Max Healthcare’s shares have investors’ attention after new deal announcement

The reason for the excitement is simple. On Friday, the company announced the acquisition of exclusive rights to aid development and provide medical services to a 500-bed hospital to be built on a 3.5-acre parcel in Saket (South Delhi) through its wholly owned subsidiary, Alps Hospital Ltd.

Analysts have approved of this deal. “The deal is attractive both from a strategic and financial point of view and is a testament to the new management’s ability and intent to grow aggressively, but selectively,” said analysts from HDFC Securities Institutional Equities in a report on 30 August.

Note that the land is situated between Max’s existing hospitals at Saket and Saket Smart (trust). This would allow seamless integration between its facilities.

“The acquisition makes Max Saket contiguous, which will turn into a 2,300-bed hospital complex once fully developed. With current operations fully optimized, a key challenge for Max is to find ways to deploy capital efficiently. We believe this expansion offers Max a great opportunity to deploy capital in an efficient manner,” said analysts from Jefferies India Pvt. Ltd in a report on 29 August. Further, a larger hospital can host more departments, offering a more comprehensive care solution for patients.

Meanwhile, the company’s June quarter results (Q1FY22) were strong with the operating margin expanding to an all-time high of 27.2%. Non-covid bed occupancy in Q1 was robust during the quarter at nearly 84%. Overall bed occupancy stood at 80.8%.

With margin drivers in place, HDFC Securities forecasts strong growth of about 29% Ebitda CAGR over the next five years. Ebitda is earnings before interest, tax, depreciation, and amortization, a key measure of profitability for companies. CAGR is short for compound annual growth rate.

Even so, the substantial appreciation in Max Healthcare’s shares could well cap meaningful upsides in the near future.