Narayana Health

Average age of heart surgery in the UK is 65 but 45 in India. There is a need for conducting 20 lakh heart surgeries in India. But only 1.2 lakh heart surgeries are conducted. There is a lot of unmet demand. Why is that? Click here to read the rest.

20 thoughts on “Narayana Health

  1. Hi fantastic i was wondering how to work on hospitals, HCG has similar model and i assume similar fanatic working on affordable cancer care.

  2. Hi Jana, thanks for sharing your post on NH. Its interesting to note your observations on likely growth for NH. I am curious to know if you have observed / delve on whether NH currently participate in medical tourism? I know it to be a big business for all big hospital groups in Thailand (as I was there for five years) and India is also not behind. As a branded hospital chain, NH can surely increase average realization , cross-subsidize their operation for betterment of a section of society and at the same time increase profitability.

    • Hi Ketan,

      NH has an international cell and they focus on medical tourists. Not sure what percentage of revenue comes from this segment.


    • Hi Murali,

      Your inputs to my questions were super useful to do the writeup.


  3. Thank you,I share your articles with my nephews who have appeared for their board exam.i share what I learn from my teacher

  4. Brilliant!! I feel government activism in price control could be the real risk. How about Key Person’s Risk? Branding revolves around the promoter though business looks to be secured in a good framework.

    • There is key man risk to some extent. Dr. Shetty kids are in the company. I believe in culture staying intact even after the person who created is no longer there.


  5. I really enjoyed your report and find your personal research very inspiring as something I would like to learn to do myself. Thank you for sharing your report, your notes, your progress, your thoughts, your sources. Very inspirational.

  6. “If NH can generate a net profit margin of 7.5 to 10 percent and turn over its assets by 2 times then we can expect an ROIC of 15 to 20 percent. If you’re right about the business then this what you would make over the next 10 years by holding the stock.”

    Can you explain the math behind this ?

  7. Sure have read it. I mean’t how does the math worth out for NH in particular when you are paying ~7x book & > 60x earnings. And this is for a business that is barely earning an excess over its cost of capital.

    For an investor in NH to make a 15% annual return over a decade, NH would have to trade at a Mcap of ~26,000 crs (4x from today). Assuming a 25x exit multiple, NH should earn close to 1000 crs ten years out. Is this plausible? If yes, please let me know how.

    • Hi Yash,

      I misunderstood your question. Sorry about that.

      ARPOB of hospitals over 5 years of maturity is 70 lakh rupees. Occupancy rate is used to calculate ARPOB and it’s low at 57 percent. There is a lot of room for it go up to 70 percent. Let’s ignore any improvements in occupancy rates from our calculations. Assuming an inflation rate of 5 percent ARPOB in 10 years will be 114 lakhs. At 7.5 percent net-profit-margins profit per bed comes to 8.55 lakh rupees.

      How many operating beds does NH need to generate 1000 crore profit after tax? It needs around 11,700 operating beds. As of FY16 NH has around 5,400 operating beds. To reach 11,700 operating beds it needs to compound at 8 percent. Is this plausible? May be.

      I did a poor job in writing Valuation section point (3). I am not recommending to buy NH at any price. And I should have emphasized the phrase “If you’re right about the business”. I don’t own NH and haven’t figured answers to all the question raised by me in the Risks section.

      On top of that when I think of hospitals and doctors incentive-caused-bias comes to my mind. How does NH avoid this? What process have they put in place to discourage this bias in their doctors?

      I am still reflecting on these questions.


  8. Excellent write up Jana,Your way of preparing structured notes and putting down the points in organized way helps me a lot.Could you point me to the links where the historical IPO prospectus can be obtained,I was trying to get it from NSE but some how could not find it.

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