Hospital stocks are back in focus as brokerages assess how potential regulation of medicine mark-ups could affect profitability. Views remain mixed, with brokerages estimating anything from a 2-5% hit to hospital EBITDA to a worst-case 7-9% impact, depending on the extent of pricing controls and how much hospitals can offset through treatment-package repricing. The debate follows Supreme Court observations on medicine mark-ups at private hospitals.
The Court had raised questions over the spread between purchase prices and MRP and whether the existing 16% margin cap for scheduled drugs could be extended to a wider set of medicines. The matter is scheduled for another hearing on October 12, 2026.
Macquarie estimates that medicines, consumables and implants accounted for around 21% of private hospital revenue in FY26. Axis Capital said pharmacy remains a high-margin business for hospitals and therefore an area exposed to regulatory scrutiny. However, it views the medicine mark-up example cited by the Supreme Court as an exception rather than the norm.
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Jefferies estimates a more modest 2-5% impact on hospital EBITDA, arguing that hospital chains have multiple levers to absorb the effect of potential price cuts. Its preferred names, in order, are Fortis, Manipal Hospitals, Apollo Hospitals, Max Health and Medanta. HSBC said pricing-control discussions could ultimately apply only to select drug classes. It flagged government-scheme exposure of 17-21% of revenue for Max Health, Fortis, Global Health and Narayana Health, compared with 9-11% for Aster and Apollo Hospitals, and 14% for Manipal Health.
BofA expects regulatory-news-driven corrections in hospital stocks to be relatively short-lived and sees the risk from the Parliamentary Committee recommendation as low probability. It reiterated Buy ratings on Apollo Hospitals and Fortis Healthcare, while remaining Neutral on Max Health.
Brokerages on Hospitals
Macquarie
- Cost of medicines, consumables and implants accounted for around 21% of private hospital revenues on average in FY26.
- Hospitals do not separately disclose pharmaceutical-related costs; Macquarie estimates around two-thirds of this cost is attributable to pharmaceuticals.
- Changes to medicine pricing and margin structures could have a meaningful impact on sector profitability.
- Sensitivity analysis suggests EBITDA impact could range from high-single digits to double digits.
- Assumes hospitals can offset 60% of the revenue impact through repricing treatment packages and other service components.
- The next Supreme Court hearing is scheduled for October 12.
Jefferies
- Estimates a 2-5% impact on hospital EBITDA.
- Hospitals have multiple levers to offset the impact of potential price cuts.
- Past price corrections triggered by regulatory concerns have provided attractive entry points.
- Pecking order: Fortis, Manipal Hospitals, Apollo Hospitals, Max Health and Medanta.
HSBC
- Pricing control discussions may apply only to a few drug classes.
- Max Health, Fortis, Global Health (Medanta) and Narayana Health have 17-21% revenue exposure to schemes.
- Aster and Apollo Hospitals have 9-11% revenue exposure.
- Manipal Health has 14% exposure to CGHS and other government health programmes.
- Prefers Aster and Apollo Hospitals.
BofA
- Regulatory news flow-driven corrections in hospital stocks tend to be short-lived.
- Views the risk from the Parliamentary Committee recommendation as low probability.
- Drugs and consumables account for 25-30% of tertiary-care bills, while a large portion of pharmacy drugs have regulated margins of 16-20%.
- Rising insurance penetration has led to package or bundled pricing for procedures without product- or service-specific margins.
- Reiterates Buy on Apollo Hospitals and Fortis Healthcare; Neutral on Max Health.
Axis Capital
- Pharmacy remains a high-margin area for hospitals and is therefore exposed to regulatory scrutiny.
- The markup example cited by the Supreme Court is viewed as an exception rather than the norm.
- Expects some recommendations of the Parliamentary panel to be considered.
- Hospitals generate around 15-17% of inpatient revenue, or 12-15% of total revenue, from medicines.
- KIMS' pharmacy revenue contribution is 20-22%, at the higher end of the industry average.
- Estimates a worst-case impact of 2-3% on revenue and 7-9% on EBITDA.
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