NARAYANA HRUDAYALAYA LIMITED 🏥

“Narayana Limited is a prominent player in the healthcare sector offering exceptional services and robust business strategies. This analysis dives deep into the company’s financial performance, business model, and future growth prospects. We evaluate key metrics such as revenue trends, profitability, and sector positioning to help investors make informed decisions. Whether you are a seasoned investor or new to the stock market, this comprehensive review will provide valuable insights into Narayana Limited’s potential as a long-term investment.”

01-12-2024

SHUBHANKAR JENA

  • COMPANY FOUNDED – 2000 INITIAL PUBLIC OFFERING (IPO) IN 2015 (NSE and BSE)
  • 18 HOSPITALS AND 3 HEART CENTERS (TOTAL 21 HOPITAL)
  • 5,640 OPERATIONAL BEDS AND A CAPACITY OF ~6,040 BEDS
  • GEOGRAPHICAL PRESENCE IN INDIA
    SOUTH- 2161 OPERATIONAL BED INCLUDING HEART CENTERS (39%)
    EAST- 1865 OPERATIONAL BEDS (34%)
    NORTH- 1159 OPERATIONAL BEDS (21%)
    WEST- 351 OPERATIONAL BEDS (6%)
  • CAPEX PLAN
    COMPANY HAS PLANNED A TOTAL CAPEX OF 1136 CR FOR FY24 AND TILL Q3 FY24 IT HAS SPENT 477 CR. THE BREAKUP OF CAPEX IS-
  • COMPANY PLANS TO ADD 700 PLUS BEDS FOR THE NEXT 3-4 YEARS AT BANGALORE HEALTH CITY. IT INTENDS TO INVEST UPTO RS. 1,000 CR IN THE WEST BENGAL FOR SETTING UP A SUPERSPECIALTY HOSPITAL.

BUSINESS ANALYSIS

  • INDUSTRY & SECTOR: GROWTH POTENTIAL, TRENDS, AND COMPETITION
  • Healthcare Industry Growth Potential:
    The healthcare industry in India has significant growth potential. With a growing population, an increasing number of lifestyle diseases, and improving healthcare infrastructure, demand for quality healthcare services is rising rapidly. The healthcare market is expected to reach USD 372 billion by 2022 and continue expanding at a 16-17% CAGR (Compound Annual Growth Rate).   2030, the industry is projected to reach USD 640 billion or more
  •  
  • Trends:
    • Telemedicine and Digital Health: There is a growing shift towards digital healthcare, including telemedicine, AI-based diagnostics, and robotic surgeries. These trends are improving patient outcomes and making healthcare services more accessible.
    • Preventive Healthcare: The focus is also shifting from treatment to prevention, which includes wellness programs and early detection of diseases.
    • Healthcare Insurance: With more people getting covered under health insurance, demand for hospital services is growing, especially for high-quality, affordable care.
  • Competition:
    • Narayana Hrudayalaya faces competition from both private and public healthcare providers, including large hospital chains like Fortis Healthcare, Max Healthcare, and Apollo Hospitals. Additionally, regional players and new entrants in digital healthcare and specialty hospitals add to the competition.
    • Narayana Hrudayalaya’s Advantage: The company’s focus on affordable care, large network of hospitals, and leadership in cardiac and oncology care give it a competitive edge in the market.
  • BUSINESS MODEL: REVENUE SOURCES, MARKET SHARE, KEY PRODUCTS/SERVICES
  • Revenue Sources:
    • Hospital Services: The majority of revenue comes from the hospital services provided, including cardiac care, oncology, orthopedic surgeries, and robotic surgeries. The company operates both multi-specialty and single-specialty hospitals.
    • Medical Tourism: A significant portion of revenue also comes from medical tourism, where international patients come for affordable, high-quality treatments, especially in the areas of cardiac surgery and oncology.
    • Diagnostic and Other Healthcare Services: NHL also generates income from diagnostic services, including pathology, radiology, and imaging services.
  • Market Share:
    • Narayana Hrudayalaya is one of the leading healthcare providers in India, particularly recognized for its cardiac care services. It holds a strong market share in the affordable healthcare segment, particularly in Tier 2 and Tier 3 cities, where it offers high-quality care at lower costs.
    • The company’s growing international presence, especially in the Caribbean, is also expanding its market share globally, with increasing recognition for its expertise in specialized services.
    • Cardiac Care: Narayana Hrudayalaya holds an 15% of the market share in cardiac care services in India, given its position as one of the largest providers of heart surgeries in the country.
  • Key Products/Services:
    • Cardiac Care: NHL is well-known for its expertise in cardiac surgeries and heart care, providing both pediatric and adult cardiac services. It has performed over 100,000 surgeries, making it one of the largest providers of heart surgeries in the world.
    • Oncology Care: The company has established comprehensive cancer treatment centers, offering services like chemotherapy, radiation therapy, and advanced treatments such as bone marrow transplants and immunotherapy.
    • Robotic Surgeries: NHL is at the forefront of robotic surgeries, offering minimally invasive treatments with faster recovery times. This is especially popular in orthopedic and cardiac surgeries.
    • Primary and Specialty Care: In addition to its flagship specialties, NHL provides a wide range of services like neurology, orthopedics, nephrology, and women’s health, catering to diverse patient needs.

FINANCIAL STATEMENTS

1. BALANCE SHEET: Debt-to-Equity, Reserves, and Financial Strength

  • Debt-to-Equity Ratio:
    Narayana Hrudayalaya has a low debt compared to its equity (owner’s funds). This means the company does not rely heavily on loans, making it less risky.
  • Reserves:
    The company has strong reserves or savings. This is money kept aside from profits, which helps the company grow, invest in new projects, and handle any emergencies.
  • Financial Strength:
    The company is financially strong because it has good cash flow, low debt, and a strong base of assets (like hospitals and technology), making it stable and able to grow.

2. PROFIT & LOSS (P&L) STATEMENT: Revenue Growth, Margins (EBITDA, Net Profit), and Stability

  • Revenue Growth:
    Narayana Hrudayalaya’s revenue grew by 10.9% to ₹50,182 million in FY24. This means the company earned more money, mainly from treating more patients and expanding its services.
  • EBITDA Margin:
    EBITDA (profit before interest, tax, and other expenses) was ₹12,275 million, with a margin of 24.5%. This shows the company’s operations are efficient, and it is making good profit from its business activities.
  • Net Profit Margin:
    The net profit (final profit after all expenses) was ₹7,896 million with a margin of 15.7%. This means the company is not just growing its revenue but also keeping a good portion as profit, showing it is well-managed.
  • Stability:
    The company is financially stable because it continues to grow in both revenue and profit, even during challenging times. Its focus on affordable healthcare and specialized services keeps it strong in the market.

3. CASH FLOW STATEMENT: Positive Operating Cash Flow, Free Cash Flow, and CFO > Net Profit

  • Positive Operating Cash Flow:
    The company has positive operating cash flow, meaning it earns enough cash from its regular business activities to cover its expenses without needing extra loans.
  • Free Cash Flow:
    Narayana Hrudayalaya also has positive free cash flow. This is the money left over after spending on things like new hospitals or equipment. This money can be used for paying off debt or investing in new opportunities.
  • CFO > Net Profit:
    The company’s cash flow from operations (CFO) is higher than its net profit. This is a good sign because it shows that the company is turning its profits into real cash, making it more flexible and able to grow.

Summary:

  • Narayana Hrudayalaya is financially strong with low debt and high reserves, making it a stable and reliable company.
  • It shows strong growth in revenue, keeps a healthy profit, and has good margins, which means it’s well-managed and profitable.
  • The company has positive cash flow and generates more cash than it reports in profits, which helps it stay flexible and invest in future growth.

This analysis shows that Narayana Hrudayalaya is in a good financial position, with strong growth potential, efficient operations, and solid cash flow.

RATIO ANALYSIS

LIQUIDITY:

  • Current Ratio: [1.55]
  • Quick Ratio: [1.46]

PROFITABILITY:

  • Return on Equity (ROE): [ 31.4%]
  • Return on Capital Employed (ROCE): [26.5%]
  • Net Profit Margin: [—–]

EFFICIENCY:

  • Asset Turnover: [1.02]
  • Inventory Turnover: [11.3]

LEVERAGE:

  • Debt-to-Equity Ratio: [ 0.53]
  • Interest Coverage Ratio: [ 8.34]

BUSINESS QUALITY:

  • ROE: [31.4%]
  • ROCE: [ 26.5%]
  • Cash Flow from Operations (CFO): [ 1,067cr]
  • Free Cash Flow (FCF): [99.1cr]

FINANCIAL STRENGTH:

  • D/E Ratio: [ 0.53]
  • Interest Coverage Ratio (ICR): [ 8.34]
  • Current Ratio (CR): [ 1.55]

VALUATION / STOCK PRICE:

  • P/E Ratio: [ 33.0]
  • PEG Ratio: [ 0.49]
  • P/B Ratio: [8.08]

BUSINESS STABILITY:

  • Gross Profit Margin (GPM): [good & stable]
  • Operating Profit Margin (OPM): [good & stable]
  • Net Profit Margin (NPM): [good & stable]

ANNUAL REPORT

CORPORATE OVERVIEW:

  • Business Details:
    Narayana Hrudayalaya Ltd. operates in the healthcare sector with a strong focus on specialized services such as cardiac care, oncology, orthopedic care, and robotic surgeries. The company has a wide network of hospitals, diagnostic centers, and healthcare facilities across India and internationally. It aims to provide affordable and quality healthcare services, especially to underserved regions.
  • Chairman/CEO Message:
    • Chairman (Dr. Devi Prasad Shetty) addresses the need for healthcare reforms in India. He emphasizes that healthcare needs to be affordable and accessible, with a particular focus on improving health insurance penetration and access to medical care for lower-income communities.
    • CEO (Dr. Emmanuel Rupert) outlines the company’s financial and operational performance, highlighting the 10.9% revenue growth and the expansion into international markets like the Caribbean. He discusses technological advancements, including the use of AI and robotic surgery, which are key drivers of the company’s future growth.
  • Performance Updates:
    • Revenue: ₹50,182 million (10.9% growth from the previous year).
    • EBITDA: ₹12,275 million with a 24.5% EBITDA margin, showing healthy operational performance.
    • PAT: ₹7,896 million with a 15.7% margin, indicating robust profitability.
    • Global Expansion: The company has significantly expanded its reach, particularly in the Caribbean, and is planning further growth in international markets.
    • Technological Innovation: Emphasis on AI-based diagnostics, robotic surgery, and a comprehensive digital healthcare system, aiming to enhance both patient outcomes and operational efficiency.

STATUTORY REPORTS:

Management Discussion and Analysis (MDA):

  • Financial Performance: The company’s revenue growth is driven by both its domestic and international expansions, as well as the adoption of advanced technologies like AI and robotics. The company has continued to invest in modernizing its facilities and improving operational efficiencies.
  • Business Strategy: Narayana Hrudayalaya’s growth strategy includes:
    • Building new hospitals and upgrading existing ones to expand its service capacity.
    • Digital healthcare solutions, including AI-based tools and robotic surgeries, are crucial to the company’s future success.
    • Expansion into international markets (especially the Caribbean) has been a key strategy for diversifying revenue streams.
  • Risks and Challenges:
    • Financial market volatility: Fluctuations in financial markets may impact the company’s capital raising and investment plans.
    • Regulatory changes: Potential changes in healthcare regulations and government policies could affect operations.
    • Technological risks: As the company heavily invests in technology, the risk of cybersecurity threats and the adoption of new technologies must be managed effectively.
  • Outlook: The company plans to invest ₹20,000 million in the next 3-4 years to expand its hospital network, enhance digital solutions, and enter new international markets.

Board Report:

  • Meetings: The board held 5 meetings during the year to discuss key business issues, financial results, and corporate governance matters.
  • Nomination and Remuneration Policy: Ensures that the compensation of directors and senior management is competitive and aligned with market standards to attract and retain top talent.
  • Performance Evaluation: The board, directors, and key executives were evaluated on various criteria, including governance practices, strategic contributions, and operational oversight.
  • Related Party Transactions:
    No significant transactions with related parties that conflict with the company’s interest. All such transactions were duly reviewed and approved by the Audit Committee.
  • CSR Activities:
    The company continued its commitment to social responsibility with projects focused on:
    • Healthcare access: Free health camps and treatment for underserved populations.
    • Education: Programs to improve healthcare education and vocational training.
    • Environmental sustainability: Initiatives to reduce environmental impact, including energy efficiency and water conservation projects.

Business Responsibility and Sustainability:

  • Sustainability Initiatives:
    Narayana Hrudayalaya focuses on reducing its carbon footprint, improving resource efficiency, and adopting sustainable healthcare practices. The company works to align its operations with global standards for sustainability and corporate social responsibility (CSR).
  • Corporate Governance:
    The company adheres to the highest standards of corporate governance, ensuring transparency, accountability, and ethical conduct across all areas. The Audit Committee, Nomination and Remuneration Committee, and Risk Management Committee monitor the company’s operations and ensure adherence to regulatory requirements and best practices.

FINANCIAL STATEMENTS:

Consolidated Financial Statements:

  • Income Statement: Narayana Hrudayalaya showed a solid growth in revenue from both domestic and international markets, driven by its service expansion and technological adoption. The EBITDA margin and PAT margin reflect efficient cost management and profitability.
  • Balance Sheet: The company has strong assets, particularly in property and digital infrastructure. This reflects a healthy asset base for supporting future growth.
  • Cash Flow: The company generated positive operating cash flow, allowing it to invest in new hospitals and enhance its digital platforms.

Auditor’s Report:

  • Audit Opinion: The auditor provided an unqualified opinion on the financial statements, confirming they present a true and fair view of the company’s financial position.
  • Internal Controls: The auditor confirmed the company has strong internal control systems in place to manage financial reporting, risk management, and compliance with legal regulations.

LONG TERM INVESTING PURPOSE

  • India’s growing population, aging demographic, and rising lifestyle diseases will drive healthcare demand, supported by initiatives like Ayushman Bharat, creating strong growth and investment opportunities.
  • As of 2024, India’s healthcare industry is valued at approximately USD 500 billion. 2030, the industry is projected to reach USD 640 billion or more
  • Narayana Hrudayalaya performs over 15% of all heart surgeries in India, making it a leading provider in the country’s cardiac care sector.
  • The background of the company’s promoter is very good – Narayana Hrudayalaya, founded in 2000 by Dr. Devi Prasad Shetty, aims to provide affordable, high-quality healthcare, starting with a single hospital in Bangalore and expanding rapidly in multi-specialty and super-specialty services.
  • There are No Allegations of fraud against Dr. Devi Prasad Shetty, the promoter of Narayana Hrudayalaya
  • Narayana Hrudayalaya focuses on providing affordable healthcare, especially in specialized fields like cardiac care, making high-quality treatment accessible to a wider population in India.
  • Narayana Hrudayalaya discusses plans to expand its operations by adding 700+ beds at its Bangalore Health City and investing ₹1,000 crore to set up a superspecialty hospital in West Bengal over the next 3-4 years. This expansion is aimed at increasing its capacity and reach to serve more patients.
  • The healthcare sector in India is expected to grow at a 16-17% CAGR (Compound Annual Growth Rate) in the long term, making it a strong opportunity for long-term investment.
  • Narayana Limited’s valuation is Undervalud than that of its competitors (Apollo Hospitals and Fortis Healthcare)
  • Narayana Hrudayalaya has strong financial ratios that indicate its healthy performance and stability.
  • Narayana Hrudayalaya has stable financials (10.9% growth from the previous year)
  • Narayana Hrudayalaya has a positive operating cash flow, which is higher than its > net profit.
  • Narayana Hrudayalaya is making significant investments for future growth, such as expanding its hospital network, adding new beds, and investing in technology and infrastructure.
  • Narayana Hrudayalaya is performing well quarter on quarter. In FY24, the company reported a 10.9% growth
  • RED FLAG – NO Red Flage
  • Narayana Hrudayalaya is a Mid-Cap company with large-scale operations in the healthcare sector.
  • The company has been paying regular Dividends for the past few years
  • Credit Rating – ICRA rating of AA- (Stable) long-term rating aur A1+ (Stable) short-term rating  
  • Narayana Hrudayalaya is using AI and robotic surgeries to improve care and efficiency, helping the company grow and stay competitive.
  • The promoter holds more than 63.85% of the company’s shares
  • Narayana Hrudayalaya’s promoter has Not Pledged his shares
  • ConsCalls – Narayana Hrudayalaya is heavily investing in new greenfield hospitals (like those in Kolkata and Bangalore)