Jupiter Lifelines Hospital (Jupiter) is a healthcare service provider located in West India with three multi-specialty hospitals. As of March 31, 2023, the group has 950 operating beds in Thane, Mumbai (commercialized in 2007), Pune (2017) and Indore (2020). With a higher than industry ARPOB (Average Revenue Per Operating Bed) and premium service, this premium hospital is expected to open a new hospital in Dombivli, Mumbai in the next three years, increasing capacity by nearly 50%.
The new issue of Rs 5.42 billion (OFS of Rs 3.27 billion) will clear existing debt. Conservatively assuming flat revenue growth and flat EBITDA margins, the IPO is priced at 40 times estimated FY2024 earnings, in line with established and larger peers. With some expansion in Indore and Pune, the group can achieve higher revenue growth in the short term and long-term revenue growth driven by Dombivli. Given the low competition from organized hospitals in the local market (West India), substantial earnings growth from IPO proceeds on debt extinguishment, and credit card capacity expansion, we recommend investors to subscribe to the offering.
The three multispecialty facilities provide tertiary and quaternary care, including advanced transplantation and oncology services. Each ward already has (or will expand) a capacity of 250 to 300+ beds to provide the economics to support multi-specialty services per ward – without the hub-and-spoke model chosen by organized hospital chains. This offers customer stickiness and higher asset utilization, but at the expense of a limited footprint.
Compared to the hospital benchmark of Rs 57,000 for excellent service and the hospital group’s occupancy rate of 65%, Jupiter appears to be moving towards the industry benchmark. In FY23, the occupancy rate of ARPOB’s Tarn plant reached Rs. 56,500/72%, the occupancy rate of the Pune plant established in 2017 reached Rs. Acquired in 2020 and currently expanding. Jupiter also focuses on quality of service, maintaining a 1,000-square-foot bed ratio, ventilation and open space within the facility, and high-end care.
As of FY2023, Jupiter has 950 operating beds, of which census beds (for inpatient use) account for 802 beds. Hospitals in Thane, Pune and Indore have 318, 298 and 186 census beds respectively. Pune opened 50 beds by March 2023, Thana 11 beds and Indore is expected to open another 100-150 beds in the next two years. Acquired in FY21, the Indore facility has a capacity of 430 beds and is currently operating only 186 beds.
The company launched the Dombivli project in FY2023, which will house 500 beds, and has secured all regulatory clearances for the site and has started construction. The project will be funded through internal accruals and existing cash following the repayment of debt by proceeds from the IPO. Commercialization is expected to be three years away. This provides enough runway for volume growth over the next three years. The company plans to focus on the western Indian market. The penetration rate of group hospitals or large hospitals is low in the region and is mainly concentrated in North and South India. The Jupiter brand has been operating in Tarn for 15 years and can provide the company with brand recognition.
Finance and Valuation
The company reported revenue of Rs 8.92 crore for FY23 (+22% YoY), mainly driven by 5% growth in ARPOB and 860 bps higher occupancy as the group surged back to post-pandemic normalcy . The group also benefited from the addition of 45 beds, mainly at facilities in Indore and Pune. With higher utilization and ARPOB, FY2023 EBITDA margin also improved to 23%, an improvement of 200 basis points.
The company’s total debt as on March 31, 2023 stands at Rs 4.3 billion mainly from the Indore acquisition and Pune commercialization over the past two years. Proceeds from the new offering from the IPO will be used to liquidate debt, which will remove finance costs. It currently trades at 1.5 times net debt to EBITDA. Debt will be wiped out after the IPO. Conservatively assuming flat growth and flat EBITDA margins, the IPO appears to be priced at 40x FY2024 earnings. This is comparable to the “premium” grouping of industries.
Industry growth factors such as the rise of the middle class, increasing coverage of health insurance, and the severe shortage of public medical facilities should support the industry’s volume and price growth.