Max Healthcare Institute Ltd- Listing Price Calculation

Dear All, today my plan was to calculate the expected value of MHIL for tomorrow's listing. But got trapped in some work in the evening and could only devote some half an hour on this. (click here for earlier post on Max group stocks)

Earlier, deal in Sep-2018 valued both erstwhile MHIL and Radiant at 7242 cr but they have vastly improved their performance after that period...some 50%-60% improvement in EBITDA levels due to synergy and other cost cutting measures. Also there is some 10 days impact on EBITDA levels due to covid lockdown in Mar-2020. Their combined EBITDA in 2019-20 is 545 cr so at 20 times EBITDA the valuation is around 11000 cr (Apollo trades at 22-25 times but could not do much detailed checking). Combined entity has debt of some 1500 cr so valuation after debt is 9500 cr. But Apollo's EBITDA margins are 12% while that of MHIL (Combined) is around 15% and this will improve further. I am assuming a similar maturity profile although could not check. So because of superior EBITDA if we value MHIL at 25 times then the valuation after debt is Rs. 12100 (13600-1500) cr. But let me tell you one thing- 20/25 times are very conservative valuations because MHIL is going to perform much better from hereon and there is a further scope for cost optimization and margin improvements. Also KKR and Abhay Soi is a deadly combination. Narayana Hrudayalaya trades at some 20 times EBITDA as it has vastly improved its performance in 2019-20 on the expected lines (click here for earlier post on NH) and this one is going to give even better returns this year because i still find this one very cheap.

I could not devote much time on working out the number of shares outstanding of MHIL (combined) but taking the deal price of 80/- some 90.5 cr shares are outstanding in MHIL. So per share value at 20 times EBITDA is Rs.106 per share and 25 times is Rs.134. Closing price of Max India before stoppage of trading was 68 but it includes some 30 per share value of residual business of erstwhile Max India sans Max healthcare (cash 500 cr + Antara etc.). So that means at Rs.68 market was valuing max healthcare stake at Rs.38 only while the deal happened at 80 and now the expected price is around 100. 

So this working is showing a high valuation gap (i hope my half an hour calculations are correct) and we should get a pleasant surprise. So i think it should be a buy near 90-100 (Market cap near 8000-9000 cr)  because performance is going to vastly improve in the future. Please correct me if there is some mistake in my working or it needs some further improvement as i have worked this extremely fast.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified SEBI Analyst and holding the shares discussed in this Post. Reach me at oscillationss@yahoo.in).