Barring a few names such as Apollo Hospitals and Fortis Healthcare, most hospital stocks have firmly outperformed the market in the last six months.
Aster DM Healthcare, Shalby, Max Healthcare, and Krishna Institute of Medical Sciences have gained up to 23% during this period versus a 3% slide each in the BSE Sensex and BSE healthcare indices.
Analysts, too, remain firmly upbeat on the sector, which is undergoing a healthy expansion cycle, and is seeing a recovery in its non-Covid business.
Param Desai, Research Analyst, Prabhudas Lilladher says, the sector is reaping benefits of previous capex. Most companies are yet to reach optimum utilisation. Average revenue per operating bed remains healthy. Pricing, international patient inflow to drive near-term growth.
Analysts see strong growth visibility over the next 4-5 years as hospitals would add twice the current capacities by this time. Apollo Hospitals, for instance, recently, marked its entry into Haryana as it acquired a hospital asset in Gurugram for Rs 450 crore.
Fortis Healthcare, too, has lined up a capex of Rs 400 crore for the current fiscal, while Max Healthcare is said to be in the race to acquire Care Hospitals.
The companies are generating strong cash flows, and the debt leverage for major players has significantly improved vs pre-Covid year of FY20.
According to Jefferies, in FY22, Max and Fortis’ net debt to EBITDA came below 1x, while it was 1.2x for Apollo. This has slipped from over 3.5x levels over the last five years
Besides, the sector’s shift towards taking land-on-lease, instead of owning it, has allowed companies to use fewer funds to set up hospitals.
Aditya Khemka – Fund Manager, InCred PMS says, hospitals have shifted to asset-light model. This allows higher return on equity, faster expansion. Expect FY23 sales to rise in the range of low-high teens. Turnaround in high margin non-Covid business to lift profits.
Khemka prefers companies that undertake mostly brownfield expansion as these players break-even quicker than the larger chains. He remains bullish on Aster DM Healthcare, and Healthcare Global Enterprises.
Equity markets will be closed today on account of the Dussehra holiday.