Credit Suisse’s Take On Impact Of Digital Health Scale-Up On Metropolis, Apollo Hospitals

The digital health scale-up in India will be a risk for diagnostic chains like Metropolis Healthcare Ltd., while large healthcare providers such as Apollo Hospitals Enterprise Ltd. stand to gain, according to Credit Suisse.

The pandemic accelerated adoption of telemedicine to mobile health applications. According to Credit Suisse, entry of large players such as Reliance, Apollo, Amazon, Tata will help this market grow. Adoption will be driven by convenience and discounts as Indians spend out of pocket on healthcare, the research firm said.

The companies stand to gain from high first-mover advantage and a large market of healthy population, Credit Suisse said. It estimates digital health segment to grow to $7 billion by 2025.

A scale-up in digital healthcare, however, will be negative for diagnostic players like Metropolis, according to Credit Suisse, as some part of the business-to-consumer revenue of such firms may shift to business-to-business segment, impacting revenue growth and margin.

“This is also negative for Indian pharmaceutical companies as higher channel consolidation can result in higher-volume-based discounts and carries substitution risk,” the note said.

Credit Suisse downgraded Metropolis to ‘underperform’ from ‘neutral’ and also cut its price target to Rs 1,700 apiece—implying a potential downside of 19% for the stock from Wednesday’s closing levels.

Shares of Metropolis Healthcare fell as much as 3.2% to Rs 2,026.4 apiece, before recovering from the day’s low. Of the 13 analysts that track Metropolis, eight have a ‘buy’ rating, one says ‘hold’ and four have a ‘sell’ call. Based on the 12-month Bloomberg consensus data, the stock has a return potential of 4.2%.

The research firm cited a decline in online consultations, slower ramp-up of users on health tech platforms, and sustenance of high Covid-19 testing volumes beyond FY22 as some of the key risks to its estimates and ratings on Metropolis.

The digital market growth will also have a mixed impact on hospitals. “Outpatient visits for hospitals may reduce which may impact bed utilisation, but remote monitoring of patients may lower the average length of stay,” the note said.

Credit Suisse has raised its 12-month price target on Apollo Hospitals to Rs 3,050 apiece, implying an upside of 17% from Wednesday’s closing levels.