This stock defied the market correction. Here’s why it could keep rising

The stock has also been an outlier amid the recent correction, bucking the trend. It recently hit its 52-week high of ₹1,725.

What’s behind this rally?

Shares of the company have been on the radar of investors for multiple reasons: Expanding capacities, diversification into other fields, and strengthening operational efficiency.

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Let’s examine each of them and assess whether the company has the financials to support them.

Scaling up network in key cities

Narayana Hrudayalaya has planned a capex of ₹1,400-1,600 crore for 2024-25. Around ₹280 crore will be used towards the multi-specialty hospital in the Cayman Islands.

The capex for 2025-26 to 2028-29 includes replacement and maintenance capex of around ₹300-350 crore per year along with ₹900-1,200 crore per year for brownfield and greenfield expansion.

The company is actively exploring brownfield acquisitions, expanding capacity in key cities like Bengaluru and Kolkata, which is expected to boost growth.

It recently announced investment plans for a hospital in Kolkata. The company plans to invest ₹900 crore for the first phase, aiming for a 1,100-bed facility over the next three to 10 years.

Once fully operational, the hospital plans to increase Narayana Health's total bed capacity in Kolkata to 2,500, reinforcing the region's position as a hub for advanced healthcare.

The company is also planning to add 2,000 new beds in the upcoming four to five years, which will require an investment of ₹4,000-5,000 crore.

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The company is currently focused on setting up two greenfield facilities, one in Kolkata (350 new beds in the first phase) and the other one in Bengaluru (220 new beds). Both units are expected to start operations by 2028-29.

According to ICICI Securities, the capex phase would be by far the largest in the last 10 years, but it believes the company is far better poised to fathom the impact on the balance sheet as the margins and the return ratios are in good shape.

Beyond hospitals

The company is building a healthcare ecosystem by launching clinics and insurance services primarily to address the financial barriers that prevent many people, especially those from working-class and poor families, from accessing necessary medical care.

It has invested ₹1,000 crore in the business and will invest more after it sees how it has panned out.

It launched Arya, an integrated insurance product, which is expected to enhance patient engagement and retention.

While the management has said the hospital-insurer combination could be seen as a conflict of interest, it intends to change the status quo.

Strengthening its international presence

Beyond India, the company is strengthening its international presence. The company recently disclosed a small investment in the Bahamas, prioritizing this market for growth due to strong medical tourism potential.

It is also targeting aggressive growth in the primary health clinic business, aiming for 50 clinics next year.

Strong financial performance underpins growth

Narayana Hrudayalaya’s financial resilience continues to support its expansion. Over the last five years, the company has reported a consistent increase (12% compound annual growth rate) in revenue marked by an increase in realizations.

The company’s average realization per occupied bed (ARPOB), an industry metric to assess a hospital’s performance, has supported this performance, jumping from ₹49 lakh in 2018-19 to ₹88 lakh in 2023-24.

Note that the company’s ARPOB is at least 30% lower than that of other organized private hospital chains. However, its effective cost per operational bed is also low due to a better bed mix (the company’s hospitals have more general wards than private rooms).

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This has resulted in lower cost as a percentage of realization, an efficiency and profitability metric, which has fallen from 73% in 2020-21 to 53% in 2023-24.

Operating profit margins, too have followed suit, steadily increasing from 10.3% in 2018-19 to 23% in 2023-24. Overall, the company’s net profit has grown at a CAGR of 68%.

For perspective, these numbers are considerably higher than that of its peers.

The company’s 5-year sales growth and profit growth are higher than its peers, notably Fortis Healthcare and Global Health. It also has the highest return on equity (RoE) and return on capital employed (RoCE) among them.

While the equity debt is on the higher side, given the group’s strong earnings capability, the debt metrics are expected to remain healthy.

It also has a higher promoter holding than all of them at 63.9%, reflecting the promoter’s confidence in the company.

Final thoughts

Narayana Hrudayalaya is set to embark on its most significant capex phase in a decade.

For more such analyses, read Profit Pulse.

With its robust margins and strong ratios, the company is well-positioned to sustain its growth momentum in the evolving healthcare landscape.

Ayesha Shetty is a research analyst registered with the Securities and Exchange Board of India. She is a certified Financial Risk Manager (FRM) and is working toward the Chartered Financial Analyst (CFA) designation.

Disclosure: The author does not hold shares in any of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers should conduct their own research and consult a financial professional before making investment decisions.