Jefferies' Prescription For Hospital Stocks In FY26 Relies On Capacity Expansion — Check Top Picks

Global brokerage Jefferies expects India’s listed hospital chains to enter a capacity-led growth phase in CY26, with fresh bed additions beginning to meaningfully lift volumes after a muted expansion cycle over the past few years. But while the sectoral outlook is improving, the brokerage is clear on one point: execution will be the key differentiator, and investors should stay selective.

The brokerage remains selective, naming Max Healthcare and Fortis Healthcare as its top picks. Jefferies sees 22% and 18% EBITDA CAGR, respectively, over FY26-28, backed by capacity additions and CGHS benefits, and rolls forward its price targets accordingly.

Jefferies notes that new bed additions across listed hospital chains are set to accelerate in CY26, following a relatively subdued expansion period. Over the next 12–18 months, Max Healthcare and Apollo Hospitals are expected to add more than 1,000 beds each, while Fortis Healthcare is likely to add around 700 beds. Medanta has already commissioned 300 beds at its Noida facility, with its next phase of expansion still a few years away.

For Jefferies, the pace of ramp-up — occupancy, margin profile and break-even timelines — will determine near-term financial performance as well as stock returns.

A key theme for CY26 is that volume growth will likely take precedence over ARPOB (average revenue per occupied bed) expansion. As new capacity comes online, hospitals may initially prioritise occupancy, potentially accepting a softer payer mix. Jefferies expects mid-single-digit ARPOB growth at best in CY26, with lower pricing power reflecting a tougher reimbursement environment.

That said, brownfield expansions — where hospitals add beds within existing facilities — offer a cushion. These beds come with lower incremental costs and can offset some margin pressure even if the payer mix deteriorates temporarily.

Jefferies clearly prefers brownfield-led expansion. Max and Fortis derive 67% and 72% of their new beds, respectively, from brownfield projects. In contrast, Apollo and Medanta are more greenfield-heavy, which typically entails higher costs and a 1–3 year ramp-up period.

The brokerage also flags the revision in CGHS rates, effective from Q3FY26, as a positive that will start showing up more clearly in CY26 numbers. Max Healthcare is seen as the biggest beneficiary, followed by Fortis and Medanta. Jefferies estimates an incremental revenue upside of ₹280 crore for Max and an EBITDA benefit of Rs 160–170 crore, translating into margin expansion. Other hospital chains are yet to fully quantify the impact.

Despite aggressive bed addition plans over the next five years, Jefferies does not expect an overcapacity scenario. Aggregate listed hospital capacity is projected to grow at about 5% CAGR, far lower than headline announcements suggest. Operational additions are also likely to lag announced capacity due to staggered commissioning. The brokerage dismisses overcapacity concerns as a 'hospital sector paradox.'