Healthcare share price target

Diagnostic Chains

We recommend BUY on Lupin, Aurobindo, Abbott India, HCG, and KIMS.

Seasonality on account of extended summers and holiday season impacted the operating matrix of hospitals under our coverage in Q1FY24. While their business model is prone to such cyclicality, companies were able to safeguard their ARPOB while occupancy took a slight hit.

Surge in occupancy and ARPOB is likely to help hospitals under our coverage to report a revenue/EBITDA/PAT growth of 3%/7%/19% QoQ in Q1FY24E, respectively. The outlook remains steady for hospital chains as higher in-patient and surgery count is generating cashflow and the companies are diligently investing in expanding their network through M&A; or brownfield capex.

India’s healthcare industry has yielded impressive returns of over 12% in the past month. What is fueling this optimism among investors?

Hospitals continue to maintain overall improvement in ARPOB and occupancy which had seen a surge post the outbreak of Covid-19. Most hospital chains are diligent in adding further beds to the network through M&A or brownfield capex. Non-covid revenues continue to witness steady 11-22% growth despite steep competitive pressure.

The generic pharma business model in the US is undergoing a gradual shift and companies with specialised R&D skillsets will likely be able to tide over the transformation better. Windfall from gRevlimid and slowdown in intensity of pricing pressures have helped US sales of India companies to grow 6% in 9MFY23, while rationalisation of R&D spend (savings of 100bps in past 3 years) has aided margins.