Why investors are bullish about hospital stocks

While Q2FY26 is expected to be mildly disappointing for the hospital sector, there’s a lot of investor optimism for the future.

This comes after a favourable revision in rates for Central Government Health Scheme (CGHS) procedures, as well as expectations of rising occupancy and growth in average revenue per operating bed (ARPOB).

Q2FY26 may be relatively soft for hospitals, due to lower incidence of seasonal vector-borne diseases.

However, bed additions could result in volume momentum with operating beds up by over double-digit percentages year-on-year (Y-o-Y) with an improving mix, implying steady ARPOB gains.

This could drive revenue up by over 20 per cent for the sector, with significant positive operating profit gains.

Hospital companies with a focus on case and payor-mix have seen steady ARPOB growth.

The recent revision of CGHS rates with hikes are expected to accelerate breakeven timelines for new hospital units, given the higher contribution of scheme patients.

Assuming a 15 per cent weighted average hike in scheme rates, hospital ARPOBs could rise 2.5-3.5 per cent translating into an estimated 11 per cent plus increase in operating profit.

Given bed additions in FY26, investors may focus on ramp-ups of newly launched facilities to gauge demand, competitive intensity, and earning trends over the next two years.

CGHS revision and its impact, especially for new units, is a key monitorable although all managements seem to be positive on the hike.

Among hospital stocks, Max Healthcare is likely to lead in terms of revenue and operating profit growth of over 20 per cent Y-o-Y due to recently commissioned capacity and bed additions in Mumbai, Delhi, and Mohali.

However, continued bed additions and sustained ramp-ups of newly commissioned hospitals could lead to contraction of operating profit margins in Q2 and Q3.

KIMS Hospital may see some drag down on operating profit from newly launched units in Thane, Bengaluru, and Nashik but revenue growth will be strong.

Interest costs will also be elevated for KIMs and this could pull down net profit for FY26.

Rainbow Children’s Medicare growth momentum could moderate while still staying above the double-digit revenue growth level.

This is owing to lower volume growth of beds due to project delays in Bengaluru.

But this may be offset to some extent with the acquisition of Prashanti Hospital and the launch of Rajahmundry Hospital (100 beds each).

Operating profit margin could also be under pressure but higher other income may offset this at the net profit level.

Medanta (Global Health) may see steady growth with the developing portfolio (up 24 per cent Y-o-Y), outpacing the matured one (up 9 per cent Y-o-Y).

Medanta’s operating profit margin could shrink over launch of Noida facility, and net profit is expected to grow at low double-digits Y-o-Y.

Management commentary on breakeven timelines of Noida unit and updates regarding pending projects in South Delhi and Indore remain key monitorables. Medanta also looks to expand into the Northeast.

Apollo, Aster Jupiter, and Fortis will see revenue driven by ARPOB but occupancy is likely to be flat Y-o-Y due to the seasonally soft quarter.

Fortis may report stronger numbers with 17 per cent revenue and 26 per cent operating profit growth in Q2, aided by high ARPOB growth and occupancy.

It is one of the few hospitals expected to see margin expansion.

Apollo’s numbers could be dragged down by hospital growth of 7 to 8 per cent, but high growth in pharmacy will help achieve overall 14 per cent revenue growth.

Margins may improve, especially for Healthco.

Aster is likely to see high single-digit revenue growth and low single-digit operating profit growth.

Jupiter Life Line may post a small rise in operating profit margin due to steady growth in Thane and better occupancy in Pune and Indore.

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