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Hospital sector delivers resilient growth

Robust bed addition and stable margin support outlook

* In this note, we have analyzed the performance of listed hospital companies with specific pointers related to 1QFY26.

* On an aggregate basis, they have delivered a robust CAGR of 16.5%/26% in revenue/EBITDA over the past five years.

* Notably, the momentum was stable in 1QFY26 with YoY revenue growth of 16.5%. YoY EBITDA growth moderated to 20.5% due to the addition of hospitals/beds, consistent scale-up, and improvement in operating efficiency.

* ARPOB CAGR of 7.4% (9.5% YoY in 1QFY26) over the past two years implies volume CAGR of 9%. On an aggregate basis, they have added beds at CAGR of 8% to cater to an increase in the number of patients to be treated. The bed addition is done in a combination of expansion (brownfield/greenfield) and acquisitions.

* Interestingly, over FY25-27, listed hospital companies are expected to add 14K beds, a 35% increase in total number of beds from 39K as of FY25.

* The current aggregate occupancy of 59% implies scope for further improvement. This, coupled with strategic bed additions, would help the companies to sustain their performance over the next 4-5 years, we believe.

* Considering the robust performance so far and a promising outlook, the sector trades at a healthy valuation of 25x 12M forward EV/EBITDA. We expect the valuation to sustain given the strong industry tailwinds and as companies are well-positioned to build adequate infrastructure to cater to the rising patient pool.

Double-digit revenue growth led by MAXH, Fortis and KIMS

* Over the past two years, the hospital sector has delivered a revenue CAGR of 15.6%. Specifically, in 1QFY26, YoY revenue growth was 16%, led by MAXH (+27% YoY), FORTIS (+19% YoY), KIMS (+27% YoY) and Jupiter/Yatharth.

* Particularly, MAXH YoY growth was primarily driven by an increase in operational beds (+25% YoY) and steady higher occupancy levels at its existing facilities. FORTIS growth was supported largely by higher volume of patients and an increase in average realization per patient (+6% YoY).

* KIMS growth was supported by improvement in ARPOB (+12% YoY) and an increase in the number of patients treated (+13% YoY; implied growth).

* NARH posted revenue growth of 3% YoY for India hospitals. Excluding the hospital at Jammu unit, the YoY growth was 12.6%. Aster DM reported moderate revenue growth of 7.6% YoY in 1QFY26, led by 14% YoY growth in ARPOB. Likewise, Rainbow’s revenue grew by 7% YoY, led by 15% YoY growth in ARPOB for the quarter.

* Overall, the revenue growth was supported by better volume growth and better realization per patient for 1QFY26.

* Margin remains stable; Fortis leads EBITDA growth; MAXH tops per bed profitability

* Hospital sector on an aggregate basis reported 19% EBITDA CAGR over the past two years, with 16% YoY growth in 1QFY26.

* EBITDA margins have been largely stable at 23% for the past two years on an aggregate basis. In 1QFY26, EBITDA margins expanded 70bp YoY.

* At EBITDA level, the maximum YoY growth in 1Q was delivered by FORH (+41% YoY), followed by MEDANTA, MAXH, JUPITER and Yatharth, which reported ~20- 22% YoY growth.

* KIMS underperformed the sector with 7.4% YoY growth for the quarter. The five newly launched hospitals reported a combined EBITDA loss of INR210m in 1QFY26, which is expected to reduce in the forthcoming quarters.

* While EBITDA margin was the highest for Rainbow, most of the other companies had healthy EBITDA margin of 22-25% for the quarter. Aster had the lowest EBITDA margin of 20%. Excluding the pharmacy profitability, EBIDTA margin of Aster stood at 22.8% vs. 20.8% YoY. The scale-up of new hospitals led to EBIDTA margin contraction for MAXH for the quarter.

* EBITDA per bed grew 11.2% YoY to INR4.8m for the quarter, with NARH/Aster the maximum CAGR in EBITDA per bed over the past two years. MAXH/Raibow continues to lead with the highest EBITDA per bed at 6.8m for the quarter. Medanta/APHS posted EBITDA per bed of ~INR6m.

*  Fortis/NARH reported EBITDA per bed of INR4m.

* Hospital sector expansion accelerates; 7,830 beds to be added in FY26

* At the aggregate level, listed hospital companies added 1,569 beds in FY25, taking the total operating beds to 38,910.

* In fact, after Covid, ~6,770 beds were added over FY22-25. Almost 34% of FY25 beds are expected to be added over FY25-27. ? Particularly, in 1QFY26, operating bed additions stood at 1,270 QoQ.

* Hospitals are executing multiple projects to add beds over the next 3-4 years. Specifically, FY26 is expected to witness bed additions of 7,830, implying 20% YoY growth in operating beds.

* KIMS added the maximum number of beds (989) in FY25 and expects to add 1,950 beds over FY25-27.

* ASTERDM, along with QCIL, is expected to add the maximum number of beds (2,685) over the next two years.

* In FY26, APHS/ FORH/MAXH are expected to add the maximum number of beds (1600/1570/1500).

* NARH and Jupiter are working on projects that would add beds FY27 onward.

Steady ARPOB gains across hospitals; KIMS shows consistent growth in ARPOB

*  Average hospital ARPOB grew at a CAGR of 7.4% to INR58.5k, with KIMS delivering the highest growth of 16.5%, followed by 13.8% growth in NARH and 13% growth in ASTER over 1QFY24-1QFY26.

* Specifically in 1QFY26, NARH/KIMS/RAINBOW/JUPITER exhibited mid-teens YoY growth in ARPOB. Considerable reduction in patients from Bangladesh, certain price hikes taken since Jan’25 and payor mix/case mix optimization led highest YoY growth in ARPOB for the quarter for NARH. KIMS’ ARPOB has been consistently growing, from INR31.7k in 1QFY24 to INR43k in 1QFY26.

* RAINBOW witnessed lower footfall due to adverse seasonality and a higher share of the high-end critical care segment, driving APROB growth for the quarter.

* MAXH had stable ARPOB due to the addition of hospitals having lower realization per patient. Increased share of lower-ARPOB Lucknow/Patna hospitals moderated YoY growth for Medanta as well.

* APHS/FORH/Yatarth had stable 6-8% YoY improvement in realization per patient.

* Moderate IPD growth for the quarter; KIMS shows strongest momentum

* In 1QFY26, overall average in-patient (IPD) volumes grew 3.8% YoY to 428k.

* APHS/NARH/RAINBOW saw moderate YoY growth in IPD volume in 1Q.

* The impact on the reported basis was higher for NARH due to IP patients in 1QFY25. Adj. for the same, the IP patients have been largely stable YoY.

* KIMS delivered the highest IP patient growth of 15.8% on YoY basis.

* The overall IP patients have witnessed 7% CAGR over the past two years at aggregate level. Yatharth saw 26% CAGR of IP patients over the past two years.

* This was followed by Medanta and Rainbow for past two years.

* Hospital occupancy stable over two years; marginal dip in 1Q amid bed additions

* The average occupancy at aggregate level remained stable for past two years. Having said this, average occupancy levels of hospitals contracted 100bps YoY in 1QFY26 to 59%.

* The addition of newer beds and the adverse impact of geo-political tensions on international patient flow impacted occupancy to some extent in 1QFY26.

* MAXH leads the pack with the highest occupancy of 76% despite bed addition over the past 12 months.

* Medanta/Yatharth showcased marked improvement in occupancy YoY.

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