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Business News/ Markets / Stock Markets/  Stock picks: Apollo Hospitals, Fortis, Rainbow Children’s Medicare among top hospital stocks to buy: JP Morgan
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Stock picks: Apollo Hospitals, Fortis, Rainbow Children’s Medicare among top hospital stocks to buy: JP Morgan

JP Morgan has maintained ‘overweight’ ratings to Apollo Hospitals, Fortis Healthcare, and Rainbow Children's Medicare.

Indian Hospitals - Healthy demand visibility underpins expansion plans – JP MorganPremium
Indian Hospitals - Healthy demand visibility underpins expansion plans – JP Morgan

Global brokerage, JP Morgan's top picks in the Indian Hospital space are Apollo Hospitals, Fortis Healthcare, and Rainbow Children’s Medicare following JP Morgan India Investor Summit 2023. All three of the stocks have 'overweight' ratings from the brokerage.

JP Morgan hosted the management teams of Apollo Hospitals, Max Healthcare and Rainbow Children’s Medicare.

Hospital companies, who are mostly focused on metro areas and existing locations, are positive about the demand forecasts that support their expansion ambitions, according to the brokerage.

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Although the capex cycle has begun, the sector's players are confident in maintaining strong financials and expect to enhance return ratios. JP Morgan's optimistic view of the market was validated by the overall remark on average revenue per operating bed (ARPOBs), in-patient (IP) volume increase, and margin expectations.

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The participants expressed confidence in their ability to sustain future mid- to high-single-digit yearly ARPOB growth. As a result of seasonality, occupancy is tracking at a higher level in Q2 than Q1. Due to capacity expansion and the impact of the delayed monsoons on admissions, Rainbow Children’s Medicare's occupancy is predicted to be lower in Q2 than it was last year, according to the brokerage report.

Apollo sees good IP volume growth of 6-7% in the coming years. The outlook for margins is positive as well; Apollo expects its hospital segment to grow by 200–250 basis points over the next two years. The EBITDA/bed should keep increasing, and Max Healthcare is sure that the present growth won't have a materially negative impact on margins, said JP Morgan in its report.

Valuations - Domestic and regional peers
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Valuations - Domestic and regional peers (JP Morgan)

“The strong demand for quality healthcare is leading to capacity expansion in the industry with players at the cusp of entering the cycle (Apollo) or in the early expansion stage (Max Healthcare and Rainbow Children’s Medicare). However, the expansion is more prudent than the last cycle with a focus on metros or Tier I cities with proven viability. Players are focusing on strengthening their footprint in home markets (or adjacent markets) where the company’s brand is well established," explained the brokerage.

The advancement of medical technology like robot aided surgeries, which give competitors like Apollo Hospitals and Max Healthcare a competitive edge in terms of the standard of care and shorter lengths of stay, is another secular trend, according to the brokerage. With a lower average length of stay (ALOS) and better patient turnover, Apollo Hospitals is gaining from increased demand for secondary care services.

JP Morgan noted in its study that the risks are currently contained. Companies believe that finding doctors is not difficult, particularly in major cities, but that a shortage of nursing staff is a problem.

Also Read: Inclusion of Indian bonds in JPMorgan bond index to have limited impact on Indian bonds, rupee, says ASK Wealth


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Updated: 04 Oct 2023, 02:52 PM IST
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