Will Ashish Dhawan's top stock bet lose steam after 270% rally in 1 year?

NEW DELHI: Seasoned investor Ashish Dhawan's biggest stock bet, Max Healthcare, is up 270 per cent in the last one year but looks exhausted on technical charts, signalling some minor profit booking ahead.

Dhawan himself trimmed his stake in the company to 1.42 per cent in the June quarter from 1.67 per cent in the March quarter. Besides, the stock is trading ahead of a median price target of Rs 367.50 given by four fundamental analysts, suggesting limited upside opportunity. Among them are analysts from HDFC Institutional Equities, who have a target of Rs 360 on the stock. HDFC analysts, however, said the scrip can be a good long-term play and there was a potential upside of 70-80 per cent in the next four years.

For now, analyst targets on the stock vary in the Rs 350-386 range. On Wednesday, the scrip traded at Rs 388.35, up 0.67 per cent. This was the fifth day of consecutive gains for the stock

Technical view
Mazhar Mohammad of Chartviewindia.in said the stock has been moving in an ascending channel for the last 36 weeks and steadily trading in uncharted territories, which is a sign of long-term bullishness. "However, in five sessions, it has rallied almost 24 per cent, from a low of Rs 318.85 to a high of Rs 395.75 level. The prevailing price is close to the upper boundary of the ascending channel. Therefore, a reaction in the form of profit booking can’t be ruled out in the next one or two trading sessions. For further up move, it needs to consistently trade above the said channel, which will result in a fresh breakout with much higher targets," said Mohammad.

He has advised traders to book profits and buy on dips towards Rs 360 level, with a stop below Rs 350 on closing basis.

Fundamental view
HDFC Institutional Equities' positive view on Max Healthcare stems from the fact that the company's recent acquisition of rights to develop a 500-bed hospital on 3.5 acres in South Delhi for an equity value of Rs 60.10 crore looks attractive from a strategic and financial point of view.

The brokerage said it was a testament to the ability of Max's new management and its intent to grow aggressively, but selectively. "The land parcel is situated between Max’s existing hospitals at Saket (East and West block) and Saket Smart (trust), thereby enabling seamless integration between its facilities. With the proposed expansion at Saket (1,700 beds, including this 500 beds), the transaction allows Max to create a 2,300+ bed contiguous medical hub spread across 23 acres of land, making it one of the largest healthcare complexes in Asia," it said.

HDFC Institutional Equities said Max was entering a high-growth phase, led by expansion at Saket (Delhi) and Nanavati (Mumbai). With margin drivers in place, it forecast a strong ebitda growth of 29 per cent annually over the next five years. "Its strong balance sheet and operating cash flow generation is likely to support organic and inorganic initiatives. Based on our long-term projections, we see 70-80 per cent upside potential over the next four years," it said.

Q1 results
Edelweiss said in August that Max Healthcare's June quarter numbers were strong on the back of Covid businesses. Due to its controlled capex, healthy expansion plan and healthy outlook for the non-Covid business, Edelweiss said Max Healthcare was the best player in the Indian hospital space. "The hospital chain has increased bed capacity at lower cost due to brownfield expansion, which will not only boost top line but also generate higher RoCE. The company management believes margins will increase further along with substitution of government business. It is focusing on optimising capacity utilisation in existing facilities and patient mix, increasing ARPOB, scaling up capital-light businesses and potential targets for M&A," it said.

But Edelweiss' target of Rs 350 was breached on August 30.

The scrip is up 270 per cent in the past year. Dhawan's stake in the company stands at Rs 531.70 crore as of today. His stock portfolio is worth Rs 2,450 crore, according to publicly available data on Trendlyne.