Healthcare Sector Update : Bengaluru hospitals in top gear By Elara Capital
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Demand remains strong; managements remain optimistic
We recently made several site visits covering five flagship hospital facilities at Bengaluru. The units belong to the Rainbow Hospital (RAINBOW IN), HCG (HCG IN), Fortis Healthcare (FORH IN), Narayana Hrudayalaya (NARH IN) and Aster DM Healthcare (ASTERDM IN). Our visits reveal continued robust demand environment. New beds are getting occupied rapidly and new facilities are achieving break-even faster than originally envisaged. The region- and facility- level managements are bullish on demand and appeared confident the region can absorb a further increase in bed capacity
More expansion plans
Managements reiterated timely commissioning of bed expansion plans already announced. But these plans do not end there as most managements are looking for land and existing infra in other areas of the city to add to their expansion plans. They also are open to M&A deals, especially where they can take over older, struggling hospitals.
Draconian price control regime for private hospitals unlikely
While managements remain concerned about the recent Supreme Court directive on pricing regulation of healthcare services, they do not expect the government to implement a draconian price control regime that can hurt the private healthcare industry. At the same time, they expect some sort of price regulation to come into effect. Managements stressed the importance of promoting further penetration of health insurance as the key strategy for ensuring access to healthcare for all; price control on healthcare services is unlikely to achieve the same.
Compelling structural story but cautious on rich valuation
Although we do not see a major deterioration in momentum, we see softening of growth and margin in the next 2-4 quarters. In our view, all-time high valuations do not price this softening. Hence, we remain cautious as companies are likely to disappoint high growth expectations we believe are already built into the stock price. Among our coverage universe, we reiterate Reduce on Apollo Hospitals (APHS IN) and Accumulate on Fortis Healthcare (FORH IN). We retain Buy on Shalby (SHALBY IN), given relatively reasonable valuation.
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SEBI Registration number is INH000000933
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