Max Healthcare Institute reported a subdued Q3FY26, with EBITDA growth constrained by seasonal softness, temporary operational disruptions, and pre-commissioning costs linked to capacity expansion. While near-term performance fell short of estimates, the structural growth thesis remains intact. PL Capital expects a sharp improvement from FY27 as new beds come online, CGHS rate revisions begin flowing through, and operating leverage improves across key hospitals such as Noida, Dwarka, and Nanavati. Despite trimming earnings estimates modestly, the brokerage maintains a BUY rating, citing strong long-term EBITDA compounding visibility and superior execution in competitive healthcare markets.

Q3FY26 Performance: A Weak Quarter Masking Structural Strength

Max Healthcare’s consolidated EBITDA rose just 4 percent year-on-year to Rs 6.5 billion, missing PL Capital’s expectations. The underperformance stemmed from a confluence of transient factors rather than any deterioration in core business fundamentals.

Seasonal weakness, disruptions in cashless insurance services, discontinuation of select high-value patented oncology drugs for CGHS patients, and pre-commissioning expenses weighed on profitability. As a result, operating margins contracted by nearly 120 basis points year-on-year to 26.1 percent.

The quarter also reflected delayed bed additions, which pushed revenue monetization into subsequent periods, particularly impacting FY26 growth trajectories.

Revenue Growth Holds, but Occupancy Softens Sequentially

Consolidated revenues increased 9 percent year-on-year to Rs 24.8 billion, underscoring resilience in topline momentum despite occupancy pressures.

Hospital occupancies declined 300 basis points quarter-on-quarter to 74 percent, largely driven by seasonality. On a year-on-year basis, occupancy was lower by 100 basis points.

Encouragingly, Average Revenue Per Occupied Bed (ARPOB) improved by about 3 percent year-on-year to Rs 77,900, reflecting sustained pricing power and a favorable case mix. Institutional revenues accounted for 22.7 percent of total revenues, slightly higher than the previous quarter, while insurance mix moderated during the period.

Margin Pressure Explained: Temporary, Not Structural

The margin compression observed during the quarter was attributable to identifiable and reversible factors.

Pre-commissioning expenses linked to brownfield expansions, alongside a temporary shift in payer mix, weighed on EBITDA margins. PL Capital emphasized that newly operationalized beds are already margin accretive, suggesting a normalization in profitability as utilization ramps up.

Importantly, Max Healthcare continues to demonstrate superior operational efficiency, particularly in highly competitive markets such as the National Capital Region, reinforcing confidence in its execution capabilities.

Bed Expansion: The Core Growth Catalyst

Capacity expansion remains the central pillar of Max Healthcare’s medium-term growth strategy.

During Q3FY26, the company operationalized 63 beds at Nanavati Max and 53 beds at Max Mohali. Remaining beds at both locations are expected to be commissioned by Q4FY26. These additions are already contributing positively to margins.

At Dwarka, robust ramp-up prompted the board to approve an additional 260 beds, taking total planned capacity to approximately 560 beds. Management commentary indicates strong demand traction, even with a high institutional patient mix.

Project Pipeline Extends Visibility Well Into the Next Decade

Max Healthcare’s expansion roadmap provides long-term earnings visibility across multiple geographies.

Key projects include:

Max Smart (400 beds): Construction complete; occupancy certificate expected by February end, with EBITDA accretion post-commissioning.

Pune (450 beds): Greenfield project targeted for completion by 2030.

Patparganj, Delhi (397 beds): All approvals secured; completion expected by FY29.

Nagpur (100 beds): Civil work underway following consent approvals.

New Gurgaon (500 beds, Phase 1): Commissioning expected by end-H1FY27 after resolving land-related delays.

Lucknow Phase 2: Capacity set to increase from 413 beds to 550 beds by FY26-end.

This pipeline positions Max Healthcare for sustained capacity-led growth over the next several years.

CGHS Rate Revision: A Material Earnings Upside from FY27

One of the most significant medium-term catalysts is the revision in CGHS rates.

PL Capital estimates a gross revenue benefit of approximately Rs 2 billion from the revision. After accounting for GST rate adjustments and the discontinuation of low-margin oncology drugs, the net EBITDA uplift is projected at around Rs 1.4 billion.

Crucially, the bulk of this benefit is expected to flow through from FY27 onwards, aligning with capacity ramp-ups.

International and Ancillary Businesses Gain Momentum

International patient revenues rose 14 percent year-on-year to Rs 230 crore, contributing nearly 9 percent of hospital revenues. Growth was driven by inbound medical tourism and strong specialty offerings.

Ancillary verticals also posted steady contributions, with Max Lab generating Rs 470 million and Max@Home delivering Rs 680 million during the quarter. These businesses continue to diversify revenue streams and enhance return metrics.

Balance Sheet and Cash Flows: Leverage Remains Manageable

Net debt increased by Rs 990 million sequentially to Rs 21.7 billion, primarily reflecting expansion-related capital expenditure. However, leverage remains well within comfortable thresholds.

PL Capital expects EBITDA to grow at a 21 percent CAGR over FY26–FY28, supporting gradual deleveraging despite elevated capex. Free cash flow is projected to turn positive and strengthen meaningfully from FY27 onward.

Valuation: Premium Justified by Growth Visibility

At the current market price, Max Healthcare trades at approximately 26x EV/EBITDA on FY28 estimates.

PL Capital applies a target multiple of 32x EV/EBITDA, reflecting:

Superior execution in competitive urban healthcare markets

Strong capacity-led growth visibility

High return ratios and improving free cash flows

Based on this valuation framework, the brokerage maintains a BUY rating with a revised target price of Rs 1,300 per share.

Investment View: Near-Term Noise, Long-Term Compounding Story Intact

While Q3FY26 highlighted short-term earnings volatility, the broader investment narrative remains firmly intact.

With multiple growth levers—capacity additions, CGHS pricing benefits, normalization of payer mix, and operating leverage—Max Healthcare is positioned for a sharp earnings acceleration from FY27. PL Capital’s conviction rests on the company’s proven execution track record and expanding healthcare footprint across high-growth regions.