Afya Limited: Governance Stability and Financial Transparency Fuel Growth Potential

Afya Limited (NASDAQ: AFYA), Brazil's leading medical education group, has emerged as a compelling investment opportunity amid its evolving governance structure and robust financial performance. The company's recent board reorganization, coupled with a commitment to financial transparency, signals a strategic focus on long-term sustainability. This analysis explores how Afya's governance stability and transparent practices underpin its growth potential in an expanding healthcare education market.

Board Continuity Amid Strategic Adjustments

Afya's board structure, as of June 2025, reflects a deliberate balance between shareholder representation and independent oversight. The resignation of Shobhna Mohn in June 2024—unrelated to company performance—has not disrupted governance. Bertelsmann, one of Afya's key shareholders, has not rushed to fill her seat, opting instead to maintain the status quo with co-chairmen Nicolau Carvalho Esteves (Esteves family) and Kay Krafft (Bertelsmann). This stability is further reinforced by the reappointment of four independent directors—João Paulo Seibel de Faria, Vanessa Claro Lopes, Miguel Filisbino Pereira de Paula, and Marcelo Ken Suhara—to two-year terms as of the June 2025 Annual General Meeting.

The board's composition ensures a blend of expertise: Krafft's corporate finance background, Esteves' education-sector experience, and independent directors' governance acumen. This structure aligns with Afya's growth ambitions, particularly in consolidating its position through acquisitions like Funic and Unidom. Notably, the replacement of Ernst & Young with KPMG as auditors in early 2025 underscores the board's priority for financial accountability, a critical factor for investor confidence.

Financial Transparency and Operational Strength

Afya's first-quarter 2025 results demonstrate a disciplined financial strategy. Net revenue surged 16.4% year-over-year to R$936.4 million, driven by higher tuition fees and expanded medical school capacity. Adjusted EBITDA margins hit 52.5%, a 300-basis-point improvement, reflecting cost efficiencies and operational restructuring. Cash reserves rose to R$1.15 billion, bolstering Afya's capacity to fund acquisitions and navigate regulatory headwinds.

The company's financial transparency is evident in its detailed reporting, including segment-specific metrics:
- Undergraduate Medical Programs: 17.4% revenue growth, fueled by a 12.2% increase in approved medical seats.
- Continuing Education: 8.7% revenue growth, though declining student numbers in certain areas highlight execution risks.
- Medical Practice Solutions: 14% revenue growth, aided by B2B and B2P service expansion.

ESG Leadership and Regulatory Challenges

Afya's ESG initiatives have garnered recognition, including a Moody's AAA.br rating and an MSCI ESG BBB score, outperforming peers in data privacy. Its social impact metrics—such as free clinical consultations and scholarships—align with long-term value creation. However, the company faces regulatory uncertainty from Brazil's new tax law (Law 15,079/2024), which added R$23.2 million in Q1 tax expenses. While Afya is challenging the law, a negative ruling could impact 2026 cash flows.

Investment Considerations

Afya's governance stability and financial discipline position it well to capitalize on Brazil's growing demand for healthcare professionals. Key catalysts include:
1. Acquisition Synergies: Funic's 60 medical seats and Unidom's rapid integration should boost enrollment and EBITDA margins by 2026.
2. ESG Credibility: Lower financing costs (e.g., IFC's 15-basis-point rate reduction) and ESG ratings improve capital access.
3. Market Leadership: With 3,653 approved medical seats, Afya dominates Brazil's medical education landscape, reducing competitive threats.

However, investors should monitor:
- Regulatory Outcomes: The tax law challenge's resolution is critical.
- Student Retention: Declines in Continuing Education enrollments warrant attention.
- CAPEX Efficiency: Capital spending (R$250–290 million in 2025) must align with revenue growth.

Conclusion

Afya Limited's combination of governance continuity, transparent financial practices, and strong operational execution makes it a compelling investment in the education sector. While regulatory risks linger, the company's track record of navigating challenges and its focus on ESG integration suggest resilience. For investors seeking exposure to Brazil's healthcare education boom, Afya's stock offers growth potential, provided it successfully mitigates tax uncertainties. A “buy” rating is warranted with a price target reflecting its 2025 guidance, but investors should remain vigilant on regulatory developments.

As of June 2025, Afya's governance and financial metrics position it as a leader in medical education—a sector poised for sustained growth. The path forward hinges on execution, but the foundation is strong.