Healthcare Sector update : A fine quarter in store by Kotak Institutional Equities

We expect healthy sales and profitability in 4QFY25 for our pharma and hospitals coverage. For pharma companies, we expect continued traction across most markets to drive ~11%/~17% yoy growth in overall sales/EBITDA in 4QFY25, with sluggish domestic growth in January and February being the only chagrin. We also bake in a healthy ~16/~20% yoy growth in overall hospitals sales and EBITDA, largely led by higher footfalls and a slight increase in ARPOB. In diagnostics, we expect steady volume traction and mix improvement to drive ~10% yoy overall sales growth for our coverage. While we like SUNP, CIPLA, JB, EMCURE, PPL and Syngene in pharma, within healthcare services, APHS, Rainbow and DLPL are our preferred picks.
Pharma: Steady traction across US generics and CRDMO strength to aid growth
We expect a fine 4QFY25 for our pharma coverage, led by continued stability in US generics pricing and traction across most other markets, with sluggish domestic growth in January and February being the key chagrin. Ex-gRevlimid, we bake in 2% qoq growth in overall US generics sales for relevant companies in our coverage, led by volume growth in existing products, as well as continued benefit from new launches. While organic domestic growth for most companies would remain in mid-to-high single digits, we expect overall 4QFY25 domestic sales for relevant coverage companies to grow 7-18% yoy, owing to acquisitions as well as in-licensing deals. For API companies, we bake in 6% yoy overall sales growth in 4QFY25. For the CRDMO segments for companies under our coverage, we expect strong 20% yoy cumulative sales growth in 4QFY25. On an overall basis, we bake in ~11% yoy (+2% qoq) growth in revenues in 4QFY25, for our pharma coverage. On the operating front, we build in ~16% yoy (+1% qoq) growth in overall EBITDA. Any comments on steps being taken by companies to mitigate the hit from potential tariffs would be key to monitor
Hospitals: Steady quarter in store driven by healthy footfalls
We expect a 16% yoy (+1% qoq) sales growth for our hospitals coverage in 4QFY25, largely led by higher footfalls in existing beds, new bed additions and a slight increase in ARPOB. While ARPOB growth for companies such as KIMS and NARH would be robust yoy, growth for most other players like APHS, MAX and MEDANTA would remain relatively moderate due to the commencement of new beds and/or higher secondary mix. Overall, we expect an EBITDA growth of 20% yoy (flat qoq) for our hospitals coverage, with an EBITDA margin improvement of 60 bps yoy (-10 bps qoq) in 4QFY25.
Diagnostics: We factor in double-digit sales growth yoy
Within diagnostic companies, we bake in 10% yoy growth in sales for both DLPL and METROHL, aided by B2C volume growth, and a higher wellness mix, despite a slightly slower seasonal benefit. Overall, we build in 10% yoy and 6% yoy sales and EBITDA growth, respectively, for our diagnostics coverage in 4QFY25, with an EBITDA margin decline of 90 bps yoy.
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