Rising occupancies and a favourable payor mix should sustain double-digit revenue growth and improved profitability for Indian hospitals, according to Jefferies.
The macro factors for Indian hospitals—rising income levels and growing healthcare awareness, with a consequential increase in medical insurance and quality healthcare infrastructure by private healthcare service providers—have created an ideal environment for private Indian hospitals to flourish, the research house said in a Jan. 17 note.
"This has resulted in strong operational performance over the last few years, and we expect this trend to continue," the note said.
The research house expects 10–17% CAGR in revenue over FY22–25E, driven by rising occupancies from new bed additions over FY14–18 and average revenue per occupied bed increases driven by a favourable payor mix.
As leading hospitals look to expand outside their core markets, the research house believes mergers and acquisitions will be the preferred route to establish a territory presence.
"One example is Apollo's acquisition of Nayati Healthcare for Rs 450 crore to enter the Delhi-NCR market," the note said. Hospitals may also look at asset-light models for expansion.
"We believe Indian hospital chains' robust balance sheets equip them for large-sized M&A and emerge as pan-India players".
The research house is betting on pure-play hospitals; Max Healthcare and Medanta are pure-plays on indoor patient departments, while Apollo Hospitals owns India's largest online pharmacy and is investing in its digital platform, Apollo 24*7, the note said.
According to Jefferies, the increasing competitive intensity in the diagnostic industry might impact Fortis's margins, while ongoing investments in Apollo 24x7 may weigh on Apollo Hospitals' margin expansion.
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