The quarter revealed a concerning trend of margin compression despite top-line expansion. Whilst net sales climbed to ₹381.03 crores from ₹365.06 crores in Q1 FY26, reflecting healthy demand for healthcare services, profitability metrics deteriorated across the board. The operating margin (excluding other income) contracted 132 basis points sequentially to 18.72%, down from 20.04% in the previous quarter. More critically, the PAT margin compressed to 12.98% from 14.10%, signalling rising cost pressures that outpaced revenue growth.
Year-on-year comparisons paint a more encouraging picture. Net sales in Q2 FY26 grew 8.92% compared to ₹349.82 crores in Q2 FY25, whilst net profit advanced 16.65% from ₹42.40 crores. This demonstrates the company's ability to expand its patient base and service offerings, though the sequential quarterly performance raises questions about near-term operational efficiency.
Financial Performance: Top-Line Strength Masks Bottom-Line Weakness
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 381.03 | +4.37% | 49.46 | -3.89% | 12.98% |
| Jun'25 | 365.06 | +9.38% | 51.46 | +25.48% | 14.10% |
| Mar'25 | 333.75 | +2.71% | 41.01 | +25.02% | 12.29% |
| Dec'24 | 324.93 | -7.12% | 32.81 | -22.62% | 10.10% |
| Sep'24 | 349.82 | +0.56% | 42.40 | -5.29% | 12.12% |
| Jun'24 | 347.86 | +10.53% | 44.77 | +43.60% | 12.87% |
| Mar'24 | 314.73 | — | 31.17 | — | 9.90% |
The hospital operator's revenue trajectory remains on an upward path, with net sales expanding 4.37% quarter-on-quarter in Q2 FY26. This marks the third consecutive quarter of positive sequential growth, underlining sustained patient footfall and improved capacity utilisation at the Indraprastha Apollo facility. On a year-on-year basis, the 8.92% revenue growth demonstrates the company's ability to capture market share in Delhi's competitive healthcare landscape.
However, the profit picture tells a different story. Net profit declined 3.89% sequentially to ₹49.46 crores, breaking a two-quarter streak of profit expansion. The culprit appears to be employee costs, which surged 13.29% quarter-on-quarter to ₹73.58 crores from ₹64.95 crores in Q1 FY26. This 8.63 crore increase in staff expenses consumed nearly all of the 15.97 crore revenue gain, leaving little room for profit growth. As a percentage of sales, employee costs climbed to 19.31% from 17.79%, representing a 152 basis point deterioration.
Margin Dynamics: A Closer Look
Operating margins (excluding other income) compressed 132 basis points sequentially to 18.72%, whilst PAT margins fell 112 basis points to 12.98%. The divergence between top-line growth (+4.37%) and bottom-line contraction (-3.89%) highlights the challenge of managing operating leverage in a labour-intensive healthcare business. Depreciation remained stable at ₹10.86 crores, whilst interest costs were negligible at ₹1.51 crores, indicating minimal financial leverage.
On an annual basis, FY2025 results provide a more complete picture of the company's performance trajectory. Net sales reached ₹1,356 crores, up 9.0% year-on-year from ₹1,244 crores in FY2024. More impressively, net profit surged 30.08% to ₹160 crores from ₹123 crores, demonstrating strong operating leverage when viewed over a full fiscal year. Operating margins (excluding other income) expanded significantly to 18.0% from 15.5%, whilst PAT margins improved 190 basis points to 11.8%.
Operational Excellence: Strong Returns Despite Debt-Free Balance Sheet
Indraprastha Medical's return metrics showcase the quality of its hospital operations. The company delivered an exceptional return on capital employed (ROCE) of 94.11% in the latest period, far exceeding the five-year average of 51.13%. This stellar performance reflects the efficiency with which the company generates profits from its invested capital. Return on equity (ROE) stood at 26.54%, marginally above the five-year average of 24.88%, indicating consistent value creation for shareholders.
Key Operational Strengths
Zero Debt Operation: The company maintains a completely debt-free balance sheet with net cash position, as evidenced by the average net debt to equity ratio of -0.65. This conservative financial structure provides significant flexibility for future expansion or weathering downturns without financial stress.
Exceptional Interest Coverage: With an average EBIT to interest ratio of 30.40 times, the company's minimal interest burden (₹1.51 crores in Q2 FY26) leaves more earnings available for shareholders.
Strong Asset Turnover: Sales to capital employed averaged 2.59 times, demonstrating efficient utilisation of the hospital's fixed assets and working capital.
The balance sheet reveals a financially robust organisation. As of March 2025, shareholder funds totalled ₹596.68 crores, comprising ₹91.67 crores in share capital and ₹505.01 crores in reserves. The company holds zero long-term debt, with current liabilities of ₹178.71 crores primarily consisting of trade payables (₹122.54 crores) and other current liabilities. Current assets stood at ₹431.13 crores, providing ample liquidity with a current ratio exceeding 2.4 times.
Fixed assets totalled ₹297.02 crores as of March 2025, down slightly from ₹313.04 crores in the previous year due to depreciation exceeding capital expenditure. The company invested ₹110 crores in capital expenditure during FY2025, primarily directed towards upgrading medical equipment and enhancing hospital infrastructure. Operating cash flow generation remained healthy at ₹156 crores, though this represented a decline from ₹200 crores in FY2024, partially due to working capital absorption of ₹23 crores.
The Profitability Challenge: Managing Labour Costs in a Service Business
The sequential decline in profitability during Q2 FY26 warrants deeper examination. Employee costs surged to ₹73.58 crores, representing 19.31% of net sales, up from 17.79% in Q1 FY26. This 152 basis point increase in the employee cost ratio suggests either wage inflation pressures, higher staffing levels to support volume growth, or a combination of both factors. In the healthcare sector, labour represents the largest cost component, and managing this expense whilst maintaining service quality remains a perpetual challenge.
Monitoring Point: Operating Leverage Under Pressure
The company's inability to translate 4.37% revenue growth into profit expansion signals deteriorating operating leverage. When employee costs grow faster than revenue (13.29% vs 4.37%), margins inevitably compress. This trend bears close monitoring in coming quarters. Management's ability to optimise staffing levels, improve productivity per employee, and negotiate favourable wage settlements will be critical to restoring margin momentum.
Other income contributed ₹7.37 crores in Q2 FY26, up from ₹6.90 crores in the previous quarter, providing some cushion to overall profitability. This non-operating income likely comprises interest earned on surplus cash balances and other treasury income. With closing cash of ₹61 crores as of March 2025 and minimal debt, the company's treasury operations provide a modest but stable income stream.
The tax rate remained stable at 25.41% in Q2 FY26, broadly in line with the corporate tax rate applicable to the company. Tax expenses of ₹16.85 crores on profit before tax of ₹66.31 crores reflect a normalised tax structure without significant deferred tax adjustments or one-time benefits.
Shareholding: Stable Promoter Base with Minimal Institutional Interest
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 51.00% | 51.00% | 51.00% | 51.00% | 0.00% |
| FII | 2.73% | 2.41% | 2.72% | 2.94% | +0.32% |
| Mutual Funds | 0.00% | 2.62% | 2.62% | 2.62% | -2.62% |
| Other DII | 0.83% | 0.90% | 0.94% | 0.94% | -0.07% |
| Non-Institutional | 45.44% | 43.08% | 42.72% | 42.51% | +2.36% |
The shareholding pattern reveals a stable promoter base anchored by the Government of Delhi (26%) and Apollo Hospitals Enterprise Limited (22.02%), collectively holding 51% of equity. This joint venture structure has remained unchanged over the past year, providing strategic stability and alignment between the government's public healthcare objectives and Apollo's operational expertise.
A concerning development in the December 2025 quarter was the complete exit of mutual funds, which reduced their holding from 2.62% to 0.00%. This represents a significant vote of no-confidence from domestic institutional investors, who typically conduct rigorous fundamental analysis before making investment decisions. The 2.62% stake likely found buyers amongst non-institutional investors, whose holdings increased from 43.08% to 45.44% during the same period.
Foreign institutional investors (FIIs) marginally increased their stake to 2.73% from 2.41%, though this modest 0.32% uptick hardly represents strong conviction. Overall institutional holdings remain anaemic at just 3.56%, far below levels typically seen in quality mid-cap companies. The lack of institutional sponsorship limits the stock's liquidity and potentially its valuation multiple, as large investors often drive price discovery and provide stability during market volatility.
Stock Performance: Severe Underperformance Amidst Technical Weakness
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +10.41% | +2.30% | +8.11% |
| 1 Month | -14.49% | -2.36% | -12.13% |
| 3 Month | -32.60% | -0.29% | -32.31% |
| 6 Month | -14.50% | +3.89% | -18.39% |
| YTD | -13.43% | -1.74% | -11.69% |
| 1 Year | -17.36% | +8.49% | -25.85% |
| 2 Years | +108.56% | +16.17% | +92.39% |
| 3 Years | +371.25% | +37.63% | +333.62% |
The stock's recent performance has been dismal. Trading at ₹387.60 as of February 3, 2026, Indraprastha Medical has declined 17.36% over the past year, massively underperforming the Sensex's 8.49% gain by 25.85 percentage points. The three-month performance has been particularly brutal, with the stock plunging 32.60% whilst the Sensex remained nearly flat (-0.29%), resulting in negative alpha of 32.31 percentage points.
This recent weakness stands in stark contrast to the stock's stellar longer-term performance. Over three years, the stock has delivered exceptional returns of 371.25%, vastly outperforming the Sensex's 37.63% gain by 333.62 percentage points. The two-year return of 108.56% similarly demonstrates the stock's ability to create substantial wealth for patient investors who entered at lower levels.
The stock currently trades 39.44% below its 52-week high of ₹640.05, though it remains 25.89% above its 52-week low of ₹307.90. Technical indicators paint a bearish picture, with the stock trading below all major moving averages—5-day (₹366.26), 20-day (₹392.55), 50-day (₹443.39), 100-day (₹485.85), and 200-day (₹464.72). The overall technical trend turned bearish on January 23, 2026, at ₹361.60, following a period of mildly bearish sentiment.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current price of ₹387.60, Indraprastha Medical trades at a price-to-earnings (P/E) ratio of 20 times trailing twelve-month earnings, representing a significant 64% discount to the hospital sector's average P/E of 56 times. The price-to-book value (P/BV) ratio stands at 5.40 times, reflecting a premium to the book value of ₹65.09 per share, though this appears reasonable given the company's strong ROE of 26.54%.
Enterprise value metrics provide additional perspective. The EV/EBITDA multiple of 12.11 times appears modest for a debt-free, cash-generating hospital operator with improving margins. The EV/Sales ratio of 2.22 times reflects the market's recognition of the company's ability to convert revenue into profits, though the recent margin compression may warrant a temporary valuation discount.
Valuation Dashboard
P/E Ratio: 20x (vs. sector average 56x)
P/BV Ratio: 5.40x
EV/EBITDA: 12.11x
Dividend Yield: 1.16%
Overall Assessment: Fair valuation with attractive entry point for long-term investors
The company's dividend yield of 1.16% appears modest, based on the latest dividend of ₹4.50 per share (ex-date: September 18, 2025). With a dividend payout ratio of 33.28%, the company retains approximately two-thirds of earnings for reinvestment in growth initiatives, which appears appropriate given the capital-intensive nature of hospital expansion.
The valuation grade has fluctuated between "Fair" and "Attractive" over recent months, currently standing at "Fair" after changing from "Attractive" on October 29, 2025. This assessment reflects the balance between the stock's reasonable valuation multiples and concerns about near-term earnings momentum.
Investment Thesis: Quality Company Facing Transient Challenges
Indraprastha Medical's investment case rests on several pillars. The company operates a marquee hospital facility in partnership with India's leading private hospital chain, Apollo Hospitals, and the Government of Delhi. This strategic positioning provides both brand strength and access to a large patient catchment area in the national capital region.
The financial quality metrics remain impressive. A five-year sales compound annual growth rate (CAGR) of 16.80% demonstrates consistent top-line expansion, whilst the five-year EBIT growth of 97.78% highlights improving operational efficiency over time. The debt-free balance sheet, exceptional ROCE above 50%, and strong ROE above 24% collectively mark this as a high-quality healthcare franchise.
However, near-term challenges cannot be ignored. The flat financial trend in recent quarters, bearish technical indicators, and concerning mutual fund exit signal caution. The company's underperformance relative to the hospital sector (which gained 14.65% over the past year whilst Indraprastha Medical declined 17.36%) suggests company-specific issues beyond broader market dynamics.
Key Strengths & Risk Factors
✓ Key Strengths
- Completely debt-free balance sheet with net cash position providing financial flexibility
- Exceptional ROCE of 94.11% demonstrating superior capital efficiency
- Strong ROE of 26.54% indicating consistent shareholder value creation
- Strategic joint venture with Apollo Hospitals and Government of Delhi
- Consistent long-term revenue growth (5-year CAGR: 16.80%)
- Zero promoter pledging ensuring aligned interests
- Attractive valuation at 20x P/E, 64% discount to sector average
⚠ Key Concerns
- Sequential profit decline despite revenue growth signals margin pressure
- Employee costs surging faster than revenue (13.29% vs 4.37% QoQ)
- Complete exit by mutual funds (2.62% to 0%) raises red flags
- Severe underperformance vs market (-17.36% vs Sensex +8.49% over 1 year)
- Bearish technical trend with stock below all major moving averages
- Minimal institutional holdings (3.56%) limiting liquidity
- Flat short-term financial trend as of December 2025
Outlook: What to Watch in Coming Quarters
Positive Catalysts
- Stabilisation of employee cost ratio below 19% of sales
- Return to sequential profit growth in Q3/Q4 FY26
- Institutional investor re-entry signalling renewed confidence
- Capacity utilisation improvements driving operating leverage
- Technical reversal above ₹440-460 resistance zone
Red Flags to Monitor
- Further sequential margin compression in upcoming quarters
- Employee costs exceeding 20% of sales
- Additional institutional investor exits
- Revenue growth decelerating below 5% QoQ
- Stock breaking below ₹307.90 (52-week low)
The path forward for Indraprastha Medical hinges on management's ability to restore operating leverage. If the company can stabilise employee costs as a percentage of revenue whilst maintaining top-line momentum, margins should recover and profit growth resume. The debt-free balance sheet provides ample room to invest in capacity expansion or medical equipment upgrades without financial strain.
For long-term investors, the current weakness may represent an opportunity to acquire shares in a fundamentally sound healthcare franchise at attractive valuations. The 64% discount to sector P/E multiples appears excessive given the company's quality metrics. However, near-term volatility seems likely until the company demonstrates sustained margin improvement and regains institutional investor confidence.
The Verdict: Hold for Existing Investors, Cautious Approach for New Entrants
Score: 37/100
For Fresh Investors: The technical weakness and recent mutual fund exit suggest waiting for clearer signs of margin stabilisation before initiating positions. Consider accumulating only if the stock finds support near ₹340-360 levels with improving quarterly trends.
For Existing Holders: The long-term fundamentals remain intact despite near-term challenges. Investors with a three-year horizon can hold through this period of margin pressure, as the company's debt-free status and strong market position should eventually drive value creation. However, those uncomfortable with volatility may consider partial profit booking on any rally towards ₹440-460.
Fair Value Estimate: ₹460-480 (18-24% upside from current levels), achievable once margin trends stabilise and institutional confidence returns.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
