IGI Logo

2QFY26 results review

* 2Q results of diagnostics companies were broadly in line for our coverage universe. Maintain ADD on Metropolis Healthcare & Thyrocare Technologies.

* Retain Overweight stance on the sector, despite tepid volume growth in recent quarters, due to expansion plan, specialty mix, and a surge in global patients.

* Regulatory changes like CGHS price revision and GST rehaul have a positive impact on the healthcare sector.

Diagnostics: 2QFY26 earnings broadly in line with expectations

The 2QFY26 earnings were broadly in line for companies in our coverage universe, with most companies meeting expectations and a few misses as well. Companies in our coverage universe saw 15.9% YoY revenue growth, (10% QoQ increase due to seasonality). There was lower volume growth than expected across the board due to decrease in seasonal fevers, despite a healthy growth in preventive health packages across our coverage universe. Companies saw a YoY margin improvement of 40bp. All three companies in our coverage (Dr. Lal Pathlabs or DLPL, Metropolis Healthcare or MHL, and Thyrocare Technologies or TTL) decided to keep price hikes at bay for the year. On the expansion front, DLPL is growing organically in Tier-3&4 cities (northern & eastern regions) and is also open to expansion opportunities in the southern region. MHL completed lab expansion and is looking to expand collection centres in its existing geographies. We maintain our ratings for all three diagnostics companies (HOLD for Dr. Lal Pathlabs and ADD for Thyrocare Technologies and Metropolis Healthcare). 4QFY26F will be a good entry point for diagnostics companies based on the historical trend.

Hospitals: 2QFY26 earnings slightly below expectations

The 2QFY26 earnings of Apollo Hospitals Enterprise were slightly below our expectations. Companies in our coverage universe witnessed 13% YoY revenue growth, (8% QoQ increase due to seasonality). There was lower volume growth than expected across the board due to the decline in seasonal admissions, despite better case mix and higher insurance penetration. The company saw YoY flattish margin with a decline of 30bp. All companies in the sector had a better case mix and international patient surge during the quarter. On the expansion front, Apollo Hospitals Enterprise is growing with multiple brownfield and greenfield expansions planned during the rest of FY26F and in FY27F. This will increase margin pressure in 2HFY26F. We maintain our ADD rating on the company with a higher target price of Rs8,549, from Rs7,355 earlier.

Government regulations

Goods and Services Tax (GST) rate overhaul will help companies in the diagnostics sector, but all of them are passing on the benefit completely to their customers. The quantum of the benefit passed on is not yet known for companies in our coverage universe. Central Government Health Scheme (CGHS) rate revision will benefit Max Healthcare and KIMS the most in the sector due to their exposure to this scheme. Max Healthcare expects a Rs2bn improvement in its topline in FY27F due to the revision.

Sector outlook

We maintain our Overweight stance on the sector, despite lower volume growth during the quarter for companies in our coverage universe. CGHS price revision and GST rate cut present huge opportunities in the sector. We are bullish on Apollo Hospitals Enterprise, Metropolis Healthcare, and Thyrocare Technologies.

Above views are of the author and not of the website kindly read disclaimer