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Hospitals poised for strong earnings show in Q4

ICICIdirect Research 28 Mar 2025 DISCLAIMER

Combined revenues of 5 pan-India hospitals put together de-grew 4% QoQ to ₹6116 crore (14% growth YoY) whereas EBITDA de-grew by 9% QoQ to ~₹ 1338 crore (15% growth YoY). Q3 is typically a soft quarter being a festive quarter and most of the elective surgeries get postponed. However, the YoY growth tempo was maintained.
 
Quarterly gyrations notwithstanding, we continue to like hospitals space as a theme of healthcare premiumization as companies continue to invest in productive beds

Improving payor-mix (more private insurance covered patients and lower government scheme patients) has helped the companies to generate better ARPOB. The proportion of private insurance covered patients has gone up from 15% to ~40% in four years at the expense of government scheme patients (37% to 14%). 

Similarly, better case-mix (higher number of critical surgeries such as organ transplants, complex cardiovascular surgeries, cancer treatments etc.) has helped the companies to generate better ARPOB as well as margins. Complex surgeries and procedures now account for ~15% of the overall procedures for these players as against ~10% last year. 

Most of the new hospital assets inducted in the last 5-7 years are turning profitable, boosting the combined average ROCE which is now trending at 19% as against 9% in FY20. 

With very less balance sheet stress and comfortable leverage position, these companies are entering into a new capex phase (+7000 beds additions over the next 2-3 years) which is a good 40% expansion over the existing capacity. 

Healthcare growth trend stands out in a volatile environment impacted by tariff related uncertainties and earnings slowdown across sectors.

Top Picks- Narayana Hrudayalaya – TP- ₹1600; HCG – TP- ₹620 ; Apollo Hospital – TP – ₹7270

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