HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects

HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects
HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects/Mint
HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects
HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects/Mint

HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects

HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects

HDFC Securities Initiates Coverage on Healthcare Stocks, Highlights Growth Prospects

Key Highlights:

  1. Buy Ratings: Apollo Hospitals at ₹7,030, Medplus Health Services at ₹850.
  2. Add Ratings: Max Healthcare at ₹900, Dr. Lal PathLabs at ₹2,700, Metropolis Healthcare at ₹2,010.
  3. Sector Growth: Healthcare sector projected to achieve 11-12% CAGR from FY23 to FY28.

HDFC Securities has recently initiated coverage on key healthcare stocks, highlighting substantial growth opportunities in India’s healthcare sector. The brokerage has issued ‘buy’ ratings for Apollo Hospitals with a target price of ₹7,030 per share and Medplus Health Services at ₹850 per share. Additionally, ‘add’ ratings have been assigned to Max Healthcare Institute, Dr. Lal PathLabs, and Metropolis Healthcare, with target prices set at ₹900, ₹2,700, and ₹2,010, respectively.

Growth Projections and Sector Analysis

The brokerage anticipates that India’s healthcare sector is poised for continuous expansion driven by an aging population, rising lifestyle-related diseases, increased healthcare awareness, technological advancements, and the expanding affluent middle class. HDFC Securities projects the healthcare market, consisting primarily of hospitals, diagnostics, and retail pharmacies, to grow at a compound annual growth rate (CAGR) of 11-12% from FY23 to FY28, reaching an estimated value of ₹16.5–17.5 trillion by FY28.

Hospital Sector

Post the capital expenditure phase of FY14-19, which focused on expanding bed capacities, hospitals are now in an execution phase aimed at improving occupancy rates, case and payer mix, and advanced technology to reduce the average length of stay (ALOS). This transition is expected to result in significant EBITDA margin expansion. HDFC Securities foresees continued growth momentum with improving occupancy and steady ARPOB (average revenue per occupied bed) growth. The next capex phase, starting FY25, will focus on strategic expansion with an asset-light model, marginally impacting profitability.

Diagnostic Sector

Diagnostics play a critical role in the healthcare value chain, from wellness testing to disease detection and post-treatment management. While the sector experienced a decline in FY23 due to a sharp drop in COVID-19 testing revenues, the non-COVID business saw growth. HDFC Securities expects growth to normalize to 12-13% over FY23-26, driven by favorable macro factors, geographical expansion, price hikes, volume recovery, and scale-up in the wellness and preventive care segments. However, heightened competition from established hospitals, corporate entities, and aggressive discounting from well-funded online competitors will pose significant challenges.

Retail Pharmacies

The overall retail market in India saw a steady 9% CAGR over 2018-23, valued at ₹76,066 billion in 2023. HDFC Securities expects the market to grow at a 10% CAGR to ₹1,13,399 billion by 2027. The retail pharmacy and wellness categories, which comprised 3% of India’s retail market at ₹2,272 billion in 2023, are expected to grow at a 12% CAGR to reach ₹3,575 billion by 2027. The brokerage anticipates that the pharmacy business’s share in the overall retail market will improve from 3% in 2023 to 3.2% in 2027.

In summary, HDFC Securities sees robust growth potential in India’s healthcare sector, driven by macroeconomic factors and strategic business expansions. However, competitive pressures and market dynamics will require firms to navigate challenges strategically.

source: Mint

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