JM Financial initiates coverage on 3 hospital stocks, sees upside potential up to 48%

The Indian hospital sector market cap surged 9x from Rs 37,500 crore in FY20 to Rs 3.5 lakh crore now. At a time when the sector was grappling with inefficiencies, high leverage and low ROCEs, Covid provided a much-needed impetus. This came from improved pricing, higher insurance coverage and dedicated shift towards complex surgeries such as transplants.

Here is how the domestic brokerage firm evaluates its preferred stocks:

Fortis Healthcare
Based on the strategic pivot of creating large-format hospitals, portfolio optimisation strategy yielding early dividends, margin expansion of 3ppt over FY 24-27, agilus’ recovery and improving ROICs, JM Financial rates the stock as a ‘buy’.

“We expect Fortis to deliver Revenue/EBITDA/PAT CAGR of 13%/19%/26% CAGR over FY24-27. Fortis is an equally strong hospital brand providing high-end medical services like the leaders in the hospital space. However, operational inefficiencies and legacy issues were the primary reasons why it was valued lower compared to peers,” said Amey Chalke, analyst at JM Financial.

Shares of Fortis Healthcare were trading at Rs 486.35 around 1 pm and the target price of Rs 595 by JM Financial signals an upside potential of 22.4% from the current market price.

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GPT Healthcare
JM Financial stated that GPT Healthcare, operating under the ‘ILS’ brand, presents a unique value proposition in Eastern India’s healthcare landscape and maintains competitive margins and RoCEs. High OCF/EBITDA and conservative leverage provide a strong foundation for its expansion plans and strategic initiatives. ILS plans to nearly double its current bed capacity (561 beds) over the next 3 years, adding one hospital annually.

The aforementioned initiatives, in turn, are likely to drive Revenue/EBITDA/PAT CAGR of 16%/17%/21% respectively, over FY24-27 Despite its promising growth prospects, ILS trades at a substantial discount to peers, nearly 11x Jun’26 EV/EBITDA vs an industry average of 21x (Yatharth is trading at ~13.5x).

Shares of GPT Healthcare were trading flat at Rs 165.25 on BSE around 1 pm. The upside potential of the stock (with a target price of Rs 245) is 48.5%.

Max Healthcare
Max Healthcare, a dominant Delhi NCR player, is known for its top notch execution and quaternary care services. Max is expanding its capacity by 84% till FY28 (over 4,000 existing beds), of which 75% is brownfield and 78% is in core geography. Max is in a pole position for most operating metrics such as ARPOBs, occupancy, EBITDA/bed, etc.

Given the sharp execution focus and ongoing brownfield expansion, the domestic brokerage firm has built in 20%/20% Revenue/EBITDA CAGR over FY24-27. However, they remain wary of the delays in project implementation and the risk to margins during the capex cycle.

“With curtailed FCF due to an ambitious expansion plan, we see limited scope for multiple expansion from here. Thus, we initiate with HOLD,” said JM Financial.

Max Healthcare shares were trading around Rs 910 at 1 pm on BSE. JM Financial sees a downside potential of 7.7% in the stock.

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