Naresh Trehan should be a happy man these days. The star cardiac surgeon’s creation, Medanta—the renowned super-speciality hospital chain—has become a favourite among investors. The share price of Global Health Ltd, the operator of Medanta that went public in November 2022, is up 43% from its subscription price subscription price Subscription price Subscription price is the price at which investors can buy the shares of a company after its listing on the share market via an IPO .
More importantly, the stock is trading at an Ebitda multiple of 24X on an annualised Ebitda Ebitda EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization. of Rs 600 crore ($72.6 million) for the year ending March 2023. This is higher than its bigger rival Fortis Healthcare Ltd. To put this into perspective, four years ago, Trehan and his associates—who held a 55% controlling stake—and Carlyle Group—which owned ~27%—were on the hunt for an exit plan, as we wrote wrote The Ken Manipal to Medanta: Will Ranjan Pai finally break the no-deal jinx? Read more , and targeted a 24X Ebitda multiple.
In 2019, the company was in talks with Manipal Hospitals (Manipal Health Enterprises) for a potential acquisition worth ~Rs 6,000 crore (~$725 million), before the discussions failed due to investor disagreements over the valuation and the absence of a preferred strategic buyer.
Cut to March 2023: investors can’t seem to get enough of this company. And it’s not hard to see why.
The hospital chain enjoys strong cash flows and enviable profit margins. Its success on the stock market so far can be attributed, in large part, to its payer mix, with ~63% of its revenue coming from cash receipts (the remainder comes from insurance payments and government schemes) and sustainable growth in new facilities in Patna and Lucknow. This trumps its listed rivals.
Cash receipts amount to 38% of the payer mix in Max Healthcare Institute Ltd, 39% in Fortis Healthcare Ltd, and 40% in Apollo Hospitals Enterprise Ltd. Since Medanta’s public listing, the Nifty Healthcare index is down by 10%. Max has witnessed a modest 3% rise, while Fortis and Apollo dropped by 12.5% and 9.6%, respectively.
However, the winds of change are blowing as Medanta, which has traditionally operated in cities such as Gurugram (Haryana), Ranchi (Jharkhand), and Indore (Madhya Pradesh), has extended its operations to other cities such as Lucknow and Patna.