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Over the past 12 months, the Indian hospital sector has experienced significant growth on the stock market. However, some analysts caution that the upward trend may be approaching its limit and hospital stocks are now “expensively” priced, exceeding their fundamental valuations.
In the past year, most hospital stocks have outpaced the benchmark equity index, BSE Sensex, which gained 22%.
Notable performers include:
Wockhardt: +250%
Aashka Hospitals: +143%
Dr Agarwals Eye Hospital: +126%
Global Health: +80%
Kovai Medical Center & Hospital: +63.20%
Max Healthcare Institute: +48%
Fortis Healthcare: +45%
Analysts points out a divergence between stock valuations and earnings growth, suggesting a potential correction for overvalued hospital stocks. Despite this, they remain cautiously optimistic about the healthcare sector, highlighting companies like Healthcare Global and Aster DM Healthcare as “reasonably priced” and well-positioned for future earnings growth.
Analysts optimism is extended to the diagnostics sector, anticipating a “re-rating” over the next few years due to increased market valuations driven by positive sentiment and growth opportunities. Notable performers in the diagnostics space include:
Vijaya Diagnostic Centre: +72%
Medinova Diagnostic Services: +52%
Metropolis Healthcare: +42%
Dr Lal Pathlabs: +42%
Analysts are bullish on companies like RPG Life Sciences, Indoco Remedies, FDC, Torrent Pharma, JB Pharma, Krsnaa Diagnostics, and Thyrocare, which he believes are poised for substantial expansion.
According to a recent report by HDFC Securities, the hospital segment has transitioned from its capex phase (adding bed capacity over FY14-19) to the execution phase, focusing on improving occupancy and average revenue per occupied bed, which is expected to enhance margins.
The Indian diagnostics market, recovering post-COVID, is projected to see an 8-9% CAGR over the next four years, driven by:
- Increased volumes
- Price hikes in select tests
- Expansion of wellness services
- Geographical expansion
However, the market faces challenges from increasing competition and steep discounts offered by online peers.