All eyes on sustainability of Max Healthcare’s operating metrics

A key one being Max’s intent to lower the share of institutional bed share mix to 15% in the next 2-3 years. For the three months ended September (Q2FY23), the share of institutional beds stood at 28%, registering a drop for the second consecutive quarter. According to the company, the average revenue per occupied bed (ARPOB) for institutional patients is about 40% lower than other channels. Therefore, reducing the share of this business could boost earnings before interest, tax, depreciation and amortisation (Ebitda) margins.

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Analysts are optimistic on this. “If the institutional beds share reduces in FY24 to 18%, Max Healthcare can beat our Ebitda numbers by about Rs75 crore,” said analysts from Jefferies India in a report on 8 December.

Another lever for Max is brownfield expansion plans which is return on capital employed (RoCE) accretive. In Q2, Max pre-tax RoCE stood at 33% versus 30% in Q1. “Brownfield expansions allow you a significantly higher RoCE than your present set of operations because your Ebitda per bed is much higher in a brownfield and there is no stress on your short-term Ebitda margins,” said Abhay Soi, chairman and managing director of Max Healthcare in their Q2 earning call. Max plans to add 1,169 beds by FY25 and out of this, Jefferies estimates over 60% to be brownfield.

Max’s Dwarka facility is expected to be operational in Q1FY24 with 300 beds capacity. According to Jefferies, a faster ramp up of the facility and high occupancy can lead to a beat to on its FY24 Ebitda numbers.

To be sure, while CY22 has been dull, investors are sitting on handsome returns of as much as 286% since the stock listed in August 2020. The company has seen strong Ebitda growth over FY20-FY22. Further, over FY20-FY22, its operating metrics such as ARPOB, occupancy, Ebitda per bed and RoCE were better than peers.

“Max Healthcare has more exposure to metro cities which helps them clock better occupancy levels, which results in better operating metrics compared to its peers- Apollo Hospitals and Fortis Healthcare,” said Param Desai, research analyst, Prabhudas Lilladher.

Going forward, all eyes will be on sustainability of Max’s operating metrics and FY23 capex which is running behind their budgeted plans.