Anand Rathi initiates coverage on 6 hospital stocks with upside potential of up to 25%

"Accounting for 71% of India’s healthcare market, healthcare delivery services constitute the largest segment. Favorable demographic shifts, a rising proportion of non-communicable diseases and greater ability to pay are the sector’s key structural drivers which can lead to a 15% CAGR to Rs 7.7 lakh crore over FY22-25,” states the coverage report.

Given the hospital demand-supply mismatch (bed capacity half the global average), which is unlikely to be bridged in the near to medium term, we regard longer life-expectancy and heightened health awareness to be key drivers, the brokerage said.

This, coupled with a rising share of NCDs (70% of deaths in India) and deeper penetration of health insurance and government schemes, would result in greater need for tertiary care, it added.

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“We reckon private hospitals would benefit given the country’s inadequate healthcare infrastructure and greater health awareness,” said the brokerage.

Below are the top picks by the brokerage firm from the sector:

Max Healthcare

Over the next few years, the company aims for approximately a two-fold expansion of its brownfield projects and an increase in bed capacity. The company has maintained superior operating parameters compared to its peers, with rising occupancy rates, reduced Average Length of Stay (ALOS), and a favourable case-payor mix, primarily operating in tier-1 cities. With its expansion plans, improved payor mix, and lab scale-up, the company's outlook and valuation appear promising.

The company has a ‘buy’ rating, with a target price of Rs 950, which suggests an upside potential of 25%.

Rainbow Children’s Medicare

Rainbow’s moat is its calibrated focus on pediatric and perinatal services, a model still in a nascent stage in India and only thriving in some developed economies. Given its strong pedigree in this field and its hold on unit economics, the company is poised to replicate the model in other Indian cities. The brokerage expects it to clock 19%/20% revenue/EBITDA CAGRs over FY24-26, boosted by capacity added and better operating leverage.

With a ‘buy’ rating, the target price for Rainbow Medicare has been set at Rs 1,470, foreseeing an upside of 11%.

Krishna Institute of Medical Sciences

The company is a leader in South India’s healthcare market with 12 multi-specialty hospitals and a unique business model of affordable pricing through cost rationalization. Strong financial performance with 17%/16% revenue/EBITDA CAGRs and Rs190 crore FCF generation over FY24-26 is forecasted.

With an upside potential of 19%, the firm has a ‘buy’ rating, with a target price of Rs 2,370.

Jupiter Life-Line Hospitals

Anand Rathi expects a 19% revenue CAGR over FY23-26, aided by the scale-up in occupancy at its Pune and Indore units. Further, the recent rate of revision in insurance contracts for the company’s Pune unit and insurance tie-ups for its Indore unit should boost Average Revenue Per Occupied Bed (ARPOB) and occupancy. Overall, it anticipates 22%/52% EBITDA/PAT CAGRs over FY23-26, with healthy 20% return ratios.

Rhe stock is a ‘buy’, with an upside potential of 10% with a target price of Rs 1,380

Global Health (MEDANTA)

Continued growth is believed to be led by higher capacity utilisation at new hospitals, a rising share of international patients in the overall revenue pie and better ARPOB backed by a superior payor-case mix. Considering its strong business prospects, the brokerage firm expects it to post 14%/16%/15% revenue/EBITDA/PAT CAGRs over FY24-26.

A target price of Rs 1,430, with a ‘hold’ rating has been given, which signals an upside of 1.7%

Narayana Hrudayalaya

A higher maturity mix in hospitals, steady performance of flagship hospitals in India and better profitability of new hospitals (SRCC, Gurugram, Dharamshila) solidify the company’s position in India. Ahead, it is believed that brownfield expansion along with the Cayman expansion would aid growth. Accounting for a chunk of the growth would be operationalising the new hospitals, which could pose margin risk.

Backed by the above, the brokerage has a ‘hold’ rating with a target price of Rs 1,380, which indicates an upside potential of approximately 10%.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)