27 September 2021 Annual Report Analysis

Max Healthcare
Emerges leaner and stronger BUY
Max Healthcare’s annual report 2020-21 reflects the first year of consolidated CMP (as on 24 Sept 2021) INR 365
financial statements of the combined entity - Max and Radiant. In this report,
Target Price INR 410
while financials are not comparable due to merger, we analyse the qualitative
characteristics and key components of the company’s balance sheet and P&L. NIFTY 17,853
The management commentary reinforces its intent to grow aggressively by
additionally employing asset light models of expansion and exploring KEY
OLD NEW
CHANGES
inorganic opportunities. Key financial highlights include: (a) recognition of
Rating BUY BUY
goodwill and intangibles worth INR24.5bn and ~INR23bn (both together
account for ~85% of net worth) pursuant to purchase price allocation exercise Price Target INR 360 INR 410
in relation to Max’s assets consequent to reverse merger; (b) structural cost FY22E FY23E
savings in material, doctor fees and other expenses. We revise our estimates to EBITDA %
+4% -5%
reflect new bed expansion plans and forecast 17%/24% revenue/EBITDA
CAGR over FY21-28e. Based on our long term projections, we see ~95% upside
potential over the next five years (refer to our recent initiation: Max KEY STOCK DATA
Healthcare – a three-act play: growth, quality, returns for the detailed thesis). Bloomberg code MAXHEALT IN
We revise our TP to INR410/sh., based on Mar’24 EBITDA (from Mar’23). No. of Shares (mn) 966
Maintain BUY.
MCap (INR bn) / ($ mn) 352/4,737
 Identifies three pillars to focus on: (a) Optimise existing network by
investing in and retaining best clinical talent, improving efficiencies through 6m avg traded value (INR mn) 723

payor mix optimisation, thrust on medical tourism and initiatives focused 52 Week high / low INR 473/97
on digitisation at both back-end as well as front-end; (b) invest in growth -
to add 2,300+ beds (1,630 by FY28) via brownfield route, to operationalise STOCK PERFORMANCE (%)
~1,000 beds each through asset light models (O&M and built-to-suit) and
3M 6M 12M
greenfield projects (Gurugram) while continuing to explore suitable
inorganic opportunities; (c) value unlock in MaxLab – aggressive plans to Absolute (%) 42.1 79.8 235.6
grow the non-captive pathology business via organic and inorganic route. Relative (%) 28.1 57.7 171.3
 Payor mix improvement can drive 300-400bps EBITDA margin expansion:
The bed share of low-margin scheme business has steadily reduced from SHAREHOLDING PATTERN (%)
~37% in FY20 to ~34% in FY21. Max intends to bring this down to ~15% in Jun-21 Mar-21
the next three years. As per a recent company update, this can potentially
Promoters 70.46 70.46
add ~300-400bps to core business EBITDA margin of ~25%.
 Key financial highlights from AR: (a) Intangible assets stood at ~INR23bn FIs & Local MFs 7.95 4.88
on account of recognition of service agreements with all PHFs amounting to FPIs 14.05 17.96
INR17bn, trademarks worth INR5bn, representing value of Max’s brand and
Public & Others 7.54 6.70
logo and O&M rights worth INR1.2bn, representing rights to operate
Pledged Shares 0.34 0.34
Nanavati hospital (Exhibit 25); (b) goodwill: Max-Radiant merger was a
“reverse merger” with Radiant being the accounting acquirer and, hence, all Source : BSE
of Max’s assets got revalued leading to goodwill recognition of INR24.5bn in
FY21 (Exhibit 28); (c) cost structure analysis suggests that Max has achieved
SOTP based TP on FY24e:
the leanest cost structure among major peers post the implementation of cost
a) 22x EV/EBITDA for hospitals
initiatives with major savings in material and doctor fees followed by other
b) 30x EV/EBITDA for Max@Home
expenses (Exhibits 29, 30, 31).
c) 30x EV/EBITDA for Max Lab
Proforma financial summary
YE Mar (INR mn) FY19 FY20 FY21 FY22E FY23E FY24E
Bansi Desai, CFA
Net Revenues 35,990 40,230 36,290 48,789 54,628 62,517
bansi.desai@hdfcsec.com
EBIDTA 3,480 5,894 6,362 12,387 14,651 17,663
+91-22-6171-7341
EBITDA Margins 9.7 14.6 17.5 25.4 26.8 28.3
EV / EBITDA (x) 100.3 59.5 57.8 29.4 24.6 20.2
RoCE (%) 5.9 10.4 8.3 21.2 22.3 23.0 Karan Vora
Net debt/EBITDA 5.5 3.5 2.3 1.0 0.6 0.2 karan.vora@hdfcsec.com
Source: Company, HSIE Research, projections excl. vaccine opportunity +91-22-6171-7359

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 Max Healthcare: Annual Report Analysis

Business overview
Max Healthcare is the second largest hospital chain in India in terms of revenue and
Promoted by Abhay Soi market cap. It operates 17 healthcare facilities (12 hospitals and five medical centers)
(23.2% stake) and KKR with a total capacity of ~3,400 beds. The company focuses on providing tertiary and
(47.0% stake via Kayak quaternary care services, which contribute ~70% of its hospital revenue. It enjoys
Investments) industry-leading ARPOBs and occupancies, given ~85% of its beds are located in
metro/tier-1 cities. Besides this, it also operates home care and diagnostic business
Second largest hospital under Max@Home and Max Lab, which are currently in nascent stages of
chain in India in terms of development.
revenue and market cap
Founded by Analjeet Singh and as an entity of Max India, Max Healthcare
commenced operations in 2000 at Panchsheel Park, South Delhi. Over the past two
Primarily operates assets
decades, the company strengthened its presence across north India with facilities in
in metro cities - Delhi NCR
Delhi NCR, Punjab, and Uttarakhand. In 2020, Radiant Life Care Pvt. Ltd, promoted
and Mumbai
by Abhay Soi and KKR, acquired a 49.7% stake in the erstwhile Max Healthcare and
amalgamated it with Radiant assets to form Max Healthcare Institute Ltd (MHIL).
Subsequent to the arrangement, the combined entity got listed on the stock exchanges
in Aug’20. With the addition of Radiant group assets - BL Kapur (Delhi) and
Nanavati (Mumbai) - Max further strengthened its footprint in Delhi and gained
access to Mumbai’s healthcare market.

Exhibit 1: Business structure with FY21 revenue share

Balaji Society (Max Patparganj)
(9%)
Max Shalimar Bagh (11%) Valid till 2065
Max Dehradun (4% )
Max Saket (West) (8%) Devki Devi Society
Max Panchsheel
Max Healthcare (Max Saket East, Onco center)
Immigration centre (Lajpat Nagar, Mohali) (13%)
Institute Ltd.
SBUs (MaxLab, Max@Home) (4%) Valid till 2064
(MHIL)

HBPL ALPs Hospitals Ltd. CRL Saket City Hospitals BLK Hospital Radiant Life Care
Max Lab Ltd. (Max Bathinda, (Max Gurgaon) (Max Vaishali, Max Pvt. Ltd. (15%) Mumbai Pvt. Ltd.
Max Mohali) (3%) Noida) (7%) Valid till 2054 (8%)
(9%) (9%)
GM Society Nanavati
ET Planners Pvt.
(Max Smart) Hospital
Ltd.
Valid till 2105 Valid till 2043

Vikrant Children's
Foundation
Valid till 2051

Owned

Managed (Radiant)

PHFs (trusts)

Source: Company, HSIE Research

Page | 2
 Max Healthcare: Annual Report Analysis

Key pillars to growth

Max’s annual report 2020-21 and the recent company update provides insights into
its growth strategy and the key pillars it plans to focus on to achieve its growth
objectives.
Exhibit 2: A snapshot of key pillars to focus on

Source: Company presentation

Optimise existing network

 Enhancing clinical capabilities – Max is well known for having high standards
of clinical care and employing high end medical technologies to offer quality
Adding clinical teams and healthcare. A few initiatives taken at various hospitals last year include
introducing new enhancement of clinical teams for specialties like liver, gastroenterology and
technologies at some of the pulmonology at Max Saket, adding teams for various surgeries (minimal access,
hospitals bariatric, robotic, spine and thoracic surgeries) at Vaishali, introducing
technologies like Radixact-x9 system, next gen. tomo-therapy, platform for cancer
Focus is on high-end care at Vaishali, introduction of Innova IGS 520 catheterisation lab (a floor-
programmes and to invest mounted image-guided system) for cardiovascular and electrophysiology
in top-rated clinicians and procedures. The company continues to focus on tertiary/quaternary care
retain the existing ones programmes and in investing in top-rated clinicians and retaining the existing
ones.
 Improving operational efficiency and profitability – Over the past three years,
Max has successfully implemented INR3.3bn worth of cost savings initiatives and
synergies via renegotiation of material and indirect cost contracts, realignment of
personnel roles and responsibilities, optimisation of minimum guarantee fees to
To focus on improving
doctors, savings in corporate overheads, and shutdown of unviable units. Going
ARPOBs and occupancies
forward, the company aims to improve operating efficiencies via better
integration, supply chain, and human resource management across facilities

Page | 3
Max Healthcare: Annual Report Analysis

while also striving to improve ARPOBs and occupancies at existing units in order
to drive operating leverage.
 Enhance medical tourism via setting up offices across the globe to solicit
international patients – Max’s international business has been impacted post
COVID and the contribution to hospital revenue fell to just ~4% in FY21 and ~5%
Setting up subsidiaries and
in Q1FY22 (vs. ~11% in FY20). Max aims to grow this segment aggressively over
offices across globe
the coming years. Among the metro cities, Delhi is the most preferred
(currently at Nigeria and
destination, accounting for 40% of the medical tourists visiting India. Key
UAE) to attract and solicit
therapies such as oncology, orthopaedics, cardiac, transplants and neurology
international patients
form 65% of the overall demand. This bodes well for Max as it has Centers of
Excellence across these therapies in the Delhi NCR region. Accordingly, the
Set up an immigration
company has set up subsidiaries in Nigeria and UAE and an immigration center
centre at Mohali
in Mohali during the year to provide consultation services and solicit overseas
patients. It also aims to set up more offices globally to facilitate the same.
 To build digital ecosystem that can leverage brand, customer loyalty, and data
– Max aims to leverage on increasing digitisation trend by connecting its back-
Launched video consults
end delivery platform to enable more remote and virtual enabled services by
platform and relaunched
providing 'on demand' virtual assessment by medical caregiver. During the year,
Max Healthcare website
it launched a video consult platform that enabled it to perform over 7-8% of
consultations (over ~1,00,000) on the platform. Moreover, Max also brought Ms.
~7-8% of total consults
Harmeen Mehta, a renowned digital leader, on board as an Independent director,
performed via online mode
which further highlights the company’s focus on digital initiatives.

Invest in growth
 Well defined roadmap for expansion – Max plans to expand aggressively by
adding 2,300+ beds (1,630 beds by FY28) on the base of ~3,400 beds currently
(~70% of the current capacity). This includes brownfield expansion in the most
Planning to add 2,300+ attractive markets such as Saket Smart, Delhi (~1,100 beds), Vikrant Children’s
beds (1,630 beds by FY28) Foundation (~500 beds), Saket, Delhi and Nanavati hospital, Mumbai (~net 440
in Delhi and Mumbai at beds). The company has strong brand equity and proven execution capabilities in
Capex/ bed of INR13mn these markets, which should result in these units turning profitable by the second
year of operations. More importantly, the land bank (~10.7 acres in Saket and ~3.9
acres in Juhu) and approvals are already in place, which should result in lower
Capex/bed (~INR13mn) and higher incremental RoCE for the new investments.

Exhibit 3: Revised indicative timelines for proposed expansion plans

Base Shalimar Bagh Mohali
Nanavati (2 phases) Vikrant (2 phases) Saket Smart (4 phases)
6,000 5,701
500
5,000 200 1,100
250
300
500
4,000 350 111
329 440
100
190
3,000

2,000 3,371 3,371

1,000
FY21 FY24e FY25e FY27e FY28e Beyond Total
FY28e
Source: Company, HSIE Research

Page | 4
Max Healthcare: Annual Report Analysis

Exhibit 4: Max Saket Complex – current vs. future layout

Saket, Delhi

Plans to create ~2,400 bed

contiguous medical hub
spread over 23 acres of
land at prime location in
South Delhi

Existing 770 beds will be

augmented with -
(a) ~1,100 additional beds
in Max Smart in four
phases as per current
brownfield expansion
plans, and
(b) ~500 beds at Vikrant
Foundation post
acquisition of exclusive
rights to aid development
and provide medical
services at the proposed
hospital

Nanavati, Mumbai

Source: Company presentation

Plans to add ~440 net beds
spread over 3.9 acres of Exhibit 5: Nanavati hospital – Planned layout
land in the iconic
Nanavati Hospital,
Mumbai via
– addition of ~329 beds in
phase 1 by Q3FY25 as part
of a new block
– demolition of ~160 beds
before commencement of
Phase 2
– addition of ~271 beds in
phase 2 by Q3FY27

New metro station to come

up next to Nanavati,
which will increase
accessibility and, hence,
footfalls

Bed expansion to aid

margin expansion and Source: Company presentation
enable spreading of
employee cost over a larger
base

Page | 5
Max Healthcare: Annual Report Analysis

 Asset light model for future expansion – Max is already running a few of its
facilities in an asset light model. These include Radiant assets (BLK and
Asset light model of Nanavati) run on an O&M model and PHFs run via the medical services
expansion via agreements (MSA). Going forward, the company aims to partner through asset
-O&M model (BLK and light models (e.g. O&Ms or renting of built-to-suit properties in partnership with
Nanavati), REITs) for delivery of quality healthcare services across various metro and tier-1
-Medical Service cities in the country. Recently, Max entered a deal with Vikrant Foundation for
Agreement (PHFs/ trust proving medical services to a Children’s hospital to be constructed in the Saket
hospitals) or Complex. The business structure of the same is akin to that of the existing PHFs.
-Partnerships with REITs We believe this deal is a testament to the new management’s intent and ability to
grow aggressively, but selectively by identifying value creating asset light
opportunities.

Exhibit 6: Illustrative structure of asset light model of expansion

Plans to operationalise
~1,000 beds each through
asset light O&M
arrangements & greenfield
projects (Gurugram)
leading to benefits like:
- High RoCEs
- De-risking cost & time
over runs
- Faster growth without
draining CFs

Source: Company presentation

Also, looking at inorganic  Pursue inorganic growth opportunities – The management has reiterated its
opportunities in tier-1 or desire to look out for attractive inorganic opportunities in select markets, either
metro cities
via large or a string of small and medium acquisitions.

Develop asset light adjacencies

 Invest and grow the non-captive pathology business – Max Lab has expanded
steadily with presence in 14 cities, mainly in the north Indian states of Delhi
Max plans to expand NCR, Uttarakhand, and Punjab, thereby leveraging upon its strong brand in the
aggressively and aims to region through the presence of its existing hospitals. It has become the third-
achieve a revenue target of largest player in the Delhi NCR region after Dr. Lal Pathlabs and SRL.
INR2.5-3bn organically The company plans to expand aggressively and aims to achieve a revenue of
from INR676mn in FY21 INR2.5-3bn organically from INR676mn in FY21, implying a growth trajectory of
over the FY21-25e ~40-45% CAGR over FY21-25e. Max has hived off this vertical into a separate
entity, which would be a wholly owned subsidiary of Max Healthcare which
should enable the management to maintain separate Key Performance Indicators
(KPIs) and track the performance with improved focus, transparency, and
accountability. The company is also evaluating inorganic routes for expansion to
achieve the desired scale and have stated goals to potentially unlock value at
some stage in the future.

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Max Healthcare: Annual Report Analysis

Exhibit 7: Indian diagnostics market is expected to grow at Exhibit 8: Shift to organised sector will drive further
~12% CAGR over FY20-23e market share gains
Indian diagnostics market
INR bn Organised
1,000 950 12-17%

800 Unorganised
684
35-40%
600
472

400

200
Hospital
0 based
FY17 FY20 FY23e 45-50%

Source: Company, HSIE Research Source: Company, HSIE Research

Exhibit 9: We expect Max Lab revenue to grow by ~6.5x Exhibit 10: EBITDA is expected to rise ~18x over the
over FY21-26e same period with margins improving in line with peers
Revenues Growth EBITDA EBITDA Margins
INR mn 86% INR mn 27%
5,000 82% 90% 1,200 25% 26% 30%
23%
80% 1,000
4,000 68% 20%
70% 800 22%
3,000 65% 54% 60% 600 10%
10%
2,000 50% 400 6% 0%
40%
40% 200 -2%
30% 29%
1,000 -10%
30% 0 -8%
0 20% -200 -15% -20%
FY22e

FY23e

FY24e

FY25e

FY26e

FY22e

FY23e

FY24e

FY25e

FY26e
FY17

FY19

FY20

FY21

FY17

FY18

FY19

FY20

FY21
FY18

Source: Company, HSIE Research Source: Company, HSIE Research

 Home care business is ramping up well – Max aims to scale its home care
Aims to scale up its home
business, primarily by adding new service lines and increasing the depth of
care business by adding
coverage. Key growth drivers include affordability of home care solutions (~40%
new service lines (recently
cheaper vs. hospital care), rising doctor acceptance, insurance policy coverage
added ECG@Home, post
and high quality service offerings. With the launch of X-ray and ECG at home in
discharege follow-ups) and
FY19, it became the first player in the region to offer radiology services at home.
increasing the depth of
In line with the same, the company launched ECG@Home and also initiated post
coverage
discharge follow-ups for continued care at home. It currently attends daily
volumes of ~800 calls and manages 2,000+ transactions/shifts on a day-to-day
Growth drivers:
basis. While the patient preference for “at-home care” remaining low in India,
- Home care solutions
COVID has expedited the shift in patient behavior to some extent. The company,
~40% cheaper compared to
however, aims to ramp up this business over the course of the next few years as it
hospitals
can act as a funnel to attract patients to the company’s hospital network. The
- Rising doctor acceptance
recently launched digital platform will also help the company to build this
- Insurance policies
business over the long term.
covering home care
- High quality services
through digital systems

Page | 7
Max Healthcare: Annual Report Analysis

Exhibit 11: Indian home healthcare market is expected to Exhibit 12: Organised sector is expected to contribute
grow in mid to high teen CAGR over 2020-2025 USD300mn by 2025, implying ~40% CAGR
Indian home healthcare market Organised sector coverage
USD bn lacs
14 5

12
4
10

8 3

6 11-13 4-5
2
4
5 1
2
1
0 0
2020 2025e 2020 2025e

Source: Company, HSIE Research Source: Company, HSIE Research

Exhibit 13: We expect Max@Home revenue to grow by Exhibit 14: …with EBITDA growth of ~8x over the same
~3.5x over FY21-26e… period with improved margins
Revenues Growth EBITDA EBITDA Margins
INR mn INR mn
2,500 60% 600 22% 23% 30%
50%
18% 20%
50% 500
2,000 15% 20%
35% 40%
400
23% 25% 10%
1,500 20% 30%
300 10%
15%
20% 0%
1,000 200 2%
10%
-10%
100
0% -10%
500 -15% -20%
-10% 0
-9%
0 -20% -100 -25% -30%
FY22e

FY23e

FY24e

FY25e

FY26e

FY22e

FY23e

FY24e

FY25e

FY26e
FY17

FY18

FY20

FY21
FY19
FY17

FY18

FY19

FY20

FY21

Source: Company, HSIE Research Source: Company, HSIE Research

Page | 8
Max Healthcare: Annual Report Analysis

Qualitative analysis
In this section, we delve deeper into the non-financial aspects to assess the strength of
the business. We observe that Max appears to be in compliance with the requisite
corporate governance requirements including board composition, conduct of board
meetings, director’s remuneration, formation of various committees and audit
compliance, among others. The company also seems to have provided adequate
disclosures in relation to qualitative aspects and assumptions used to derive key
financial numbers like goodwill discounting rates, contingent liabilities, etc. Besides
this, the company does not have any material related party transactions with outside
related parties during the year.

Board of directors
Exhibit 15: Well diversified board with expertise and experience across various fields
Appoint- Other major
Name Position Education Experience Committees
ment date directorships
-Started career as restructuring
MBA from European professional at Arthur Anderson Audit,
University, Belgium;-Part of restructuring team at KPMG & stakeholder
Promoter &
Mr. Abhay Soi BA from St. Stephen's
EY 21-Jun-19 relationship, NA
CMD
College, Delhi -Co-founded USD350mn Special risk mgmt,
University Situations PE Fund CSR
-Promoter and MD at Radiant Life
-Served Citi group for 25 years in
various positions in India, UK and US
MBA Finance from
-Was also CEO at Citi group's Indian
IIM, Ahmedabad;
Mr. Sanjay O. Non-Exec. and South Asian operations Audit, risk
Graduation from 21-Jun-19 JB Chemicals
Nayar Director -Joined KKR in 2009, was Partner and mgmt
Delhi College of
CEO of KKR India till Jan'21
Engineering
-Currently serving as the Chairman at
KKR India
-Worked as Associate Partner at
Gold medalist across
McKinsey for seven years NRC,
both MBA from IIM,
Ms. Ananya Non-Exec. -Headed category business at Myntra stakeholder
Kozhikode and 19-Jun-20 JB Chemicals
Tripathi Director and was also the Chief Strategy Officer relationship,
engineering degree
-Currently serving as the director at CSR
from Pune University
KKR Capstone
Over 40 years of rich experience in
Audit, NRC,
Mr. Mahendra Independent investment banking, corporate
CA and law graduate 21-Jun-19 risk mgmt., NA
Lodha Director restructuring and corporate and
CSR
project finance
-Has served as a director on board of
various companies like ONGC, IDBI Max Financial
Audit, NRC,
Bank, LIC HF, UTI Bank, UTI, IFCI, Services,
Mr. Kummamuri Independent stakeholder
CA and CWA etc. 26-Aug-09 NELCO, Max
Murthy Director relationship,
-Was also associated as a Member/ Ventures and
risk mgmt
Chairman of more than 50 high level Industries
Government Committees
-American businessman with 30+
years of experience in healthcare
Bachelor’s degree in
industry
accounting from
Mr. Michael -Began career as Director of Finance Audit, risk
Ind. Director Baylor University and 21-Jun-19 NA
Neeb and project for Harris Methodist mgmt
MBA from University
affiliated hospitals, Texas
of Dallas
-Has worked with HCA Healthcare,
UK as CEO for 12 years
Renowned digital leader with 10+
Massachusetts years of experience. She has a deep
Ms. Harmeen Independent Institute of background in Artificial Intelligence Audit, NRC,
24-May-21 NA
Mehta Director Technology, Harvard and is currently serving as the Chief risk mgmt
University Digital and Innovation Officer at BT
Group Plc
Source: Company, HSIE Research, CMD – Chairman and Managing Director

Page | 9
Max Healthcare: Annual Report Analysis

Board composition and director’s remuneration

Mr. Abhay Soi is the promoter and CMD of Max Healthcare. Max has seven directors
on its board with four of them being independent directors, which is in compliance
Mr. Abhay Soi is the
with the applicable provisions of the Companies Act, 2013.
promoter and CMD of
Total director’s remuneration (including directors’ sitting fees) for the company
Max Healthcare, holding
stands at ~0.5% of net reported revenue, as of FY21. Out of the INR113mn amount
23.2% stake in the
paid to directors, ~INR105mn is being paid to Mr. Abhay Soi, primarily in the form of
company (31 Aug’21)
salaries and perquisites.

Exhibit 16: Board composition and directors’ remuneration

Erstwhile Max Combined entity
INR mn
FY18 FY19 FY20 FY21
4 out of 7 directors are Board Composition
Independent Directors, in No. of directors 11 13 7 7
line with the requirements No. of Independent Directors 3 3 4 4
of law % of Independent Directors 27.3% 23.1% 57.1% 57.1%

Directors’ remuneration Director remuneration

appears reasonable and in Director's remuneration 81 113
line with norms As a % of sales 0.4% 0.5%
Source: Company, HSIE Research

Change in auditors
Deloitte has been appointed as the statutory auditors from FY21, replacing M/s S.R.
Batliboi (an EY affiliate), in order to comply with the applicable provisions of the
Companies Act in relation to the rotation of statutory auditors.

Exhibit 17: Audit fees’ structure

Erstwhile Max Combined entity
INR mn
FY18 FY19 FY20 FY21
Historically, over 90% of
Core audit fee 4.5 7.0 9.4 9.2
audit fee has been for core
Other services 0.1 0.6 0.1 8.1*
audit services Reimbursement 0.2 0.1 0.1 0.1
Standalone Audit fees 4.8 7.7 9.6 17.4
Core audit fee % 94% 91% 98% 53%
Source: Company, HSIE Research, *incl. fee for business combination accounting

Exhibit 18: Snapshot of various audit teams post merger

Erstwhile Max Radiant Max (post merger)
Statutory Audit
M/s Deloitte Haskins and M/s S.R. Batliboi and Co. M/s Deloitte Haskins & M/s Deloitte Haskins &
Auditors
LLP (an EY affiliate) Sells Sells
Sells have been appointed
Signing Partner Sanjay Vij Rajesh K. Hiranandani Rashim Tandon
as the statutory auditors
Latest Opinion Unqualified Unqualified Unqualified
from FY21 onwards
M/s Chandra Wadhwa & M/s Chandra Wadhwa &
Cost Auditors NA
Co Co

M/s Sanjay Grover &

Secretarial Auditors Jus & Associates NA
Associates
Source: Company, HSIE Research

Page | 10
Max Healthcare: Annual Report Analysis

Goodwill impairment testing rates

Exhibit 19: Goodwill discount rates vs. peers
% Max Apollo Fortis Narayana
Goodwill impairment
testing rates used by Max Healthcare: 12%
Goodwill discount
is in line with major peers rate
11-13% Clinic: 16% 12.7% 15.23%
Pharmacy: 14.5%
Source: Company, HSIE Research

Trade receivables
Historical data suggests that Max’s debtor collection days have been higher
compared to Radiant, possibly on account of higher share of schemes business in
Max. However, with the merger of Radiant, the outstanding debtor % has moderated
in FY21. We expect this to go down further over the next few years as the company
focuses more on reducing the schemes business.

Exhibit 20: Trade receivable analysis

Erstwhile Radiant Erstwhile Max Combined entity
INR mn
FY19 FY20 FY19 FY20 FY21
Combined entity’s debtor
collection days to tighten Total debtors 874 961 4,994 4,940 4,853
further over the next few as a % of net sales 9.4% 9.0% 29.9% 26.5% 19.6%
years with a marked
reduction in schemes Bad debts written off 31 227 136 53 323
business as a % of total debtors 3.5% 23.6% 2.7% 1.1% 6.7%
Source: Company, HSIE Research

Maturity profile and break- up of group’s financial liabilities

Overall group financial liabilities of Max amounts to INR23.8mn, which includes
Max is expected to INR13.7bn of borrowings (incl. interest), INR4.4bn of trade payables, INR1.8bn of
generate ~INR9bn OCF lease liabilities and INR4.0bn of other financial liabilities.
(before adj. for WC Almost one-third of the group’s financial liabilities are due in FY22, representing an
changes and interest estimated cash outflow of INR7.7bn over the 12-month period. We expect Max to
payments) in FY22e vs. generate ~INR9bn operating cash flows (before adj. for WC changes and interest
estimated cash outflow of payments) in FY22e, which should be more than sufficient to cover its liabilities.
INR7.7bn Besides this, the balance sheet strength (net debt/EBITDA of ~0.5x as of June’21)
allows the company to leverage for Capex needs or to refinance the existing debt at
potentially favourable rates, if needed.

Exhibit 21: Current maturity profile of group’s financial liabilities

Erstwhile Max Combined entity
INR mn
FY19 FY20 FY21
~33% of group’s financial Maturity profile
liabilities (incl. interest 0-1 years 5,371 15,356 7,657
payments) are due to be 1-5 years 5,970 6,135 9,206
paid within the next 12 >5 years 9,325 8,616 6,920
months Total 20,665 30,107 23,783

Maturity profile (%)

0-1 years 26.0% 51.0% 32.2%
1-5 years 28.9% 20.4% 38.7%
>5 years 45.1% 28.6% 29.1%
Total 100.0% 100.0% 100.0%
Source: Company, HSIE Research, includes borrowings, trade payables, lease liabilities and other financial
liabilities

Page | 11
Max Healthcare: Annual Report Analysis

Exhibit 22: Break-up of group’s financial liability maturity profile in FY21

INR mn 0-1 years 1-5 years >5 years Total

Borrowings (incl. interest) 1,602 6,442 5,613 13,658

Trade payables 4,357 0 0 4,357
Lease liabilities 111 391 1,307 1,809
Other financial liabilities 1,587 2,373 0 3,960
Total 7,657 9,206 6,920 23,783
% of total 32.2% 38.7% 29.1% 100.0%
Source: Company, HSIE Research, erstwhile Max nos. till FY20

Contingent liabilities
Contingent liabilities of INR3.7bn form ~17% of the total net worth with ~55% of the
liabilities towards corporate guarantees given to banks and financial institutions on
behalf of PHFs, while the balance ~45% are towards civil and tax cases against the
company.
The civil cases include a criminal lawsuit by the Assistant Charity Commissioner
Key hospitals entailed in
(Hospital) against Nanavati hospital for alleged irregularities/ illegalities found in the
litigation include
implementation of scheme framed by Bombay High Court. As per Max, this is a 2-3
Nanavati (nothing
year-old case and the same will not have any material impact. The other case law
significant as per the
pertains to additional payment of interest on account of delayed payments by Max
management) and Mohali
claimed by the plaintiff with respect to a land parcel allotted to the company in
(now settled)
Mohali (to be used for the proposed 190 bed expansion). However, as per the
company, the same has been settled, as of today.

Exhibit 23: ~45% of group’s current contingent liabilities represent civil and tax
cases
Erstwhile Max Combined entity
INR mn
FY19 FY20 FY21

Contingent Liabilities 3,386 4,702 3,650

Net worth 9,632 9,874 21,390*
CL % of NW 35.2% 47.6% 17.1%
Source: Company, HSIE Research, *ex-PPA allocation impact of ~INR34-35bn

Page | 12
Max Healthcare: Annual Report Analysis

Quantitative analysis
Balance sheet items and extracts
Since the Max-Radiant merger came into effect from June’20, this is the first year of
the annual report reflecting consolidated financials which are inclusive of Max +
Radiant numbers. Since this was a case of reverse merger, the previous year’s
financials, as stated in the annual report, represent Radiant’s (the “accounting
acquier”) numbers and, hence, are not comparable. We have tried to compare current
year’s financials with previous year’s numbers of Max and Radiant separately
wherever possible and commented on the nature of some of the key balance sheet
components.
Exhibit 24: Extract of consolidated balance sheet
FY20 FY20 FY21
Year to March (INR mn) Comments
Radiant Max Combined

Liabilities
Increase due to purchase price allocation of ~INR34bn on account of fair
Shareholder’s funds 25,532 9,874 56,387 valuation of Max’s assets at the time of merger and booking of INR12bn
worth of QIP proceeds
Contingent consideration payable to Nanavati & BLK trustees calculated
Other financial liabilities 2,419 30 2,373
as NPV of estimated future cash outflow
Unfavourable lease liability NPV of est. outflow obligation for land at Mohali and Bathinda as per
0 0 2,252
(Other non-current liabilities) concession agreement with the Punjab government
To buy stakes in CRL & Smart City (GM Modi agreement subsidiary)
Put option liabilities/ payable
0 5,857 820 which is almost done now. GM Modi/ CRL had a lock-in of 3-4 yrs, after
for share purchases
which they had the right to sell to Max which they exercised.

Assets
Intangibles Fixed Assets 1,426 9,515 23,335 Refer Exhibit 25
Increase in FY21 on account of revaluation of Max assets to fair value as
Goodwill 4,176 2,854 24,547 Radiant was considered as the accounting acquirer during the merger
(refer Exhibit 28 for details on allocation of goodwill to various CGUs)
Right of use assets 162 1,331 2,255 Primarily on account of Ind AS 116 impact
Loan to trust hospitals - INR1,370mn loan to GM Modi and INR250mn
Loans 28 3,352 3,570
loan to Devki Devi. Also, refer Exhibit 26
Other non-current assets 1,090 1,029 2,210 Refer Exhibit 27

Notes to Accounts
Incl. INR1,785mn deposits with PHFs, INR1,674mn advanced as loan,
Receivable from PHFs NA 7,094 6,607
INR717mn as prepaid expense and INR2,431mn as trade receivables
Source: Company, HSIE Research, CGUs – Cash generating units

Exhibit 25: Intangible fixed asset schedule (Extract)

FY20 FY20 FY21
Year to March (INR mn) Comments
Radiant Max Combined
Intangible Fixed Assets
Fair value of the Medical Services Agreements (MSA) with all three PHFs.
This is amortised over the e tenure of agreement. Till FY20, Max only
Service Agreements 0 9,333 16,861
accounted for GMHRC Society’s (Max Smart) however now all PHF
contracts are recognized as MSA.
Represents Max’s brand image & logo which the entity uses even post the
Trademarks 0 0 4,938
merger; this is tested for impairment like goodwill
Represents fair value of equipments and other assets of Nanavati (ex-land
O&M rights 1,402 0 1,243
and building) on which the combined entity has the right-to-use
Source: Company, HSIE Research

Page | 13
Max Healthcare: Annual Report Analysis

Exhibit 26: Loans (Extract)

FY20 FY20 FY21
Year to March (INR mn) Comments
Radiant Max Combined
Loans
Loans to other healthcare
0 1,370 1,620 INR1,370mn loan to GM Modi and INR250mn loan to Devki Devi
providers
Incl. INR1,785mn deposits with PHFs (some of which is non-interest
Security Deposit 28 1,983 1,950
bearing)
Source: Company, HSIE Research

Exhibit 27: Other non-current assets (Extract)

FY20 FY20 FY21
Year to March (INR mn) Comments
Radiant Max Combined
Other non-current assets
Incl. INR 162mn paid on account of the advance towards ~4.3acre land
located at Greater Noida with a market value of ~INR290mn. Max has
Capital Advances 18 338 312 applied to Greater Noida Development Authorities for possession of land
after payment of all due amounts and is waiting for grant of possession.
The company may look to build a hospital in the future.
Represents cost of land and buildings of BLK and Nanavati hospital being
Unamortised contract expense 1,016 0 986
consolidated in the financials and expensed over the period of contract
Source: Company, HSIE Research

Goodwill
As of FY20, the goodwill appearing in Max and Radiant’s financials stood at
Radiant was considered INR2.8bn and INR4.2bn respectively. The same has been revalued to INR24.5bn in
as the “accounting the combined financials (Max + Radiant) in FY21. This is because, from an accounting
acquirer” in the Max- point of view, the Max-Radiant merger was a “reverse merger” with Radiant being
Radiant merger leading to the accounting acquirer and, hence, all of Max’s assets got revalued at fair value as on
revaluation of all of the date of merger (1 June 2020). The resulting goodwill (excess of consideration paid
Max’s assets over the fair value of net assets) has been allocated to various cash generating units
(CGUs) as below:

Exhibit 28: Allocation of goodwill to various CGUs post merger

Max + Radiant* Combined entity
CGU (INR mn)
FY19 FY20 FY21

Radiation oncology services at BLK 55 55 55

Operation & Management Contracts of the
Hospitals with stronger
accounting acquirer:
performance like Max BLK (Silo) 3,467 3,467 3,467
Saket, Mohali and Nanavati (Silo) 654 654 654
Vaishali (CRL) have Hospital operations acquired upon business
rightfully got the highest combination w.e.f. June’20
share of goodwill Max Saket 4,832
allocation Shalimar Bagh 2,073
Dehradun 1,873
Max Labs 653
Mohali 4,362
Bathinda 252
Saket City Hospitals Ltd. 2,050 2,050 3,719
Crosslay Remedies Ltd. 659 659 2,084
Alps Hospital Ltd. 145 145 522
Total 7,030 7,030 24,547
Source: Company, HSIE Research, *addition of goodwill appearing in Max and Radiant’s financials

Page | 14
Max Healthcare: Annual Report Analysis

P&L analysis
The following statement shows changes in the key line items of the company’s P&L
whilst identifying reasons for the same:
Exhibit 29: Proforma consolidated income statement (including PHFs i.e. trust hospitals)
INR mn FY19 FY20 FY21 Comments
Revenues 36,108 40,263 36,290 Decline in occupancy and ARPOB due to lower OPDs, postponement of elective
Growth (%) 12% -10% surgeries, slowdown in medical tourism (lockdowns and farmer’s protests)
Consumables 8,416 9,234 9,733 Material cost optimisation offset against additional expense on PPE kit and other
% of sales 23.3% 22.9% 26.8% related consumables due to COVID and reclassification of some expenses
Doctor fees 8,744 9,496 5,664* Re-negotiations of minimum guarantees and variable fees payable to doctors as well
% of sales 24.2% 23.6% 15.6% as by virtue of improving workforce productivity
Employee cost 8,503 8,938 9,500 Workforce optimisation by enhancing productivity and temporary reduction of
remuneration of senior and middle management was offset by reclassification of
% of sales 23.5% 22.2% 26.2%
some expenses and actuarial valuation impact
Other expenses 6,878 6,732 5,032* Cost optimisation programme (re-negotiations with vendors, reducing corp.
overheads, deferment of discretionary exp., increasing productivity of spend and
% of sales 19.0% 16.7% 13.8%
synergy benefits incl. policy harmonisation across the group). Also, refer Exhibit 31
EBITDA 3,480 5,863 6,362
Margins (%) 9.7% 14.6% 17.5%
Growth (%) 37% 8%
Depreciation 1,856 2,087 2,160
Other income 210 1,013 851
Interest 1,788 3,135 2,721 Decline in the borrowings in the fourth quarter of FY21
PBT 45 1,653 2,332
Tax 183 (29) 504 Normalised tax rate expected to be ~15-18% in FY22e and ~18-20% in FY23e. Rates
Effective tax rate (%) NM -1.7% 21.7% are low on account of MAT credits and tax exemptions to Nanavati, BLK and PHFs
MI/share in JV -28 0 231
Recurring PAT (166) 1,682 451
Extraordinary items 0 0 1,636 Adj. for ESOPs, loss on fair value of merger and other such one-off items
Reported PAT (166) 1,682 (1,185)
Source: Company, HSIE Research, *HSIE estimate
Cost structure
Post the successful implementation of INR3.3bn worth of cost savings initiatives and
Post INR3.3bn cost synergies in the past three years, Max has optimised its cost structure and has
savings and synergies, Max industry-best metrics on some of the cost line items. Max’s Q1FY22 EBITDA margin
has one of the leanest cost is already at ~25% (ex-vaccines). This compares favorably with Apollo’s mature
structures in the industry hospital margin of ~22% and NH’s mature hospitals’ India business margin of ~14%
in Q1FY22.

Exhibit 30: Extract of proforma common size income statement

Savings summary over Particulars FY19 FY20 FY21 Q1 FY22
FY19-21e -
Doctor fees: ~861bps Proforma revenues 35,990 40,230 36,290 13,222

Other expenses (incl. Consumables 23.3% 22.9% 26.8% 27.8%

Doctor fees 24.2% 23.6% 15.6% 13.4%
operating leverage, other
Employee costs 23.5% 22.2% 26.2% 21.0%
savings): ~520bps
Other expenses 19.0% 16.7% 13.8% 10.5%
EBITDA margins 9.9% 14.6% 17.5% 27.3%
Total structural cost
Source: Company, HSIE Research, Q1 nos. include vaccine revenue (~INR1.5bn) and EBITDA (INR600mn)
savings: ~799bps

Savings in other expenses

Out of the INR3.3bn initiatives as mentioned above, INR2.2bn implemented in phase-
1, represented the structural cost savings. In the below table, we list some of the
major cost line items, which the company has managed to save and appear structural
in nature, while a few are also transient on account of COVID-led savings.

Page | 15
Max Healthcare: Annual Report Analysis

Exhibit 31: Savings in other expense

Combined entity (INR mn) FY19 FY20 FY21* % chg. Comments

Max has saved ~29% of Rent 422 62 151 -64% Ind-AS impact
other expenses over FY19- Facility maintenance 514 576 402 -22% COVID-led savings, synergies
21e led by – Power and fuel 666 617 560 -16% Cost optimisation
a) Structural cost Repairs to Plant 390 374 343 -12% Cost optimisation
optimisation: power & fuel, Outside lab investigation 515 417 152 -70% Cost optimisation, regrouping

lab investigations, corp. Travel and conveyance 184 195 102 -45% COVID-led savings
Legal and prof. fees 806 904 313 -61% COVID-led savings, synergies
overheads, eliminating
Advertisement 642 818 183 -72% COVID-led savings
waste and discretionary
Misc. expenses 118 88 53 -55% Cost optimisation
spends, etc
Others 1,694 1,941 1,940 15% NA
b) COVID-led savings: Cost optimisation coupled with
travel and conveyance, Total other expenses^ 5,951 5,991 4,200 -29%
COVID-led savings
advertising, etc As a % of sales 16.5% 20.4% 15.4% -104bps
Source: Company, HSIE Research, all nos. are excl. PHFs, % change column represent savings over FY19-
21e, *FY21 nos. annualised for Max, ^without adj. one-offs, restatements or eliminations worth ~INR700mn
for FY19 and FY20 each and ~INR300mn in FY21

Comparison with major peers

Cost structure
Exhibit 32: Comparison of hospitals’ business cost structures of listed peers
Particulars FY19 FY20 FY21 Q1 FY22

Consumables’ costs in FY21 Consumables

and Q1FY22 increased due Max 23.3% 22.9% 26.8% 27.8%
to COVID and regrouping Apollo* 25.4% 26.0% 27.1% 28.2%
of some other expenses Fortis 19.6% 19.3% 22.0% 23.8%
Narayana 24.8% 24.6% 28.6% 27.5%

Doctor fee structure has Doctor Fees

been rationalised over the Max 24.2% 23.6% 15.6% 13.4%

last two years. As per Max, Apollo* 23.3% 18.4% 17.9% 17.9%

doctor fees at ~15-16% of Fortis 23.0% 23.9% 23.7% 21.3%

Narayana 17.8% 18.6% 22.2% 21.8%
revenue are sustainable

Employee Costs
Max 23.5% 22.2% 26.2% 21.0%
Employee cost optimisation
Apollo* 17.6% 18.9% 21.1% 17.6%
has been offset by
Fortis 19.3% 17.7% 19.7% 15.9%
regrouping of some expenses
Narayana 25.1% 24.3% 25.7% 21.9%

Other expenses
Savings in other expenses
Max 19.0% 16.7% 13.8% 10.5%
include HO cost
Apollo* 18.6% 20.1% 21.5% 18.0%
optimisation and other line Fortis 34.6% 27.1% 26.5% 24.8%
items as listed in Exhibit 31 Narayana 23.5% 20.8% 23.7% 21.3%

EBITDA margins
Max has achieved the Max 9.7% 14.6% 17.5% 27.3%
leanest cost structure Apollo* 15.1% 16.5% 12.4% 18.4%
among major peers Fortis 9.5% 12.7% 8.1% 14.2%
Narayana 8.8% 11.7% -0.2% 7.5%
Source: Company, HSIE Research, proforma nos. for Max (incl. PHFs),*Apollo revenues are grossed up for
doctor fees, Q1FY22 data includes vaccine contribution

Page | 16
Max Healthcare: Annual Report Analysis

Depreciation
Max follows Straight Line Method (SLM) for depreciating both its tangible as well as
intangible assets, which is in line with other listed players like Apollo, NH and Fortis.
Exhibit 33: Comparison of depreciation vs. listed peers
Particulars FY19 FY20 FY21

Implied depn rate

Most hospital companies Max (excl. PHFs) 8.2% 8.8% 7.0%
use SLM method. Apollo 6.6% 7.7% 6.0%
Fortis follows most Narayana 5.6% 6.8% 6.2%
aggressive accounting
(higher depreciation), Depn % of sales
followed by Max and then Max 5.1% 5.2% 6.0%
Apollo/NH. Max (excl. PHFs) 6.0% 6.3% 6.8%
Apollo 4.1% 5.5% 5.4%
Narayana 4.8% 5.9% 7.1%
Source: Company, HSIE Research, erstwhile Max nos. till FY20, combined entity nos. from FY21

Finance costs
Exhibit 34: Comparison of finance costs vs. listed peers
Particulars FY19 FY20 FY21

Max’s finance costs are Max (excl. PHFs) 6.1% 8.0% 9.3%
slightly higher than peers Apollo 8.1% 10.4% 8.3%
Narayana 7.5% 8.3% 7.3%
Source: Company, HSIE Research, erstwhile Max nos. till FY20, combined entity nos. from FY21

Working capital (WC) days

The hospitals’ business has lower WC days as receivable and payable days tend to
Minimal working capital
offset each other. Accordingly, Max’s working capital days are expected to be ~5
required for hospitals’
days, which would be comparable to pure-play hospital companies like NH.
business
Exhibit 35: Working capital days of Max vs. peers
Particulars FY19 FY20 FY21

Max’s working capital Working capital days

days are one of the best in Max (excl. PHFs) 22 33 -1
the industry Apollo 34 28 15
Narayana 2 -5 -12

Inventory days
Inventory days are
Max (excl. PHFs) 6 8 8
comparable to pure-play
Apollo 22 24 9
hospitals entity like NH
Narayana 11 7 7

Debtor days
Max seems to offer higher Max (excl. PHFs) 79 81 54
credit period to debtors... Apollo 39 33 46
Narayana 34 31 39

...while also enjoying Creditor days

higher credit period from Max (excl. PHFs) 63 56 63
suppliers Apollo 27 29 40
Narayana 43 42 58
Source: Company, HSIE Research, erstwhile Max nos. till FY20, combined entity nos. from FY21

Page | 17
Max Healthcare: Annual Report Analysis

Financial projections
We forecast 20% revenue CAGR over FY21-24e, driven by higher ARPOBs and
improved occupancy as the non-COVID business picks up across units.
Consequently, EBITDA growth is expected to be significant in the same period at 41%
CAGR on account of: (a) margin improvement in Nanavati hospital – we model
~1,574bps of improvement from 6% in FY20 to 22% in FY24e; (b) steady shift in payor
mix towards non-institutional patients; (c) higher contribution from international
patients as travel restrictions ease (international business was 4% in FY21 vs. 11% in
FY20); (d) ramp-up in the non-COVID business, which would drive higher ARPOBs
(COVID business was ~15% of FY21 revenue and has lower ARPOBs); (e) a portion of
synergies worth INR0.4bn to be realised in FY22.
Exhibit 36: Revenue summary
INR mn FY20 FY21 FY22e FY23e FY24e FY21-24e CAGR
Hospitals 39,053 34,918 46,513 51,325 58,096 18.5%
We expect healthy MHIL and subsidiaries 17,842 17,341 22,682 24,591 27,956 17.3%

double-digit growth PHFs 13,012 11,925 16,018 17,515 19,341 17.5%

Less: Inter-co. adj. -2,436 -2,842 -3,604 -3,678 -3,868 10.8%
across hospitals over
Radiant 10,636 8,493 11,417 12,896 14,667 20.0%
FY21-24e on the back of
Max@Home 768 696 1,044 1,410 1,762 36.3%
improved occupancy and
MaxLab 409 676 1,232 1,894 2,659 57.8%
higher ARPOBs
Total Revenues 40,230 36,290 48,789 54,628 62,517 19.9%
Source: Company, HSIE Research, MHIL – Max Healthcare Institute Ltd, PHFs – Partnered Healthcare
Facilities

Exhibit 37: EBITDA break-up

INR mn FY20 FY21 FY22e FY23e FY24e FY21-24e CAGR
Hospitals 5,854 6,226 11,960 13,962 16,646 38.8%
EBITDA growth is MHIL and subsidiaries 2,982 3,965 6,331 7,047 8,090 26.8%

expected to be driven by: PHFs 1,423 1,690 3,704 4,144 4,898 42.6%

(a) optimisation of payor Less: Inter-co. adj. -1 -130 -188 -108 -294 31.3%
Radiant 1,450 701 2,112 2,879 3,953 78.0%
mix; (b) turnaround of
Max@Home 15 70 157 254 352 71.7%
Nanavati hospital; (c)
MaxLab 25 67 271 436 665 115.4%
operating leverage
Proforma EBITDA 5,894 6,362 12,387 14,651 17,663 40.5%
Source: Company, HSIE Research, MHIL – Max Healthcare Institute Ltd, PHFs – Partnered Healthcare
Facilities

Exhibit 38: EBITDA margin summary

INR mn FY20 FY21 FY22e FY23e FY24e FY21-24e change
Hospitals 15.0% 17.8% 25.7% 27.2% 28.7% 1,082bps
We expect hospital
MHIL and subsidiaries 16.7% 22.9% 27.9% 28.7% 28.9% 607bps
business EBITDA margin
PHFs 10.9% 14.2% 23.1% 23.7% 25.3% 1,115bps
to improve by ~1,082bps
Radiant 13.6% 8.3% 18.5% 22.3% 26.9% 1,869bps
over FY21-24e Max@Home 2.0% 10.0% 15.0% 18.0% 20.0% 1,000bps
MaxLab 6.0% 9.8% 22.0% 23.0% 25.0% 1,517bps
Proforma EBITDA margins 14.6% 17.5% 25.4% 26.8% 28.3% 1,072bps
Source: Company, HSIE Research, MHIL – Max Healthcare Institute Ltd, PHFs – Partnered Healthcare
Facilities

Page | 18
Max Healthcare: Annual Report Analysis

An eye on the future: ~95% upside potential seen in five years

Max has a well-defined roadmap for expansion, which is expected to aid higher
growth trajectory of 24% EBITDA CAGR over FY21-28e. We list our assumptions for
the key fundamental drivers of the business.

 ARPOBs – We forecast ~11% ARPOB CAGR over FY21-28e. With strong presence
in metro cities, focus on quaternary care, and optimisation of payor mix, Max’s
ARPOB growth is expected to be higher than the industry average of ~7%
witnessed in the past five years (pre-COVID).
Revenue growth driver  Occupancies – Max enjoys industry-leading occupancies, owing to its
assumptions (FY21-28e) - concentrated presence in Delhi and Mumbai – markets that are characterised by
-ARPOB: 11% CAGR demand-supply mismatch for quality beds and strong demand for medical
-Occupancy: ~65-77% tourism. Despite the aggressive expansion plans in place, we expect Max to
-Capacity bed addition: maintain 70%+ occupancy levels through FY28e, given the strong underlying
1,630 demand and its proven execution capabilities in these markets.
 Bed addition – We expect the addition of ~1,630 capacity beds by FY28. Key
capacity bed addition assumed is at Saket Smart (~600 beds), Vikrant Children’s
Foundation (~300 beds), Nanavati (~440 beds), Mohali (~190 beds) and Shalimar
Bagh (~100 beds).

Exhibit 39: We forecast ~17% revenue CAGR over FY21-28e…

FY19 base Incremental revenues Reductions
INR bn
120
106
100 10

80 23
2
70
60 2 49 23
1 1
40 9 13

20 36 36 36
0
Occupancy

Occupancy
FY19 base

ARPOB

ARPOB
Bed additions

Bed additions
Others

Others
revenues

revenues
growth

growth
FY22e

Source: Company, HSIE Research FY28e

Exhibit 40: …and ~24% EBITDA CAGR over the same period
FY19 base Improvements Reductions EBITDA

32% INR3.5bn INR12.4bn INR28.7bn

0.4% 1.0%
28% 0.5% 25.2% 1.5% 26.8%
24% -1.3%
6.8%
20%
15.5% 17.1%
16% 4.8%
12% 0.1%
3.3%
8%
4% 9.7% 9.7% 9.7%
At ~23x EV/EBITDA, we see
0%
an upside potential of ~95% FY19 GMs Doc. Emp. Cost Others* FY22e GMs Doc. Emp. Others* FY28e
in the next five years base fees exp. savings fees exp.

M Cap (INR bn) 353 679

Share price returns as on 24th 5-yr return:

Sept, 2021 ~95%
Source: Company, HSIE Research

Page | 19
Max Healthcare: Annual Report Analysis

Change in estimates and target price

We tweak our FY22/23e EBITDA estimates by 4%/-5% to factor in improved outlook
for core hospitals’ business and revised expansion timelines. We also roll forward our
target price to Mar’24 EBITDA (from Mar’23). Maintain BUY.
Exhibit 41: SOTP valuation based on FY24 estimates
FY24e EBITDA Multiple INR mn
Hospitals
MHIL 7,795 22.0 1,71,500
PHFs 4,898 22.0 1,07,750
Radiant 3,953 22.0 86,955
Proforma hospitals EBITDA 16,646 22.0 3,66,206
Max Home 352 30.0 10,572
Max Lab 665 30.0 19,942
Fair value of Max's operating assets 17,663 22.5 3,96,719
CWIP 5,769
Enterprise value (EV) 4,02,488
Less: Net debt (FY23e) 793
Less: Lease liabilities (FY23e) 3,662
Less: Contingent consideration (FY23e) 3,872
Implied market cap 3,94,161
No. of equity shares 966.0
Target price 410
Source: HSIE Research

Exhibit 42: SOTP valuation based on FY28 estimates

FY28e EBITDA Multiple INR mn
Hospitals
MHIL 12,174 22.0 2,67,836
PHFs 7,613 22.0 1,67,489
Radiant 6,152 22.0 1,35,338
Proforma hospitals EBITDA 25,939 22.0 5,70,663
Max Home 702 30.0 21,046
Max Lab 2,091 30.0 62,738
Fair value of Max's operating assets 28,732 22.8 6,54,446
CWIP 2,719
Enterprise value (EV) 6,57,871
Less: Net debt (FY27e) (27,769)
Less: Lease liabilities (FY27e) 2,897
Less: Contingent consideration (FY27e) 3,355
Implied market cap 6,79,388
No. of equity shares 966.0
Target price 705
Source: HSIE Research

Risks
 Hospitals – Delay in capacity addition, delay in improvement in payor mix,
slower-than-expected pick-up in non-COVID business, cost base stabilising at
higher level post COVID, and unfavourable change in agreement with partnered
healthcare facilities (trusts).

 SBUs – Delay in scaling up the business via organic or inorganic route.

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Max Healthcare: Annual Report Analysis

Peer set comparison and valuation chart

Exhibit 43: Peer-set valuation
M.Cap CMP EV/EBITDA (x) ROE PER(x) CAGR (FY20-23e)
Domestic cos RECO TP
(INR bn) (INR/sh.) 22E 23E 22E 23E 22E 23E EBITDA Sales
Max Healthcare 353 365 BUY 410 29.4 24.6 21.2 22.3 5.5 4.9 35.5% 10.7%
Apollo 680 4,732 ADD 4,410 34.4 26.8 18.2 21.4 73.5 52.3 18.3% 17.1%
Narayana 106 521 ADD 575 16.8 13.6 23.6 25.2 35.2 27.3 24.4% 10.8%
Fortis 205 272 NA NA 21.2 18.1 6.0 7.1 61.3 41.4 26.1% 12.9%
HCG 31 249 NA NA 18.9 15.5 -3.9 2.0 -110.9 256.3 15.6% 9.6%
KIMS 98 1,224 NA NA 21.0 18.1 25.0 21.0 36.0 30.6 29.2% 19.1%
Aster DM 107 213 NA NA 11.3 9.6 10.9 13.7 26.0 18.4 9.0% 8.9%
Shalby 19 180 NA NA 17.0 14.3 6.6 7.6 27.9 23.9 17.5% 12.4%
Source: Bloomberg, HSIE Research, price as on Sept 24, 2021, Max TP based on FY24 estimates; whereas Apollo and NH TP based on FY23 estimates

Exhibit 44: Max is trading at ~10-15% discount to Apollo

Apollo Fortis Narayana Max
35

30

25

20

15

10
Sep-20

Sep-21
Mar-21
Dec-20

Jun-21
Source: Bloomberg, HSIE Research, 1-yr fwd. EV/ EBITDA

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Max Healthcare: Annual Report Analysis

Proforma financials
Proforma Financial Summary (including PHFs)
Year to March (INR mn) FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Revenue 33,913 35,990 40,230 36,290 48,789 54,628 62,517
YoY growth 6% 12% -10% 34% 12% 14%
Gross Profits 27,692 31,029 26,557 37,450 42,140 48,455
Gross Margin (%) 76.9% 77.1% 73.2% 76.8% 77.1% 77.5%
EBITDA 3,120 3,485 5,894 6,362 12,387 14,651 17,663
EBITDA Margin (%) 9.2% 9.7% 14.6% 17.5% 25.4% 26.8% 28.3%
EBIT 2,079 4,153 3,870 10,434 12,390 15,278
EBIT Margin (%) 5.8% 10.3% 10.7% 21.4% 22.7% 24.4%
Tax rate (%) 362.3% -1.7% 21.6% 10.7% 13.4% 14.7%
Adj. PAT -161 1,682 451 7,918 9,754 12,225
PAT Margin (%) -0.4% 4.2% 1.2% 16.2% 17.9% 19.6%
Capital Employed 29,792 37,815 41,543 43,954 50,379 59,866
Net Debt 12,416 12,350 6,618 4,225 793 -2,823
Lease liabilities 4,123 3,885 3,662 3,453
Contingent consideration 4,193 4,027 3,872 3,728
EV 3,49,117 3,50,497 3,67,456 3,64,660 3,60,851 3,56,881
Mcap 3,30,108 3,30,108 3,52,523 3,52,523 3,52,523 3,52,523
Book value 27.2 23.3 59.4 65.9 74.0 84.2
Adj. EPS -0.3 3.1 0.5 8.2 10.1 12.7
Adj. RoCE 5.9 10.4 8.3 21.2 22.3 23.0
Adj. RoE -1.1 12.4 2.6 31.0 29.9 29.5
EV/Revenues (x) 9.7 8.7 10.1 7.5 6.6 5.7
EV/ EBITDA 100.2 59.5 57.8 29.4 24.6 20.2
Net Debt/EBITDA (x) 5.5 3.5 2.3 1.0 0.6 0.2
Net Debt/Equity (x) 1.3 1.6 0.7 0.4 0.2 0.1
P/E (x) 116.6 782.0 44.5 36.1 28.8
P/BV (x) 13.4 15.7 6.1 5.5 4.9 4.3
Source: Company, HSIE Research

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Max Healthcare: Annual Report Analysis

RECOMMENDATION HISTORY
Date CMP Reco. Target
Max Healthcare TP
9-Aug-21 278 BUY 330
450
12-Aug-21 301 BUY 350
400
30-Aug-21 335 BUY 360
350 27-Sep-21 365 BUY 410
300
250
200
150
100
50
0
Jun-21
Dec-20
Oct-20

Jul-21
Nov-20

Feb-21

Aug-21
Jan-21

Apr-21
Sep-20

Sep-21
May-21
Mar-21

Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential

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Max Healthcare: Annual Report Analysis

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