Medanta, Fusion Micro Finance at Rs 550 each? What JM Financial says on two stocks

JM Financial has initiated coverage on Global Health (Medanta) and Fusion Micro Finance with ‘Buy’ ratings. For Medanta, the brokerage said a well-balanced hospital mix will drive healthy sustainable growth going ahead. The brokerage sees strong industry tailwinds, noting Medanta's Doctor-led model has excellent positioning among peers. On the other hand, JM Financial said Fusion Micro Finance is well-placed on asset quality and risk metrics and has strong capital position. It believes return metrics for Fusion Micro Finance are set to expand and felt its valuations are attractive, given sectoral tailwinds. JM Financial has target of Rs 550 on both of these stocks.

Global Health | Target Rs 550

JM Financial said Medanta is a leading multi-specialty tertiary and quaternary care provider with a strong brand recall in the northern region of India. The hospital chain, it said, has a patient centric approach with large-scale hospitals, world-class infrastructure, doctor-led model and significant contribution from complex specialties.

"We believe that their growth momentum, on a high FY22 base, will sustain given the ongoing aggressive expansion (bed addition) of 46 per cent over FY22-25, strong industry tailwinds and management expertise. This will drive revenue CAGR of 19 per cent, Ebitda CAGR of 19 per cent and PAT CAGR of 26 per cent over FY22-25 with Ebitda margins at 21 per cent," JM Financial said.

The brokerage said that the sweating of mature assets (Gurgaon, Indore, Ranchi) and ramp-up of Lucknow/Patna hospitals followed by Noida hospital will preserve the upward trajectory of return ratios.

"Medanta’s healthy cash generation will support future growth as we expect the balance sheet to be net cash by FY24. We believe there could be more upside to our thesis, not factored into our estimates, from: price increases; reversion of international patient footfalls to FY19 levels; and inorganic expansion (Cash on books Rs 500 crore)," it said.

JM Financial values the stock at 19 times FY25 EV/Ebitda, a 20 per cent discount to peers.

Fusion Micro Finance  Target Rs 550

JM Financial said Fusion Micro Finance is India’s second largest NBFC-MFI, which has built a diversified microfinance franchise over the past few years, with presence across 19 states and 390 districts.

Since inception, Fusion has prioritised organic geographic expansion with a focus on strategic management of state concentration risk by expanding into underpenetrated rural areas, JM Financial said.

"This has enabled Fusion to deliver a 51 per cent CAGR in AUM over FY17-1HFY23 and 39 per cent CAGR in total borrowers over the same period. In our view, Fusion is set to benefit from cyclical tailwinds in the sector as it exits turbulence caused by Covid-19 over the last couple of years and NBFC-MFI as a class see expansion of market share against banks," JM Financial said.

The brokerage said that Fusion’s stable management, focus on technology with respect to driving efficiencies and ability to grow borrower base faster than peers should hold the company in good stead as the sector enters a sweet spot with respect to growth and asset quality.

Fusion’s performance in relation to outstanding restructured assets, write-offs have been relatively better than peers and JM Financial expects the same to sustain given its stringent underwriting practices. Fusion trades at attractive valuation of 1.4 times FY24E BVPS and 7.5 times FY24E EPS in wake of 4.5 per cent/4.7 per cent RoA for FY24E/FY25E and 21.3 per cent/22.9 per cent RoE for FY24E/FY25E and earnings CAGR of 41 per cent over FY23-25E.

The brokerage has initiated coverage on this stock with a target price of Rs 550 valuing the NBFC at 1.75 times December 2024 BVPS and 8.5 times December 2024 EPS.

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