Surging Healthcare Demand Makes Winners Of India Hospital Stocks

(Bloomberg) --

Rising incomes, a growing aging population and higher spend on healthcare are setting the stage for another stellar year for India's hospitals stocks. 

A gauge of nine hospitals compiled by Bloomberg outpaced the broader equity index with a 55% surge over the last 12 months. Analysts expect the momentum to continue as an expanding insurance coverage provides hospitals another impetus to expand in a country that has just 1.3 hospital beds per 1,000 people. 

“Rising insurance penetration is working wonders for the hospitals business,” said Dheeresh Pathak, a fund manager at WhiteOak Capital Asset Management Ltd., which has Global Health Ltd. and Rainbow Children's Medicare Ltd. in its portfolio. “The moment someone gets insured, they want to go to the best hospital and get the best bed they can avail.” 

The sheer size of opportunity has lured investors including Blackstone Inc. and Temasek Holdings Pte to invest in some of the nation's biggest names in the space. The world's most populous nation needs to upgrade its healthcare infrastructure rapidly as lifestyle diseases rise and its citizens aged 60 and above are estimated to double by 2050, to nearly 21% of the population.

Hospitals tracked by Jefferies Financial Group will invest as much as 40 billion rupees ($482 million) in expanding by March 2026, the brokerage said in a recent note. 

Apollo Hospitals Enterprise Ltd., India's largest hospital chain, is expected to add 2,860 beds over the next three years, followed by 2,440 new beds at Max Healthcare. Aster DM Healthcare Ltd. plans to add an additional 1,500 beds during that period. 

Revenue per occupied bed — a key metric for hospitals — is expected to rise 8% to more than 50,000 rupees a day in the twelve months through March 2024 as occupancy at nearly 65% is the highest in at least five years, according to data from Kotak Securities on the hospital stocks it tracks. 

“Hospitals are working much more efficiently now compared to how it was before the pandemic,” said Purvi Shah, healthcare analyst at Kotak Securities. She expects earnings in the sector to rise between 12% and 21% annually over the next five years.

The outlook has stoked investor appetite. Hospital and pharmacy chain Aster DM Healthcare Ltd. in December said it would look to acquire private operators to fuel its expansion in India. Temasek bought an additional 41% stake in Manipal Health Enterprises for $2 billion last year, while Blackstone acquired a controlling stake in two Indian hospital chains. 

To be sure, lofty valuations after last year's outsized rally pose a hurdle to further gains over the short term. Apollo, for instance, is trading at a price-to-earnings ratio of nearly 60 compared to a median of about 45 times over the last 10 years.

To investors like WhiteOak's Pathak, the rich multiples reflect the underlying growth story for the sector.

 “India needs to add a lot more beds, and more importantly high-quality ones. The demand tailwind for top hospitals are here to stay,” he said.

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