Hospital chains set for stable Q3 despite seasonal challenges

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Subscribe to enjoy similar stories. Indian hospitals are likely to witness steady year-on-year (y-o-y) earnings growth in the December quarter (Q3FY25), even as sequential performance may be impacted owing to seasonality. Investors can expect hospitals to fare better than diagnostics companies.

Increasing levels of private life insurance coverage kept footfalls buoyant, leading to strong y-o-y Ebitda growth for companies such as Apollo Hospitals Enterprise Ltd and Fortis Healthcare Ltd in the third quarter. Ebitda is short for earnings before interest, taxes, depreciation, and amortization, “Overall, we expect an Ebitda growth of 16% y-o-y [(-)6% quarter-on-quarter (q-o-q)]—for our hospital coverage, with an Ebitda margin improvement of 10 basis points (bps) y-o-y [(-)70bps q-o-q] in Q3FY25," said analysts from Kotak Institutional Equities. One basis point is one-hundredth of one percentage point.

“While Arpob growth for some hospitals such as KIMS would be robust y-o-y, growth for most other players such as Apollo Hospitals, Max Healthcare Institute, and Global Health would remain relatively moderate due to the commencement of new beds and/or higher secondary mix," they added in a 8 January report. Arpob is short for average revenue per occupied bed. Smaller company Jupiter Life Line Hospitals Ltd is expected to do better than others, helped by earnings growth coming off a low base.

Notably, shares of hospital companies have performed well over the past year. For instance, shares of Fortis, Max, and Krishna Institute of Medical Sciences Ltd (KIMS) have gained 50-70% in the last year. “(For the hospitals sector), we expect mid to high teens revenue and compound annual growth rate (CAGR) over the next three years, driven