Hospital Stocks On Life Support Through 2026 As Expansion Outpaces Absorption: Macquarie
Macquarie reiterates its 'underperform' rating on both Apollo Hospitals and Max Healthcare, citing continued earnings downside risk and scope for further valuation de-rating.
Global brokerage firm Macquarie warns that downside risks for listed hospital stocks are no longer theoretical, with 2026 shaping up to be another muted year for the sector.
The brokerage notes that Apollo Hospitals and Max Healthcare have each underperformed the Nifty 50 by about 14% in 2025, and expects further consensus earnings downgrades and valuation de-rating to weigh on these stocks in 2026.
Macquarie reiterates its 'underperform' rating on both Apollo Hospitals and Max Healthcare, citing continued earnings downside risk and scope for further valuation de-rating. The brokerage has revised Apollo’s target price to Rs 6,230 from Rs 5,700 and Max Healthcare’s target price to Rs 825 from Rs 615.
The key concern, according to Macquarie, is the scale of upcoming capacity addition. Eight listed hospital chains have guided to add more than 6,000 beds by the end of FY27, representing around 1.5 times the capacity added over the past six years.
Expansion is expected to continue beyond FY27, with companies guiding for an additional 14,000 beds by FY30. Macquarie believes the absorption of these new beds will be gradual, leading to an initial Ebitda drag that is not fully reflected in current street estimates.
Apollo’s management has acknowledged this risk. During the last quarter's earnings call, Apollo indicated that new hospitals could create an Ebitda drag of around Rs 150 crore, a shift from earlier commentary in the fourth quarter last fiscal, when management suggested that profitability gains in existing hospitals would offset new-hospital losses. At Max Healthcare, Macquarie notes that the profitability drag from new hospitals is already visible.
While consensus estimates for FY26 and FY27 Ebitda have already been trimmed, Macquarie believes further downside risk remains, particularly for Max Healthcare.
Given the scale of planned expansion, Macquarie expects utilisation ramp-up to be slow, keeping margins under pressure as new hospitals typically start with lower occupancy and higher fixed costs. As a result, the brokerage sees continued risk of downward revisions to consensus earnings through 2026, which could extend the relative underperformance of hospital stocks against the broader market.
