Top Conviction Ideas: Pharmaceutical & Hospitals by Axis Securities Ltd
Q1FY26 Review – Growth Momentum in Hospitals and Stability in Pharma
The Q1FY26 performance of the Pharma & Hospitals sector reflected steady growth in pharmaceuticals alongside strong momentum in healthcare services. The pharma universe under our coverage reported revenue growth of 8.9% YoY and 2.2% QoQ, largely supported by a robust 13.5% YoY expansion in the India business. The domestic IPM grew 9% YoY, with chronic therapies up 11% and acute therapies stabilising at 7%, confirming the sector’s structural shift towards chronic treatments.
Gross margins improved to 65.9% on a YoY basis, aided by niche launches, low price erosion, and a higher domestic mix. Hospitals outperformed significantly, with revenues up 22% YoY and 7% QoQ, supported by higher occupancy rates, which rose 30 bps YoY, and a 7% increase in ARPOB to Rs 62,220. Bed capacity expansion by key players such as KIMS and Max Healthcare further underlined the sector’s growth momentum. While margins moderated slightly due to new units, operating leverage is expected to improve as these assets mature.
Pharma Outlook – Back on Growth Track
Pharma companies are gradually regaining momentum, with India continuing to be the anchor of growth. Lupin delivered the strongest performance, with US sales of $282 Mn rising 24.2% YoY in CC terms, its highest since Q4FY17, driven by new launches and exclusivity benefits in Tolvaptan. Sun Pharma, Dr. Reddy’s, and Cipla also posted double-digit India growth, reflecting the strength of branded prescriptions and chronic therapies. While Aurobindo faced pressure from erosion in gRevlimid and inventory destocking, its injectable portfolio grew strongly, supported by new launches.
Looking ahead, the sector’s growth will be driven by a robust pipeline of biosimilars, GLP-1, and peptide products. Companies with a greater share of chronic therapies and strong regulatory track records remain well placed. Despite competitive pressures in the US generics market, steady launches, niche products, and stable input costs support a constructive outlook for the sector.
Hospitals Outlook – Sustained Growth with Structural Tailwinds
The healthcare sector’s performance in Q1FY26 reinforced its structural growth drivers. Occupancy rates rose, ARPOB grew 7% YoY, and industry-wide operational bed days increased 16% YoY, reflecting rising healthcare access and demand. Insurance payors, now contributing 33% of revenues, grew 24% YoY, indicating a positive shift in the payer mix that will support long-term sustainability.
Fortis, Max, and Medanta all reported stable operating margins around the industry average, with growth driven by mature units in metro cities and aggressive expansion strategies. KIMS and Max added over 3,500 beds in the last year, setting the stage for sustained patient inflows. With rising insurance penetration, higher surgical volumes, and demand for high-growth therapies such as cancer and cardiac care, we expect the hospital sector to deliver consistent double-digit revenue growth with annual ARPOB increases of 6–7%.
Key Monitorables – Sector Triggers Ahead
In pharmaceuticals, investors should closely track the pace of new launches, margin sustainability, and the degree of price erosion in the US generics market. In hospitals, occupancy trends, expansion into new geographies, insurance penetration, and the ramp-up of new facilities will be critical indicators of future growth.
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