Prabhudas Lilladher maintains a Buy rating on Jupiter Life Line Hospitals (JLHL) with an upgraded target price of Rs 1,660. JLHL’s Q2 FY25 results exceeded expectations, supported by an increase in average revenue per occupied bed (ARPOB) and occupancy rates. The hospital chain’s expansion strategy, which includes greenfield projects and bed capacity growth, aligns with its strong financials. With an EBITDA growth forecast of 21% CAGR over FY24-27 and robust return ratios, JLHL is positioned for substantial medium-term growth. Investors are advised to monitor JLHL’s developments in key markets to assess sustained profitability.

Q2 FY25 Earnings: Strong Growth Driven by High ARPOB and Occupancy

EBITDA Growth in Line with Estimates
JLHL reported a 23% year-over-year EBITDA growth to Rs 750 million, in line with Prabhudas Lilladher’s estimates. Improved operational efficiency in Mumbai Metropolitan Region (MMR) markets and favorable ARPOB contributed to this growth. Despite rising employee expenses (up 25% YoY), JLHL’s margins remained steady at 23.2%, a slight increase from the previous quarter.

Significant YoY Revenue Growth
JLHL’s Q2 FY25 revenue surged 23% YoY to Rs 3.2 billion, outpacing the estimated Rs 3 billion. The higher revenue was bolstered by an 11% YoY increase in ARPOB, reaching Rs 55,700 per day. This growth was influenced by a case mix shift and price adjustments in the self-payor category implemented in Q4 FY24.

Strategic Bed Capacity Expansion

Expansion Plans to Drive Future Growth
JLHL plans to scale up its bed capacity to 2,500 from the current 1,000 beds over the next 3-4 years. Projects include a 500-bed facility in Dombivli and additional expansions in Pune and Indore. The Dombivli project is progressing, while the Pune (Baner) site awaits regulatory approval. These initiatives will enhance JLHL’s footprint in densely populated areas, supporting long-term revenue growth.

Utilization and Occupancy Rates Trending Upward
With occupancy rates rising by 350 basis points YoY to 70.5%, JLHL’s current facilities in Thane, Pune, and Indore are seeing increased patient volume. Thane maintained stable occupancy at 72%, while Pune and Indore recorded significant improvements to 67% and 59% respectively. Both inpatient and outpatient volumes grew 12% YoY, indicating strong demand for JLHL’s services.

Capital Expenditure and Funding Strategy

Investment in Infrastructure to Fuel Expansion
JLHL’s capex requirements for the Dombivli and Pune projects are estimated at Rs 1-1.5 billion and Rs 500 million, respectively, for FY26. The company’s land bank in Indore, with a semi-finished building, provides potential for an additional 100 beds. This expansion aligns with JLHL’s goal of enhancing its service capacity and competitive positioning in the healthcare sector.

Commitment to Margin Stability
Despite ongoing expansion, JLHL has reiterated its margin guidance of 25% over the next 2-3 years. Cost control measures, combined with increasing economies of scale, are expected to support stable margins. In the short term, lower capacity utilization in Pune’s new beds slightly impacted margins but is anticipated to recover as occupancy grows.

Financial Performance and Valuation

Robust Financial Growth Metrics
JLHL’s revenue and EBITDA compound annual growth rates (CAGR) are projected at 24% and 35%, respectively, from FY21 to FY24, with continued momentum expected in FY25. Over FY24-27, EBITDA and profit after tax (PAT) CAGRs are estimated at 21% and 19%, showcasing JLHL’s potential for sustained financial growth.

Target Price and Valuation Metrics
With a target price of Rs 1,660, Prabhudas Lilladher values JLHL at 25x EV/EBITDA based on FY27 projections. This target reflects confidence in the company’s medium-term growth trajectory, supported by its strategic positioning, bed capacity expansion, and operational efficiency in key markets.

Investment Considerations and Risks

Operational and Regulatory Risks
JLHL’s expansion plan depends on regulatory approvals, especially for its Pune Baner site. Any delays could impact the projected timeline. Furthermore, JLHL’s concentrated presence in Maharashtra and Gujarat could expose it to regional economic fluctuations and competitive pressures.

Healthcare Industry Dynamics
JLHL operates in a competitive healthcare landscape, with significant players like Apollo and Fortis vying for market share. Changes in health regulations, pricing policies, or insurance reimbursement structures may also influence revenue and margins.

Conclusion and Investment Outlook

Prabhudas Lilladher’s Buy recommendation with a target of Rs 1,660 highlights Jupiter Life Line Hospitals’ promising growth outlook. Supported by strategic expansions, high occupancy rates, and robust financial health, JLHL presents an attractive investment within the healthcare sector. Investors should consider potential regulatory risks and closely monitor JLHL’s project developments as they assess the stock’s long-term value.