Apollo Hospitals Enterprise Ltd, Fortis Healthcare , Max Healthcare Institute share prices have seen 42-84% gains during last year. The gains have been led by improved earnings outlook in the back of rising occupancy, increasing inpatient procedures, return of medical tourism and other such reasons have led to improvement in Average revenues pr operating bed (ARPOB).
Apollo Hospitals Enterprise Ltd, Fortis Healthcare , Max Healthcare share prices also have benefit from rising capacities as expansions continue being carried out by them.
The outlook on growth momentum remains robust say analysts. CRISIL Ratings expect a double-digit revenue growth for Hospitals led by healthy occupancies and rising ARPOB. The revenue growth for private hospitals is expected to strong at 11-12% in fiscal 2025 after strong growth in fiscal 2024 which is estimated to have touched 14%.
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Its not only revenues but profits that will also get a boost. Better operating leverage will likely offset a cost ramp-up related to additional capacity, allowing operating profitability to remain stable at 16–17% in fiscal 2025, as per CRISIL. This will ensure that even when capital expenditures remain significant, cash generation will remain robust and dependency on external debt would be minimized. Thus, credit profiles will remain steady.
Anuj Sethi, Senior Director, CRISIL Ratings said that “Healthy demand for healthcare services, including due to increased awareness of lifestyle treatments, rising medical tourism and increasing health coverage will ensure bed occupancy is sustained at 60-62% even on significantly enhanced capacities in fiscal 2025. In addition, ARPOB, which is estimated to have grown ~8% to ~ ₹36,000 in fiscal 2024, will rise to ~ ₹38,000 in fiscal 2025 supported by higher share of specialised surgeries and pass-on of inflation linked costs. These factors should spawn double-digit revenue growth for private sector hospitals this fiscal.”
Meanwhile the largest beneficiaries of increased healthcare spending will be hospitals, feel analysts. Private hospitals are also benefitting as their portion in overall pie is rising and increasing portion of the total pie held by big hospital chains. Even though private hospitals are 60% of overall marker, large hospitals share is at 12% as per Anand Rathi Research. This is rising.
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Expansions are to drive growth and large hospitals are capable of carrying out plans for growth.
The return ratios are expected to support the new-normal valuations feel analysts. The sector’s recent re-rating was mostly caused by a significant, 1,100bp, increase in ROCE over FY20–23 as per Anand Rathi Research. Moving forward, they anticipate that valuations will be steady as long as industry leaders keep their ROCE over 20% and improve capacity in the long run.
Top Picks in the sector by Anand Rathi includes Max Healthcare while they have Buy ratings on Rainbow Children’s Medicare, Krishna Institute of Medical Sciences (KIMS), Jupiter Life-Line Hospitals and have Hold rating on Global Health (MEDANTA) and Narayana Hrudayalaya.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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Published: 26 Apr 2024, 01:11 PM IST
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