NARAYAN HRUDALAYA Rs 1250
Surprisingly one area where India ranks much higher than developed countries like UK, USA etc is medical facilities. Anyone who has family or friends staying in these countries would know that it takes weeks to get an appointment for non-emergency medical treatments.
India on the other hand has enough GPs and specialists. A patient can book an almost same day appointment, get diagnosed, be treated or referred to hospital, if required. Barring epidemic times, the patient can walk into a hospital of choice and be admitted without delay. Treatment in Indian hospitals is at par with the best in the world at a fraction of the cost which is why medical tourism in India is growing at a very high rate.
Besides medical tourism, there is a huge domestic tailwind for hospitals due to growing awareness towards health, increasing affluence, rising medical insurance penetration and government policies like Ayushman Bharat.
The price movement of listed hospital chains reflects this optimism.
Last 3 year CAGR for four largest hospital chains in India Apollo Hospitals (around 10000 beds), Narayan Hrudalaya (6000 beds), Fortis Healthcare (4500 beds) and Max Healthcare (4000 beds) has been 19%, 34%, 27% and 50% respectively. Since most of the hospitals are concentrated in urban areas, there is huge unmet demand in semi urban and rural areas. Thus, it is almost a given that hospitals have multi decade visibility of growth in India.
Within the above universe of hospital chains, Narayan Hrudalaya (NH) is shortlisted for discussion because of two reasons. One, its valuation at FY24 PE of 32 is much lower than the rest of the pack (Apollo Hospital trades at around 100 PE, Fortis at around 63 and Max at around 83). Second reason is that NH has recently launched a family floater medical insurance policy named Aditi aimed at the low income group which provides Rs 1 Cr surgery cover and Rs 5 lac hospitalization cover albeit in general ward at an annual premium of only Rs 10000. The cover is applicable in NH network hospitals and is available only in a few districts of Karnataka.
It is an interesting product since it is reasonably priced and within reach of low income group enabling them to avail proper medical facilities. It can act as a funnel for attracting patients to NH hospitals. And it also takes away the conflict of interest which arises with third party medical insurers on one hand wanting to keep expenses to the minimum and hospitals trying to maximize them.
However, there is a potential downside also. Now the conflict of interest could get inverted. NH hospitals may be hesitant to give adequate treatment to its policyholders since it would mean direct impact on their bottomline. But NH can mitigate this hit by increasing premiums or reducing cover as per their claim ratio experience.
To conclude, NH seems to be an intriguing candidate with reasonable valuations in a high growth industry, trying something out of the box, which has the potential to become a pivot for its own finances and gamechanger for the industry if it works out.