HSBC initiates coverage on this recently listed healthcare stock that can rally up to 26%. Do you own?

Wall Street major HSBC initiated coverage on Manipal Health with a Buy rating and a target price of Rs 1,000, implying an upside of 26% from current market levels, citing multiple growth levers ahead.Analysts say Manipal Health, India’s largest private hospital operator, is set to sharpen its focus on profitability after doubling its bed capacity since FY23. The brokerage expects PAT to grow nearly threefold between FY26 and FY29E, while net debt-to-EBITDA is expected to improve to 0.7x in FY27E from 3.7x in FY26.Key factors for HSBC's positive outlook for Manipal Health1.) Visible growth runway - HSBC sees a visible runway for growth at Manipal Health, following the addition of around 5,400 beds, mainly through M&A, during FY23-26. This represents a 19.3% CAGR in bed capacity, or 1.7x growth. Going ahead, the brokerage expects the company to shift its focus towards improving asset utilisation and operational profitability.HSBC expects growth to be driven by improving EBITDA margins at recently acquired Sahyadri Hospitals through a better speciality mix and greater operational efficiency, an improving business mix across network hospitals, and the addition of around 2,500 beds during FY27-30, including 24% brownfield beds, to strengthen its presence in target markets such as Bengaluru and Mumbai.2.) Turnaround of Sahyadri Hospitals - HSBC believes investors will closely watch management’s execution on the turnaround of acquired Sahyadri Hospitals, given that the transaction valuation appears to be at the higher end of deals in the hospital sector. The brokerage sees good visibility for a turnaround through greater adoption of digital tools, interoperability of clinicians across hospitals and stronger clinical programmes.This could help narrow the gap between Sahyadri’s current margins in the high teens and Manipal’s corporate average margins in the mid-20s. Management has indicated that the operational turnaround at Sahyadri Hospitals could take 16-18 months, which HSBC sees as a key potential rerating catalyst for Manipal.3.) Improving mix - Manipal is one of the industry leaders in complex medical procedures, with revenue from its focus specialities—CONGO-R (cardiology, oncology, neuroscience, gastroenterology, orthopaedics and renal sciences)—accounting for 64% of network revenue in FY26. Notably, CONGO-R revenue grew at a CAGR of 37.3% over FY24-26, outpacing the 34.6% CAGR in gross in-patient (IP) revenue over the same period. HSBC expects this healthy growth to continue, supported by the company’s continued focus on strengthening its clinical programmes.4.) Focus on operating leverage - After adding around 5,400 beds, mainly through M&A during FY23-26, representing a bed expansion CAGR of 19.3% and 1.7x growth, HSBC expects Manipal to sharpen its focus on driving operating leverage and improving overall profitability.The planned addition of around 2,500 beds between FY27-30E, including 24% brownfield beds and implying a 4.6% CAGR in bed capacity over FY26-30E, provides visibility for sustained growth. In HSBC’s view, the expansion will also help Manipal further strengthen its presence in key target markets such as Bengaluru and Mumbai.HSBC estimates Manipal Health’s revenue and EBITDA to grow at CAGRs of 17.9% and 19.3%, respectively, over FY26-29E. The brokerage expects EBITDA margin to improve by around 100 bps to 25.8% in FY29E from 24.8% in FY26. Adjusted PAT is expected to grow threefold to Rs 2,250 crore over FY26-29E, implying a CAGR of 44.3%.Manipal plans to repay Rs 5,550 crore of debt from the IPO proceeds in 2QFY27. HSBC expects the company’s net debt/EBITDA ratio to improve sharply to 0.7x in FY27E from 3.7x in FY26, before the IPO. With lower capex intensity, the brokerage expects RoCE to reach 13.1% by FY29E, up from 12.6% in FY26.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)