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Narayana Health Case Study. Presented at Alphawealth Mumbai Summit

Case study covering all parameters tracked during research, how conviction was built, entry triggers and levels, great founder's profile, what was tracked during the holding period and what led to exit at multi year multiplier returns

Economy & Finance◦
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Have you heard about Narayana Health? What have you heard?
Why run a hospital? Purpose What should be the purpose of setting up a hospital? Reality What seems to be the purpose of most hospitals? Tension Good for shareholders but… Management Focus Why do most hospital managements talk about margin improvement and expansion in concalls?
Chairman’s Message – March 2019 Annual Report Narayana Hrudayalaya — Snapshot Founded Incorporated in July 2000, in Bengaluru Listed Listed on stock exchanges — 6th Jan 2016 Proposition Frugal Innovation business providing healthcare services “We have been globally recognised as a disruptive innovator in the field of healthcare for proving a model that combines world-class healthcare delivery with a cost-conscious mindset” https://www.youtube.com/watch?v=3S-4gRbMeLI https://www.youtube.com/watch?v=L4skNFv_9hY Dr Devi Shetty, Founder of NH
Unique Proposition – Can there be One? Specialized Factory Model Henry Ford–style surgical factory Price Elasticity Healthcare Demand sensitivity to pricing Cross-subsidization Strategy Hybrid pricing tiers Frugal Infra and CAPEX High asset monetization Talent Magnet Surgeons on fixed salaries Daily Profitability Dynamic dashboards for decisions
What is NH’s Right to Win? PATH WAY
Factory specialization & Asset Turns Henry Ford Analogy Surgeon Throughput Western: 100–200/year NH: 400–600/year → OT Asset Turns Extended shifts, continuous theatre utilization Pragmatic Infra Capex focused on clinical assets, not luxury lobbies
Scale economies shared (Nick Sleep) Healthcare Flywheel By performing a high volume of complex surgeries (over 40 cardiac procedures a day across the group), fixed overheads per patient are reduced to minimal levels Procurement Leverage NH negotiates bulk prices for consumables, stents, and diagnostic reagents based on sheer patient volume The Result The cost savings are passed on to patients in the form of low, predictable all-inclusive package pricing
Key Assets & Revenue Mix  18 owned/operated hospitals (incl. 2 heart centres)  20 clinics & dialysis centres Hospitals: India  Cayman: 2 hospitals (cardiac+neuro; multispecialty) Hospitals: Cayman Islands Total: 42 healthcare facilities, 5,554 operational beds (incl. Cayman) Period Cardiac Share Others 2000-2008 80% 20% 2009-2015 60% 40% 2017 48% 52% 2025-26 33% 67% Revenue Mix
2025–26 Quaternary (robotics, LINAC, transplants) 2017 (IPO Era) Balanced Network 2009–2015 Multi‑specialty transition 2000–2008 Cardiac focused Evolution Summary
Progress of Revenue Mix Specialty FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 Cardiac Sciences ~48% ~45% 42% 39% 38% 36% 34% 33% 33% 33% Oncology (Cancer Care) ~8% ~9% 10% 12% 13% 14% 15% 15% 17% 15% – 17% Medicine & GI Sciences ~11% ~12% 13% 13% 14% 14% 13% 14% 13% 14% Renal Sciences ~11% ~10% 10% 10% 9% 9% 9% 9% 9% 9% Neurosciences ~6% ~6% 7% 7% 7% 7% 8% 7% 8% 7% Orthopedics ~3% ~3% 3% 4% 3% 4% 4% 4% 4% 4% Others / Ancillary ~13% ~15% 15% 15% 16% 16% 17% 18% 16% 16%
How the Expansion to Multi Specialty has been managed? 01 Dual-pricing & Tiered Subsidization Cross-subsidize to keep affordability 02 Operational Frugality Centralized procurement, high asset utilisation, asset-light hub-and-spoke 03 Lower ARPOB Monitoring and controls on the treatment mix NH did not simply replicate the single-procedure "assembly line" cardiac model for every disease; instead, it scaled an integrated ecosystem model  Maintained its commitment to affordability across other specialties  Achieved this through a cross-subsidization and tier-based pricing model
Cayman Strategy — Maverick Idea US medical tourism flows fell short of initial volume targets NH discovered an underserved local market. Caymanian residents lacked local tertiary care and were routinely flown to Miami for expensive procedures Original Thesis Focused on local Caymanian residents and corporate insurance payers Reality Arbitrage: USD revenues, zero corporate tax, Indian clinical leadership high cash → conversion Low-cost medical tourism hub located just 430 miles South of Miami (2010-2017) Offer high-end cardiac and orthopedic surgeries to uninsured/ underinsured US and Caribbean patients at 30–50% of US prices
NH — Infra & Strategic Offerings Phase 1 East End Hospital Phase 2 Camana Bay Inorganic Additions  110 beds  Operational Date: Apr 2014  Main Capabilities: Cardiac treatment, Orthopedics and Joint care, Neurosciences, Diagnostics support  50 beds in City centre  Commercialized in 2024  Main Capabilities: Comprehensive Cancer treatment, maternal and neonatal care, Emergency Pavilion  Acquired 100% of ENT in Cayman Ltd in Mar 2023
Exceptional Unit Economics EBITDA generated has been 35% of Group level EBITDA Metric India Operations (FY25) Cayman Operations (HCCI) (FY25) In-Patient Realization (ARPP) ~ 1,41,900 (~$1,680) ₹ ~ 27,56,982 (~$32,600) ₹ Out-Patient Realization (ARPP) ~ 4,600 (~$54) ₹ ~ 1,18,398 (~$1,400) ₹ Operating EBITDA Margin ~22.5% – 24% ~35% – 42%+ Payer Profile Cash / TPA / Govt Schemes Private Health Insurance (USD)
EV/EBITDA — Peers (5‑yr Ranges) Max Healthcare  35x–65x  Premium metro (NCR, Mumbai)  High cash/insurance mix Apollo Hospitals  25x–42x  Pan India leader ‑  Integrated healthcare & pharmacy Medanta / KIMS  19x–45x  NCR / South India  Micro market dominance ‑ Narayana Health (NH)  20x–35x  High volume, cost efficient, ‑ ‑ multi tier network ‑
Why NH Trades at a Discount Incubation Drag New growth pillars (NHIC Insurance) ARPOB Bias Low cost vs premium ‑ realizations Geography & Payor Mix East India & Tier 2 ‑ focus Cayman / Overseas Overseas contribution → "Cayman Discount" Valuation divergence despite best in class capital efficiency: superior return ratios, lowest EV/bed & capital cost. ‑ ‑  The relative discount isn't due to poor operational health; rather, it stems from structural differences in business model, geographic mix and perceived earnings risks NH’s Valuation Paradox
Strategic Rationale — Insurance Benefits Eliminate Friction Reduce middlemen; smoother claims inside NH network Value‑Based Care Incentivize preventive care Capture Uninsured Route uninsured / underinsured middle class into NH Full coverage / zero deductible mainly when treated inside NH network; outside network coverage capped/restricted. NHIL — Timeline & Model • Narayana Health Insurance Ltd — May 2023 (wholly owned) • IRDAI license — Dec 2023 • Narayana Aditi — first product 2024 • Model: Integrated Delivery Network / Provider Sponsored Health Plan (IDN/PSHP) ‑ Why NH Entered Insurance (NHIL)
Insurance — Risks & Capital Drag Insurance can support hospital growth, but it also introduces execution risk and a meaningful capital burden. Underwriting Risk Potential losses from claims underwriting Gestational Losses Early loss making periods common ‑ Geographic Limit Network centric; limited external ‑ hospital coverage Financial fact: Narayana Insurance revenues rose from 87 Cr (FY25) to 544 Cr (FY26); currently loss making. ₹ ₹ ‑ Key Difference: Past Indian ventures were commercial joint ventures designed to sell general insurance across all third-party hospitals. NH's insurance arm is designed as a captive network engine meant primarily to route patients into its own hospital beds
Triggers for Entry (2021) Sector Study & Model Fit Years of studying; factory cardiac model transitioned well to multispeciality Execution & Payor Mix Successful multispeciality transition with rising ARPOB; superb execution and management of payor mix Capex Cycle Big capex era 2013–19 paused; greenfield expansion mostly done in all geographies Asset Light Strategy Lowest gross block per bed – Asset Light strategy; NH 36L ₹ vs HCG 67L, Max 84L, Apollo 99L, Fortis 139L — ₹ ₹ ₹ ₹ supports affordable healthcare mission Capital Efficiency Likely no increase in capital employed; higher ROCE expected in coming years
Operational Strengths & Growth Path Rapid Break-evens New hospitals launched in 2017–19 broke even fast; Cayman EBITDA jumped from 20% to 40%+ in FY20 FY21 → High-Margin Additions Adding oncology blocks in every hospital — high demand, high margin; increasing complex therapy mix Value Mix Discipline Ability to take price increases every year to maintain margins and cashflows; superb execution of payor mix Brownfield Expansion Greenfield mostly done; future growth via brownfield or same-area greenfield as needed Capital Efficiency Maintain low capital employed higher ROCE; concall → commentary is reassuring and not ambitious like peers
Concall Evidence Q4FY20
Concall Evidence Q4FY20 Q4FY22
Payor Mix — How NH Balances Risk Cash & Private Insurance Generate core domestic margin & steady liquidity Government Schemes Secondary fill-capacity • strictly capped to avoid cash flow drag ‑ High-margin overseas operations (Cayman) and forward-integrated health insurance (Aditi) Insert hard currency cash flow and upfront ‑ liquidity; insulates working capital cycle from payment delays
Payor Mix — FY21 vs FY26 FY21 FY26
Years FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 NH (India) ~21,500 ~23,200 ~25,500 ~27,800 28,100 31,500 35,068 36,712 ~39,500 ~42,500 Annual ARPOB ( / Day) Summary (FY17 – FY26) ₹ Note: Narayana Health's data reflects its India hospital operations (Cayman Islands operates on a significantly higher US$ tariff scale) Competitors Max Healthcare Fortis Healthcare Apollo Hospitals Healthcare Global (HCG) FY26 ~78,000 68,800 ~63,000 ~46,500 Annual ARPOB ( / Day) for FY26 ₹ Annual ALOS (No. of Days) (FY17 – FY26) Years FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 NH (India) 4.0 4.2 3.9 3.5 4.6 4.8 4.5 4.4 4.5 4.3
Bed Expansion Profile Capex figures in Crore, Consolidated ₹ Financia l Year Capex Outlay ( Cr) ₹ Net Operational Beds Added in FY Major Strategic & Infrastructure Milestones FY17 ~ 175 ₹ +737 SRCC Children’s Hospital (Mumbai ~207 beds); Dharamshila (Delhi ~300 beds). FY18 ~ 210 ₹ +250 230-bed Gurugram facility; expanded Eastern cluster (Kolkata) capacity. FY19 ~ 185 ₹ +234 Added beds across Bangalore (Health City) and Kolkata; debottlenecked core surgical centers. FY20 ~ 170 ₹ +25 Shifted focus to high-end medical equipment (Cath labs, radiation oncology) pre-COVID. FY21 ~ 95 ₹ -9 Pandemic Trough: Frozen greenfield expansion; capital preserved for ICU beds and life-support infrastructure. FY22 ~ 195 ₹ +50 Launched robotic surgery suites across 8 core hospitals; focused on high-ARPOB clinical capabilities FY23 ~ 380 ₹ +100 Commenced construction for Camana Bay (Cayman) and acquired land for Gurugram & Kolkata expansion. FY24 ~ 980 ₹ -150 (Rationalization) Peak domestic land acquisitions; rationalized non-core/low-margin beds FY25 ~ 1,150 ₹ +50 Commissioned Health City Camana Bay, domestic capacity additions paused in favor of land banking for 2,000-bed pipeline. FY26 ~ 2,800+ ₹ (incl. M&A) +380 (+330 inorganic) Transformational Expansion: Acquired UK's Practice Plus Group Hospitals (~330 beds across 13 units) + organic brownfield execution in India.
Structural shift from a single-digit return business to a high-return healthcare compounder Consolidated Annual ROCE Profile (FY17 – FY26) Financial Year Consolidate d ROCE (%) Capital Employed Drivers & Phase Context FY17 ~8.8% Gestation Phase: Capital tied up in new units, low asset turnover. FY18 ~7.5% Absorption of initial operating losses from new assets; heavy lease obligations. FY19 ~10.2% Turning Point: Early mature units turned EBITDA positive; ramp-up of Health City Cayman Phase 1. FY20 ~11.0% Structural cost rationalization; adoption of Ind AS 116 (right-of-use lease assets added to capital base). FY21 ~1.2% COVID Trough: Elective procedures halted during lockdowns, sharply depressing EBIT while fixed asset base remained unchanged. FY22 ~20.5% Rebound: Pent-up demand, rise in ARPOB, and high-margin surgical mix. FY23 ~27.4% Cayman unit generated ~$45M+ EBITDA with minimal tax; India hospitals hit peak operating leverage before new capex deployed. FY24 ~23.7% Heavy capital allocation into non-earning land acquisitions (Bangalore, Kolkata, Gurugram). FY25 ~22.6% CWIP expansion during commissioning of Camana Bay and initial health insurance outlays. FY26 ~19.8% Acquisition Ingestion of Practice Plus Group (UK) onto balance sheet and greenfield/brownfield civil construction
HOLD or EXIT Refer the TAGM framework
1 What Does an investor want? Refer to IPO-time statements 2 Valuation Comfort with upside & downside 3 Need for Expansion Next phase of heavy CAPEX 4 Diversification Insurance business What triggered us?
Insurance — Impact on Hospital Business Occupancy & Volume Acts as a direct feed-forward pipeline that fills hospital beds across core clusters, raising baseline bed utilization ARPOB & Margin Protection Eliminates claim rejections, rate cuts, and delayed receivables from external insurers, improving working capital days Customer Retention Policyholders are locked into the NH ecosystem for diagnostic tests, OPD consults, surgeries, and pharmacy needs Lower CAC NH relies on its existing brand trust and physical hospital footfalls to sell insurance, avoiding massive agent commission payouts 1 2 3 4
IPO time quotes – what we interpret
The Last Supper — Investor Optionality Overlap Promoters' vision ↔ business stage ↔ investor opportunism Re-rating Sector re-rated in recent years; tailwinds slow Optionality Exercise optionality as investor/shareholder that an owner may not
Cyclicality Everything is cyclical be market, industry, theme, business Embedded Exit Exit decision baked into entry thesis Entry / Exit Decisions 01 02
Valuation — MoS 10yr peak EV/EBITDA is ~35x Exit ~31x Incremental re-rating possibilities? CAGR – 37.4% EXIT – ~1681 ENTRY – ~470