Hospital chains to report steady growth in Q4, but there are challenges

However, occupancy rates in the March quarter may be hit for some hospitals due to numerous holidays, such as Ramadan. 

“The fourth quarter is generally a stronger quarter for hospitals, and diagnostics as well to some extent. However, this quarter, some of the hospitals might be impacted on account of Ramadan being in March…some hospitals might see a softer number year-on-year in terms of occupancy,” Amey Chalke, pharma research analyst at JM Financial told Mint.

Additionally, hospitals such as Apollo Hospitals and Narayana Hrudayalaya might face challenges due to the decline in medical tourism following deteriorating relations with Bangladesh.

Steady growth

Analysts anticipate the hospital industry to report 16-19% year-on-year (YoY) revenue growth in Q4. They anticipate around 20-23% Ebitda growth for top corporate hospitals in the country. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.

Chalke of JM Financial anticipates about 19% YoY revenue growth for the hospitals in its coverage. “Ebitda growth would be around 23% at an aggregate level, and margin would be around 23.5%,” he said. 

“Considering the impact of numerous holidays such as Ramadan during Q4, coupled with Q3FY25 outperforming occupancy expectations, we anticipate flat QoQ (quarter on quarter) occupancy for most companies under our coverage,” analysts at PL Capital said in a note. 

Despite some hospitals being affected, overall, year-on-year occupancy rates as well as the average revenue per operating bed (ARPOB), are expected to see healthy growth. “We anticipate hospital companies in our coverage universe to post healthy Ebitda growth of 21% YoY,” the analysts noted. 

Analysts at Kotak Securities said that a 16% YoY sales growth is expected in the March quarter, driven by higher footfall, new bed editions and a slight increase in ARPOB. While ARPOB growth for companies such as KIMS and Narayana Hospitals would be robust, growth for most other players like Apollo Hospitals, Max Healthcare and Medanta would remain relatively moderate due to the commencement of new beds, the analysts said. 

Also Read: Apollo Hospitals driving up high complexity care, to continue focus on core metros

Key challenges 

Occupancy levels at hospitals like Aster DM Healthcare and KIMS, which have a strong presence in Kerala and Hyderabad respectively, are likely to be more impacted by Ramadan. 

“[For Aster DM] we’ll see maybe 11-12% growth versus an aggregate growth of 19%…however, the Ebitda growth would be higher, around 28%, because of Ebitda margin improvement, the structural improvement which has happened over the last one year,” Chalke said. “The margin would be around 18.5%.”

For KIMS, Ramadan as well as new bed additions are expected to impact occupancy. 

Hospitals like Apollo and Narayana Hrudayalaya will continue to face challenges in their medical tourism business due to the loss of tourists from Bangladesh. 

Bangladeshi patients make up the largest chunk of international visitors checking into Indian hospitals for procedures, but numbers dipped sharply last year after a political crisis gripped the neighbouring country. Apollo and Narayana are among the listed hospitals that have the most exposure to Bangladeshi patients. 

Also read: Indian hospitals cast wider net to cope with unexpected casualty of Bangladesh crisis: Medical tourism

According to a Nomura report, growth of Apollo’s hospitals segment has slowed down to 8.5% YoY in Q4. A slowdown in patient inflow from Bangladesh impacted revenue by ₹140 crore-150 crore during the quarter for Apollo, the report noted. Further, holidays and Kumbh Mela also impacted revenue, it said. 

Analysts anticipate the positive momentum to continue for the industry in FY26, as hospitals continue capacity addition and focus on improvement in occupancy and better case mix. 

Diagnostics vertical

For diagnostics, Q4 is a seasonally strong quarter as well. Kotak Securities anticipates 10% year-on-year sales growth for Dr Lal Pathlabs and Metropolis Healthcare, “aided by B2C volume growth, and a higher wellness mix, despite a slightly slower seasonal benefit.” 

Ebitda growth is estimated to be 6% in the quarter, while Ebitda margin is likely to decline slightly by 90 bps YoY.

JM Financial estimates revenue growth to be about 12% YoY and Ebitda growth around 10% for diagnostic companies under its coverage. Chains like Vijaya Diagnostics, which have significant presence in Hyderabad may report softer growth due to Ramadan. 

For Metropolis Healthcare and Dr Lal’s Pathlabs, volume growth is something to watch out for. “If the volume growth doesn’t pick up, then maybe the interest will remain low from the investor side in both,” Chalke said.