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NCR hospitals on adrenalin

Hospitals at full occupancy; managements remain optimistic

Our site visits of six flagship hospital facilities in the NCR (belonging to Fortis Healthcare (FORH IN), Max Healthcare (MAXHEALTH IN), Indraprastha Medical Corporation (IMC IN), Yatharth Hospital [YATHARTH IN], Global Health (MEDANTA IN) and Artemis Health (ARTMSL IN)) reveal continued strong demand environment. All these facilities were crowded with patients and almost all beds were occupied. The management personnel, across levels, were very bullish on the demand environment and exuded confidence that the region can absorb any sort of increase in bed capacity.

Pushing ahead with major expansion plans

Top management of respective companies continue to share a bullish outlook. They have major expansion plans in NCR as well as other regions. While MAXHEALTH and MEDANTA reiterated their plans with specifics, others talked about significant expansion plans in terms of bed capacity. None seemed concerned about filling up  new bed capacity – they sound confident about a rapid pickup in new beds occupancy and break-even of new facilities in a year’s time.

No envisioning of draconian price regulation

While management remain concerned about the recent Supreme Court directive on pricing regulation of healthcare services, none expect the government to implement a draconian price control regime that can kill the private healthcare industry. At the same time, they expect some sort of price regulation to come into effect. All say the current social responsibility commitments are being fully met in terms of reserving beds for the economically weaker sections (EWS). Even the currently reserved beds are not fully occupied.

Our view: retain our cautious stance on high valuation

Although we do not see a major deterioration in strong 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 in. Hence, we remain cautious as companies are likely to disappoint strong growth expectations that we believe are 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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