY25 without any macro disturbance and lower growth from there on.

The risk reward may be marginally unfavourable to investors at the current valuation and hence investors who were allotted the stock can book profits at the current levels.

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