iifl-logo-icon 1

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

sidebar image

Sanguine outlook for healthcare companies despite capacity additions from FY25: IIFL Securities

28 Nov 2022 , 10:39 AM

With most players focused on consolidating bed capacities over the past 5 years, the hospital sector’s EBITDA margins/RoIC (pre-tax) expanded ~800/1800 basis points to ~23/25% respectively over FY17-H1FY23, thereby driving rerating for the sector. While companies have indicated plans to expand bed capacities by ~30-70% over the next 4-5-year period, and part of this incremental capacity will start getting commissioned from end-FY24, analysts at IIFL Securities believe the drag from new capacities on consolidated financials will be significantly lower than it used to be in the past. Hence, the sector’s margins/return ratios will broadly sustain, which will also be aided by further improvement in occupancies of existing hospitals and ARPOB growth, driven by rationalization of institutional business and increase in international patient volumes. Given EBITDA growth expectations of ~15/20% CAGR for large/mid hospitals over FY22-25 and current valuations, analysts at IIFL Securities find relative value in Apollo/Fortis among large-cap stocks and KIMS/Narayana among mid-caps. They continue to like Rainbow’s differentiated model of complex childcare and recommend adding the stock on corrections.

Occupancies are expected to improve further from a median ~62% to ~70-75% over the next 2 years

Combined bed capacity for the 8 listed hospital players (Apollo, Fortis, Max, Narayana, KIMS, Rainbow, HCG and Shalby) has grown only at ~2-3% CAGR over FY17-H1FY23; for mid-cap companies like KIMS, Rainbow and HCG, capacities have grown at a relatively faster rate of 7-15% CAGR during this period. The sector-level median occupancies, after having dipped to ~52% during the COVID period in FY21, have improved to ~62% in H1FY23.

While Apollo, Fortis, Max and KIMS (ex-Sunshine, Kingsway acquisitions) are already operating at sector-leading occupancies of ~65-75%, they have indicated plans to further expand occupancies on existing bed capacities by ~500-1,000 basis points over the next 2-year period, led by volume scale-up in newer/tier-2,3 hospitals, further recovery in international patient volumes (Max, Fortis and Narayana’s international patient revenue contribution was 7-8% in H1FY23 versus 10-11% pre-COVID), and gradual rationalization of institutional/ government business (currently standing at ~17-20% of revenue for most players). Although Rainbow’s occupancies have normalized to pre-COVID levels of ~53% in H1FY23, Narayana/Shalby’s occupancies at ~50/47% are significantly below industry average.

Smaller players such as KIMS, Rainbow, HCG and Shalby have outperformed industry volume growth

Combined hospital revenue for the 8 listed hospital players has grown at ~14% CAGR over FY17-H1FY23, driven by IP volume growth of ~4% CAGR and ARPOB growth of ~6% CAGR. Smaller players such as KIMS, Rainbow, HCG and Shalby have grown revenues at ~15-25% CAGR over this period, as IP volume growth for these players at ~12-15% CAGR is significantly above industry volume growth of ~4% CAGR. Comparatively, IP volume growth for larger players (Apollo, Fortis, Max and Narayana) has been tepid at ~0-5% CAGR. Analysts at IIFL Securities think that smaller players have been able to demonstrate better volume growth, given they have continued to expand capacities over the past 4-5-year period, through both organic and inorganic measures. Larger players, on the other hand, have been focused on just consolidating capacities.

Analysts at IIFL Securities prefer Apollo and Fortis among large-cap stocks; KIMS and Narayana among mid-caps; recommend adding Rainbow on corrections

Consensus expectations factor-in ~15% EBITDA CAGR for large-cap hospitals (Apollo, Max and Fortis) and ~20% EBITDA CAGR for mid/small-cap hospitals (Narayana, KIMS, Rainbow, HCG and Shalby) over FY22-25. Given Apollo’s hospital business and Fortis are trading at ~21x and ~17x FY24 EV/EBITDA versus Max at ~24x, analysts at IIFL Securities find relative value in Apollo and Fortis among large-cap stocks.

Among mid-cap stocks, KIMS (adjusted for minority interest) and Narayana are trading at reasonable valuations of ~18x and ~16x FY24 EV/EBITDA. They prefer both KIMS and Narayana from the midcap space. They continue to like Rainbow’s differentiated model of complex childcare and recommend adding the stock on corrections.

Related Tags

  • Apollo
  • Fortis
  • HCG
  • healthcare
  • Hospitals
  • KIMS
  • Max
sidebar mobile


Read More
Knowledge Centerplus

Logo IIFL Customer Care Number
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

Knowledge Centerplus

Follow us on


2024, IIFL Securities Ltd. All Rights Reserved

  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.