Recommend Buy with a TP of INR 282 NARH reported strong operating performance in FY19, which is likely to sustain. Given its low-cost model and scale-up in new hospitals, it is well positioned to benefit from growing demand. In the near term, losses from newer hospitals would hurt profitability. At the CMP, the stock trades at an attractive valuation of 12x FY21E EV/EBITDA. We reiterate Buy with a TP of INR 282 on 15x FY21E EV/EBITDA.
Overall margins have improved mainly due to strong margins at Cayman and firm margins at the matured hospitals. The new hospitals, SRCC, Gurugram and Dharamshila continue to remain in investment mode for at least next one and a half to three years as the ramp-up in these assets is happening rather slowly. However, the management has reiterated a significant moderation in capex and M&A activities, which should improve the return ratios gradually. That said, the improvement and sustainability of margin holds key as any further slowdown in margins could worsen the situation in the near term. We continue to believe in the long term prospects of the company on the back of the asset-right model and affordability philosophy. We arrive at an SOTP target price of Rs 260 by valuing the matured hospitals and Cayman Islands at 8x of FY21E EV/EBITDA and other hospitals & other businesses at 1x FY21E EV/sales.