Indraprastha Medical Corporation Q2 FY26: Strong Profit Surge Masks Margin Volatility Concerns

The ₹5,510 crore market capitalisation company, which operates the Indraprastha Apollo Hospitals in New Delhi, delivered net sales of ₹365.06 crores in Q2 FY26, marking a 9.38% sequential improvement from ₹333.75 crores in Q1 FY26. On a year-on-year basis, revenue growth moderated to 4.94% from ₹347.86 crores in Q2 FY25, signalling a deceleration in top-line momentum compared to the double-digit growth rates witnessed in previous quarters.

The stock has responded positively to the results and broader market sentiment, trading at ₹603.90 as of October 31, 2025, representing a remarkable 48.12% gain over the past year and substantially outperforming the Sensex's 5.73% return during the same period. The shares have climbed 10.95% in the past week alone, reflecting growing investor confidence in the hospital sector recovery narrative.

Financial Performance: Margin Expansion Drives Profitability

The most striking aspect of Indraprastha Medical's Q2 FY26 performance was the significant margin expansion. Operating profit (PBDIT) excluding other income surged to ₹73.15 crores, up 19.29% quarter-on-quarter from ₹61.32 crores in Q1 FY26. This translated into an operating margin of 20.04%, a substantial improvement of 167 basis points from the previous quarter's 18.37%. On a year-on-year basis, however, the operating margin contracted by 126 basis points from 19.30% in Q2 FY25, highlighting the quarter-to-quarter volatility that has characterised the company's profitability profile.

Employee costs, a critical metric for labour-intensive hospital operations, declined to ₹64.95 crores in Q2 FY26 from ₹66.72 crores in the previous quarter, demonstrating improved operational efficiency. This 2.65% sequential reduction in employee expenses, despite higher revenue, contributed meaningfully to margin expansion. Interest expenses remained stable at ₹1.56 crores, whilst depreciation declined marginally to ₹10.18 crores from ₹10.91 crores quarter-on-quarter.

The company's profit after tax margin expanded to 14.10% in Q2 FY26 from 12.29% in Q1 FY26, representing a 181 basis point improvement. This margin expansion was achieved despite a relatively stable tax rate of 24.67%, compared to 25.80% in the previous quarter. The effective tax management, combined with operational leverage, enabled the bottom-line to grow faster than the top-line.

Operational Excellence: Capital Efficiency Remains a Key Strength

Indraprastha Medical's operational metrics reveal a company demonstrating strong capital efficiency despite the cyclical nature of healthcare demand. The company's return on equity (ROE) stands at an impressive 28.10% for the latest quarter, significantly above the historical average of 18.90% and reflecting superior management efficiency in generating returns from shareholder capital. This elevated ROE positions the company favourably within the hospital sector, where capital-intensive infrastructure investments typically compress returns.

The return on capital employed (ROCE) presents an even more compelling picture at 66.94% for the latest period, substantially exceeding the five-year average of 39.69%. This exceptionally high ROCE underscores the company's ability to generate substantial operating profits relative to the capital deployed in the business. The metric is particularly noteworthy given the hospital sector's requirement for continuous capital expenditure on medical equipment, facility upgrades, and technology infrastructure.

Current assets of ₹431.13 crores as of March 2025 significantly exceed current liabilities of ₹178.71 crores, providing a comfortable current ratio of approximately 2.4x. This liquidity cushion ensures the company can meet short-term obligations whilst maintaining operational flexibility. Trade payables declined to ₹122.54 crores from ₹132.89 crores year-on-year, suggesting improved working capital management and potentially stronger negotiating positions with suppliers.

The company's cash flow profile demonstrates robust operational cash generation, with cash flow from operations reaching ₹156.00 crores in FY25, though this represented a decline from ₹200.00 crores in FY24. The reduction was primarily driven by adverse working capital movements of ₹23.00 crores, compared to a positive contribution of ₹55.00 crores in the previous year. Capital expenditure remains elevated at ₹110.00 crores for FY25, reflecting ongoing investments in medical infrastructure and facility enhancements.

Industry Context: Hospital Sector Recovery Continues

The Indian hospital sector has witnessed a sustained recovery trajectory following the pandemic-induced disruptions, with patient footfall normalising and elective procedures returning to pre-COVID levels. Indraprastha Medical's performance aligns with broader sector trends, though the company's growth has moderated compared to some peers. The hospital industry in India continues to benefit from rising healthcare awareness, increasing insurance penetration, and growing demand for quality tertiary care services.

The company operates in the premium hospital segment through its flagship Indraprastha Apollo Hospitals facility, competing with established players such as Max Healthcare, Fortis Healthcare, and other Apollo Group hospitals. The Delhi-NCR market remains one of India's most competitive healthcare markets, characterised by high-quality infrastructure and sophisticated medical capabilities. This competitive intensity places pressure on pricing power and requires continuous investment in medical talent and technology to maintain market position.

The company's five-year sales compound annual growth rate (CAGR) of 13.75% reflects steady expansion, though this trails the more aggressive growth rates achieved by some newer hospital chains expanding through greenfield projects. The operating profit (EBIT) CAGR of 106.49% over five years, however, demonstrates significant operating leverage and margin expansion as the company has optimised its cost structure and improved capacity utilisation.

Peer Comparison: Valuation Premium Justified by Quality Metrics

Indraprastha Medical trades at a price-to-earnings (P/E) ratio of 33.02x based on trailing twelve-month earnings, representing a significant discount to the hospital sector average P/E of approximately 71x. This valuation gap suggests the market may be underappreciating the company's consistent profitability and strong return metrics, or alternatively, pricing in concerns about growth sustainability and margin volatility.

The company's price-to-book value (P/BV) ratio of 9.28x appears elevated in absolute terms but remains below several peers including Health.Global (11.44x) and Jeena Sikho (33.98x). This P/BV multiple is justified by the company's superior ROE of 18.90%, which significantly exceeds the peer group average. The fundamental principle that higher ROE justifies premium P/BV multiples holds true in this comparison, as Indraprastha Medical generates substantially better returns on shareholder equity than most competitors.

Indraprastha Medical's dividend yield of 0.75% compares favourably to the peer group, with the company maintaining a consistent dividend payout ratio of 33.28%. The most recent dividend of ₹4.50 per share went ex-dividend on September 18, 2025, reflecting management's confidence in sustainable cash generation and commitment to returning capital to shareholders.

Valuation Analysis: Fair Value with Limited Upside

At the current market price of ₹603.90, Indraprastha Medical's valuation appears broadly fair based on fundamental metrics, though the stock has appreciated substantially over the past year. The company's enterprise value-to-EBITDA multiple of 20.83x and EV-to-EBIT multiple of 25.21x suggest the market is pricing in expectations of continued margin expansion and earnings growth, though these multiples leave limited room for disappointment.

The stock's PEG ratio of 1.55x indicates the valuation is reasonable relative to growth expectations, though not compelling enough to suggest significant undervaluation. With the stock trading just 3.45% below its 52-week high of ₹625.50, much of the positive news flow appears priced in at current levels. The valuation grade has oscillated between "Fair" and "Attractive" in recent months, settling at "Fair" as of October 29, 2025, following the recent price appreciation.

The book value per share of ₹65.09 implies the stock trades at approximately 9.3 times book value, a premium that reflects the company's asset-light model and strong return profile. However, this multiple has expanded significantly from historical levels, suggesting valuation has become more demanding. Investors should be cognisant that further multiple expansion from current levels would require either acceleration in growth rates or sustained margin improvement beyond recent trends.

Shareholding Pattern: Stable Base with Modest Institutional Participation

The shareholding structure of Indraprastha Medical has remained remarkably stable over recent quarters, with promoter holding consistently at 51.00% across the past five quarters. This stable promoter base, comprising the Government of Delhi (26%) and Apollo Hospitals Enterprise Limited (22.02%), provides governance continuity and strategic alignment. The absence of any promoter pledging further reinforces the financial stability and commitment of the controlling shareholders.

Foreign institutional investor (FII) holdings declined marginally to 2.41% in September 2025 from 2.72% in the previous quarter, representing a sequential reduction of 0.31%. This modest selling by FIIs may reflect portfolio rebalancing or profit-booking following the stock's strong performance, rather than fundamental concerns. The presence of 60 FII investors suggests reasonable international interest, though the aggregate holding remains modest.

Mutual fund holdings have remained static at 2.62% across recent quarters, with just three mutual fund schemes holding positions in the stock. This limited institutional participation from domestic mutual funds suggests the stock may not be on the radar of many fund managers, potentially due to the company's small-cap classification and lower liquidity compared to larger hospital chains. The total institutional holding of just 5.92% indicates significant scope for institutional accumulation if the company continues delivering consistent performance.

Stock Performance: Exceptional Returns Driven by Multiple Expansion

Indraprastha Medical's stock performance has been nothing short of spectacular across multiple timeframes, substantially outperforming both the Sensex and the broader hospital sector. The stock has delivered a 48.12% return over the past year, generating an alpha of 42.39 percentage points relative to the Sensex's 5.73% return. This outperformance accelerates over longer periods, with three-year returns of 752.36% and five-year returns of 1,132.45% highlighting the wealth creation potential for long-term investors.

The recent momentum has been particularly strong, with the stock surging 32.45% in the past month and 10.95% in just the past week. This sharp rally has pushed the stock above all key moving averages, with the current price of ₹603.90 trading significantly above the 200-day moving average of ₹445.87. The technical setup appears bullish, with the stock in an established uptrend since October 20, 2025, when it transitioned from "Mildly Bullish" to "Bullish" at ₹567.35.

However, the stock's volatility of 51.28% over the past year classifies it as a "HIGH RISK HIGH RETURN" investment, with a beta of 1.35 indicating significantly higher volatility than the broader market. This elevated volatility reflects the stock's small-cap nature and lower trading liquidity, with average daily volumes of approximately 1.24 lakh shares. Investors should be prepared for sharp price swings in both directions, particularly around quarterly result announcements or sector-specific news flow.

Investment Thesis: Quality Company with Execution Risks

Indraprastha Medical's investment case rests on several compelling pillars: exceptional capital efficiency with ROE of 28.10%, a fortress balance sheet with zero debt, consistent profitability, and exposure to India's growing healthcare market. The company's proprietary Mojo Score of 75 out of 100 translates to a "BUY" rating, upgraded from "HOLD" on October 27, 2025, reflecting improving fundamentals and technical momentum.

The quality assessment of "GOOD" reflects the company's long-term financial performance, characterised by sales CAGR of 13.75% and operating profit CAGR of 106.49% over five years. The absence of debt, strong interest coverage of 28.08 times, and zero promoter pledging further reinforce the quality credentials. However, the financial trend classification of "FLAT" for the most recent quarter suggests momentum may be moderating, warranting close monitoring of upcoming results.

Key Strengths & Risk Factors

Outlook: What to Watch

The hospital sector's medium-term outlook remains constructive, supported by rising healthcare expenditure, increasing insurance penetration, and growing preference for quality tertiary care. However, Indraprastha Medical must demonstrate consistent execution on both revenue growth and margin stability to justify current valuations and deliver sustained shareholder returns. The company's single-facility model limits growth optionality compared to multi-location hospital chains, making operational excellence at the existing facility paramount.