Max Healthcare bed expansion and strong occupancy support long-term hospital growth

Investment View and Valuation

Motilal Oswal Financial Services Limited maintains its Buy recommendation on Max Healthcare, citing superior operating efficiency at existing hospitals and a substantial expansion programme that supports long-term growth visibility. Projects announced to date could add around 2,800 beds, representing more than 50 per cent of current capacity, over FY27 to FY29, with planned capex of Rs 61 billion.

The broker values Max Healthcare on a sum-of-the-parts basis and retains a target price of Rs 1,410.

1QFY27 Financial Performance

Max Healthcare delivered slightly better-than-expected revenue and in-line EBITDA in 1QFY27. However, adjusted PAT missed Motilal Oswal's estimate by 13.5 per cent because of higher depreciation and interest costs. Max network revenue, including the trust business, rose 15.3 per cent year on year to Rs 28.3 billion, ahead of the broker's Rs 27.3 billion estimate.

The EBITDA margin declined because of a rise in other expenses, while gross margin expanded to 75 per cent year on year.

Hospital Operating Performance

The hospital business continued to show favourable operating trends despite capacity additions and the impact from oncology drugs. Hospital network gross revenue grew 16 per cent year on year to Rs 29.8 billion in 1QFY27, supported by a 10 per cent rise in occupied bed days, higher patient throughput and the ramp-up of newly commissioned facilities.

Operational bed capacity increased 13 per cent year on year, while occupancy remained healthy at more than 75 per cent. ARPOB rose 5 per cent year on year to Rs 81,900, and annualised EBITDA per bed increased to Rs 7.1 million from Rs 6.8 million a year earlier.

International patient revenue grew 18 per cent to Rs 2.5 billion, representing around 9 per cent of hospital revenue. Digital revenue was Rs 9.4 billion, or about 32 per cent of overall revenue. Oncology contributed 22 per cent of inpatient revenue, down from 26 per cent a year earlier, while revenue excluding oncology grew 20 per cent year on year.

Expansion Programme and Management Commentary

Management said Max Smart's commissioned beds are operating at around 80 per cent occupancy, with EBITDA ramp-up expected over the next few quarters. The remaining capacity in its 400-bed brownfield tower is expected to be operationalised in 2QFY27.

Management expects insurance tariff negotiations and renewals in September or October 2026 to provide an automatic price revision of around 6 per cent, as agreed in the prior negotiation. Oncology revenue is expected to begin normalising from 4QFY27 following the discontinuation of chemotherapy drugs. Max Healthcare is also reducing its dependence on structurally loss-making institutional business, where its exposure had amplified the oncology impact.

Kalinga Hospital Acquisition and Near-Term Cost Headwinds

The Kalinga Hospital acquisition and new capacities are expected to remain near-term cost headwinds. Max Healthcare acquired a 58.3 per cent stake in Kalinga Hospital, which contributed Rs 190 million of revenue and Rs 20 million of EBITDA after acquisition in 1QFY27.

Kalinga operates at 50 per cent occupancy and an ARPOB of Rs 35,000. Management is targeting a turnaround within 12 months through infrastructure renovation, technology upgrades and stronger clinical programmes.

The broker reduced its FY27 estimate by 4 per cent to reflect higher operating costs at recently commissioned hospitals. Management expects working-capital intensity to normalise as CGHS collections improve and has guided for net debt to EBITDA of 2.5 times, with capex funded through internal accruals and incremental borrowing.

Max Lab and Max Home Growth

Max Lab and Max Home broaden Max Healthcare's integrated care platform. Max Lab revenue increased 20 per cent year on year to Rs 580 million in 1QFY27. Its services are available in more than 60 cities, and it served over 0.6 million patients during the quarter.

Max Home revenue rose 32 per cent year on year to Rs 780 million. The business offers 16 specialised service lines in 15 cities, while repeat transactions account for over 56 per cent of business.

Growth Forecasts and Valuation Framework

Motilal Oswal expects hospital revenue to grow at an 18 per cent CAGR over FY26 to FY28 to Rs 132 billion. Max Lab and Max@Home are forecast to grow at 17 per cent and 24 per cent CAGRs, respectively.

The target price of Rs 1,410 is based on the sum-of-the-parts valuation described above.