Healthcare services outlook strengthens as new beds, patient volumes drive growth

India's healthcare services sector is expected to sustain its robust growth trajectory in the upcoming quarters, according to Kotak Institutional Equities. The brokerage predicts that the expansion of new hospital capacities will bolster profitability and margins. Hospital profitability is anticipated to rise as existing facilities ramp up operations, while diagnostics companies are projected to gain from sustained patient volumes and improving revenue streams in the B2C market.

The optimistic outlook comes after a stellar first quarter for the sector, with Indian hospitals under Kotak's purview recording a 21 per cent year-on-year surge in revenue and a 22 per cent growth in EBITDA during Q1 FY27. The average revenue per occupied bed (ARPOB) growth remained robust at 5-14 per cent across hospitals, fueled by a mix of elevated patient volumes, enhanced realizations, and contributions from newly added beds.

Across the board, hospital companies covered by Kotak reported double-digit year-on-year sales growth during the quarter. Notable growth rates included Apollo Hospitals, with a 22 per cent increase in hospital revenue, Aster DM Healthcare, Medanta, and Rainbow Children's Medicare, each experiencing a 22 per cent, 27 per cent, and 33 per cent growth, respectively.

KIMS demonstrated the most impressive performance among the major hospitals, boasting a 35 per cent growth, fueled by a surge across its Maharashtra, Kerala, and Karnataka clusters.

However, the rapid pace of capacity additions continues to impact margins. The number of operational beds in Indian hospitals increased by 15 per cent year-on-year, while capacity beds rose 16 per cent. The resulting surge in costs and losses at newly commissioned or acquired facilities kept the aggregate hospital EBITDA margin at 23 per cent, which remained largely flat year-on-year. Kotak anticipates that this pressure will diminish as occupancy improves at newer facilities.

The diagnostics segment demonstrated equally compelling growth. Companies under Kotak's coverage reported an 18 per cent year-on-year sales growth and a 29 per cent surge in EBITDA, driven by higher test and patient volumes, better realizations, and sustained B2C traction. Dr Lal PathLabs reported a 19 per cent increase in sales, while Metropolis Healthcare grew by 17 per cent, with organic growth accounting for approximately 16 per cent.