Healthcare - Strong Position, Long Runway For Growth; HDFC Securities Initiates Coverage On The Sector

HDFC Securities Institutional Equities

India’s healthcare sector is poised for growth, with an expected steady 11-12% compound annual growth rate over the next five years, led by favorable macroeconomic factors such as healthcare infrastructure and a structural shift towards an organised market. Within this healthcare landscape:

1. the hospital segment has already undergone the capex phase (added bed capacity over FY14-19). It is now in the execution phase, focusing on improving occupancy and ARPOB, translating into a better margin. Going ahead, bed expansion and improving operating metrics will support growth/margins.

2. The Indian diagnostics market is in the recovery phase post-Covid and it is expected to see an 8-9% CAGR over the next four years. This growth will be led by volumes, price hikes in select tests, expansion of wellness services, and geographical expansion. Increasing competition and steep discounts from online peers are key challenges.

3. Retail pharmacy is poised for strong growth with an increasing market share of organised players.

We are initiating coverage with a Buy rating for Apollo Hospitals Enterprise Ltd. (target price of Rs 7,030) and Medplus Health Services Ltd. (target price of Rs 850), and an Add rating for Max Healthcare Institute (target price of Rs 900), DLPL (target price of Rs 2,700), and Metropolis Healthcare Ltd. (target price of Rs 2,010).

The near-term concern persists regarding the blanket price implementation as per the Clinical Establishment Act, which may impact profitability and the capex cycle.

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