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Max Healthcare says hospitals seeing 20% plus ROCE

Max Healthcare is on the radar. The stock is up over 2 times since its listing in August 2020. Further, HDFC Securities has also written a note on the company where they see a 95 percent upside potential over the next five years. In an interview with CNBC-TV18, Abhay Soi, chairman and managing director at Max Healthcare, discussed the company’s outlook.

On growth, he said, “Max Healthcare at present is, in a classic sort of growth cycle. Our hospitals, each one of them is doing 20 percent plus ROCE. We are generating alpha amounts of cash throughout this thing and this is without any COVID business at present. We have less than 1 percent revenues coming from COVID. So yes, we are doing free cash flows of close to about Rs 1,100 crore at present run rate.”

“Going forward, if one were to assume and just for calculation purposes, because I don’t give topline guidance, but if one were to assume a 10 percent growth on topline, then our free cash flows would be increasing materially by about 18-20 percent per year. In the next four to five years, we should be generating through internal accruals alone, close to about Rs 5,000 to 6000 crore and this is on our debt-free balance sheet, I mean, effectively as we speak, my current debt levels are perhaps lower than my last quarter’s EBITDA. So therefore, by next quarter, we should be net debt-free. Going forward over the next 4-5 years, we look at leveraging our balance sheet to 2 times debt to EBITDA, we are looking at another Rs 5,000 to 6000 crore, that is about Rs 10,000 to 11,000 crore of war chest to deploy,” he mentioned.

On increasing capacity, Soi said, “In Gurugram, we will be opening a 500-beds hospital over the next 3-4 years, we should be able to deploy about Rs 3,500 crore over the next 4 to 5 years to double our capacity. All of it is accretive simply because most of it is in the back of our already operating hospitals and brownfields; and our hospitals are operating at about 78 percent occupancy.”

On expansion in diagnostics space, he said, “As far as diagnostic acquisitions are concerned, we are certainly looking at it. When it comes to Delhi NCR which is a population of about 40 million people, we are already the third largest diagnostic chain over there and more importantly, if I was to sort of look at what is the amount of captive business we are doing in terms of economic value, volume, we would be amongst the top three or four players in the country because a lot of what we are speaking about is the retail business.”

On deploying capital, Soi said, “As far as deploying capital is concerned, we are looking to do purely in brownfields and greenfields, and some of the asset light models that we have sort of signed up for. So this is purely in the hospital space and this would essentially mean about 80 percent or 70 percent of our internal accruals alone. So, there is no leverage required for setting this up. So this does not include any M&A in the hospital space that we intend to do.” CNBCTV18

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