Transformative Growth in Indian Hospitals

The Indian hospital sector's market cap rose to Rs 3.5 trillion in FY24 due to better pricing.

The Indian hospital sector’s market cap skyrocketed from Rs 375 billion in FY20 to Rs 3.5 trillion in FY24, driven by better pricing, increased insurance, and a focus on complex surgeries, a report revealed ().

Apart from the momentary Covid boost, there were many structural changes in the Indian healthcare space increased health awareness, higher insurance coverage, growing acceptance towards modern hospital experience, and price hikes, thereby leading to improvement in EBITDA, return on invested capital (ROIC) and cash flows, according to the report by JM Financial Institutional Securities Ltd.

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Complex Surgeries Drive Market Cap Growth

"This has brought in a lot of investor interest with eight hospitals raising Rs 36 billion (equity raise) over the last four years," the findings showed.

With the operating cash flow (OCF) generation of large listed players rising (Rs 60.5 billion in FY24 vs Rs 24 billion in FY20), there is a new capex cycle emerging.

"It is in this expansion phase, we prefer players that are diversifying, aligned with a core philosophy, focusing on growth plus profitability, and are available at reasonable valuations," the report mentioned.

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The hospital chains account for only 11-23 percent of beds across key cities while small format hospitals (which may or may not sustain in the longer run) form the majority of beds at present.

Moreover, in cities that are seeing good bed capacity addition, their population is also growing at a 3-3.5 percent rate which can absorb sizable bed addition, according to the report.

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"Delhi-NCR is attracting the highest bed supply which will get absorbed, in our view, due to low bed density, a large catchment area, and international patient footfalls," the report noted.

The cities with a high bed density like Hyderabad and Bengaluru are seeing bed expansion in new neighborhoods/outskirts (HITEC in Hyderabad and Electronic City in Bengaluru) and not in central-city areas.

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"Our analysis of 15 cities indicates that upcoming bed addition is unlikely to lead to lower occupancy for coverage universe; we believe investor concerns should be more focused on the Hospital’s indiscipline approach to growth, overpricing, departing from core philosophy, over-leverage, and valuation," the report noted.

Reference:

JM Financial - (https://jmfl.com/who-we-are/group-companies)

Source-IANS