Healthcare stock to watch amid 1,650-bed expansion and debt reduction plans

Synopsis:​‍​‌‍​‍‌​‍​‌‍​‍‌ Park Medi World aims at a significant debt reduction, an expansion of 1,650 new beds, and a four-pillar growth strategy, apart from heavily depending on government schemes. 

Park​‍​‌‍​‍‌​‍​‌‍​‍‌ Medi World is planning an ambitious expansion plan after raising Rs 920 crore through an IPO, with which it intends to reduce a major portion of the debt, increase the bed capacity significantly, implement a multi-stage plan to raise occupancy and upgrade the quality of services, and, at the same time, continue to depend on government healthcare schemes for revenue ​‍​‌‍​‍‌​‍​‌‍​‍‌growth.

With a market capitalisation of Rs 6,313 crore, the shares of Park Medi World Ltd are currently trading at Rs 146.05 per share, down 1 percent from its previous day’s closing price of Rs 147.50 per share. Post its listing on the stock exchange, the stock has corrected by over 5 percent.

Management Comments

Ahead of its IPO listing, the CEO and Whole Time Director of Park Medi World, Sanjay Sharma, has laid out its expansion and numerous outlooks by which he aims to grow his business.

Park​‍​‌‍​‍‌​‍​‌‍​‍‌ Medi World is planning to use the majority share of its fresh equity cash (nearly Rs 380 crore) to pay off its debt out of its total debt of Rs 425 crore, which would help it lower interest costs and provide it with a stronger financial position. This push is likely to save around Rs 15 crore each year in interest costs, which will directly impact the profitability of the company. It also cited that Rs 88 crore will be spent towards medical equipment and Rs 302 crore on general corporate purposes.

Further, the company intends to increase its hospital bed strength by adding 1,650 beds and taking its total bed capacity to 4,900 by FY28 from the existing 3,250 beds. This indicates a massive expansion of healthcare services. This expansion would take place over the next three years in a phased manner, with 300 beds expected in FY26, 750 beds in FY27 and the remaining 600 beds by FY28.

At present, the hospital network has a footprint in four North Indian states and plans to concentrate on strengthening its presence in the North first and then move further. This approach allows the company to deepen its network in the regions where it already has a strong base, thus increasing patient reach and operational efficiency.

Sharma​‍​‌‍​‍‌​‍​‌‍​‍‌ laid out a 4-stage expansion strategy for the business to grow its business. Firstly, it aims to increase the occupancy rate in the new hospitals that are currently only 50-55 percent utilised. Secondly, in mature hospitals (75-80 percent occupancy rate), the management focuses on providing higher and advanced treatments like robotic surgeries, cardiac procedures and other advances that require high-tech hospital environments so as to continue to lead in the sector. And the third and fourth pillars of growth would be greenfield and brownfield expansion respectively.

A major part of their revenue comes through government schemes, 84 percent from different schemes and more than 90 percent from the central government alone. The payments are usually made at around 4.5 months. Along with that, the company anticipates the recent CGHS rate revision to add 7-7.5 percent to its earnings, thereby giving extra encouragement to longer-term financial ​‍​‌‍​‍‌​‍​‌‍​‍‌performance.

CGHS​‍​‌‍​‍‌​‍​‌‍​‍‌ rates refer to the fixed prices by which hospitals are paid for the healthcare services provided to the employees of the central government, pensioners, and other beneficiaries under the Central Government Health Scheme. An increment in these rates allows hospitals to be paid at a higher rate for the same treatments, resulting in a direct revenue and profit flow increase. A CGHS rate increment is, therefore, a major booster of financial performance for hospitals that are heavily dependent on government schemes such as Park Medi ​‍​‌‍​‍‌​‍​‌‍​‍‌World.

About the IPO

Park​‍​‌‍​‍‌​‍​‌‍​‍‌ Medi World Ltd.’s IPO is debuting on December 10, raising Rs 920 crores. A hospital chain has a total of 14 multi-speciality hospitals with 3,250 beds. The issue will be closing on December 12, with the allotment likely to be done on December 15 and the listing taking place on both BSE and NSE on December 17.

The initial public offering price is set between Rs 154 and Rs 162 per share with a minimum of 92 shares. As per the top price, the firm will raise Rs 920 crores through a Rs 770 crore fresh issue and a Rs 150 crore offer-for-sale. The issue is being managed by Nuvama Wealth and Kfin Technologies as the ​‍​‌‍​‍‌​‍​‌‍​‍‌registrar. The current GMP is 14.8 percent.

Park Medi World reported a revenue of Rs 1,231 crore in FY24, a decline of 2 percent as compared to Rs 1,255 crore in FY23. Regarding its profitability, it reported a net profit decline of 33 percent to Rs 152 crore in FY24 as compared to Rs 228 crore in FY23.

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