Narayana Hrudayalaya Q4 FY26 earnings call

Narayana Hrudayalaya's India hospital business demonstrated strong performance, with margins expanding to 25.1% in Q4 FY26, a significant increase from 21.5% in the same quarter last year. This improvement is attributed to a focus on high-end procedures and complex quaternary care, particularly in Bangalore, which boasts an ARPP north of INR 250,000. The Bangalore facility performs approximately 100 robotic cardiac surgeries and 160 percutaneous aortic valve implantations per month, along with the highest number of pediatric bone marrow transplants. Management noted that these initiatives, coupled with technology adoption, have led to increased realizations and better margins, which they expect to sustain despite current headwinds.

The clinics and insurance businesses recorded a flat loss of INR 66 crores in FY26. Management explained that these losses are primarily due to corporate overheads supporting the integrated care infrastructure and the gestation period of new clinics, which typically take 18 months to break even. Despite the losses, clinics are seen as crucial for accessing new domestic patients, generating inpatient referrals for advanced therapies at main hospitals, and building long-term relationships that can lead to subscriptions to 'One Health' insurance plans. The company plans to double its current 11 clinics in FY27, with expansion into Calcutta, to further strengthen this integrated care model.

The UK acquisition, funded by a GBP 150 million loan, showed an EBITDA margin of 10% in Q4 FY26, up from 7-8% at the time of acquisition. Management clarified that the initial P&L figures were impacted by incomplete data, transition costs, and re-classes. The acquisition's strategic focus is to increase private patient proportion and leverage Narayana's technology platform to lower the cost base. While the acquisition costs resulted in an effective 300 bps dilution to the normalized group margin, bringing it to around 22%, these are considered one-time^📎 in nature. The acquisition debt is on the target's books and will be serviced by its free cash flow over 7 years, with no currency risk as the loan is in GBP and serviced locally.

The Cayman Islands operations presented a mixed picture. The insurance business incurred USD 5 million in losses, with a loss ratio of approximately 110-112%. However, management noted that the ramp-up in premium revenue was faster than anticipated, and they expect losses to reduce significantly over the next 3 quarters due to upcoming price increases (30-35% in June) and purging of unfavorable accounts. Concurrently, the Cayman hospital business scaled phenomenally, growing from less than USD 30 million to an almost USD 50 million per quarter run rate. Management emphasized viewing Cayman as an integrated care model, where insurance drives steerage to the hospital, and cautioned against isolating segment performance.

Narayana Hrudayalaya has ambitious capex plans for India, with INR 3,000 crores proposed for new projects, including greenfield organic capex of INR 460 crores. These projects, located in Rajarhat, HSR, Raipur, and Bangalore, are expected to be commissioned by FY28-29. However, FY26 greenfield capex was only INR 109 crores, significantly missing the planned INR 424 crores due to election-related issues and delays in construction worker availability and permissions. Management confirmed that the FY28 commissioning goal remains in place, with work expected to pick up now that conditions have normalized.

The company is heavily focused on leveraging technology and automation to drive operational efficiencies and reduce costs. This includes implementing its ATHMA system for data management, which helps in medical record analysis and research, and reducing manual work, printing, and paper usage. The radiology department is fully powered by AI, and the Medha team is working on AI applications for patient services, clinical data anomaly detection, and risk scoring for doctors. These technological advancements are integral to the hospital's functioning and are expected to improve throughput, lower operating costs, and enhance patient experience.