Smaller Hospital Chains Outshine Larger Peers on the Stock Market

In recent months, smaller hospital chains have outperformed their larger counterparts on the Indian stock market. Mid-cap hospital companies, such as Kovai Medical Centre, Artemis Medicare Services, and Indraprastha Medical Corp, have seen their stock prices more than double in the past year. Meanwhile, Dr. Agrawal's Eye Hospital's shares have surged by 74%.

Newer entrants like Yatharth Hospital and Jupiter Life Line have also made impressive gains, with their stocks rising by 58% and 25%, respectively, since their recent listings. Even Medi Assist, a medical insurance administrator that works closely with hospitals, has seen a 28% increase in its stock value since going public in January.

Several factors have contributed to this strong performance. These smaller hospital chains have shown robust operational results, backed by expansion plans and private equity buyouts. Additionally, investors seeking value in the healthcare sector have turned their attention to these regional players, boosting their stock prices.

For instance, Delhi NCR-based Artemis Medicare Services has gained 68% in the past six months, driven by a 70% year-over-year increase in net profit for the quarter ended June 2024. The company raised ₹330 crore from the International Finance Corporation (IFC) to fund its expansion plans. Similarly, Coimbatore-based Kovai Medical Centre reported a 47% jump in net profit and a 15% increase in net sales, with plans to enter the Chennai market through a recent land acquisition.

Yatharth Hospital posted a 37% increase in net sales and a 60% rise in net profit for the latest quarter ending June 2024. Dr Agrawal's Eye Hospital also reported strong results, with a 22% increase in net profit and a 27% growth in net sales for the quarter.

These mid-sized hospital chains have successfully navigated the challenges faced by smaller, doctor-owned hospitals. They are expanding into underserved areas in tier 1 and tier 2 cities, improving their average revenue per operating bed through cost efficiencies, adopting advanced technologies like robotics, and leveraging economies of scale. This growth makes them attractive targets for acquisition by larger hospital chains, often backed by private equity funding. A recent example is Aster DM Healthcare's merger with Care Hospitals, supported by PE major Blackstone.

READ| New SEBI Rules May Shake Up F&O Segment with 80 Potential Additions, Including Jio Financial and Zomato

However, the recent surge in stock prices for some mid-cap hospital companies has led to higher valuations compared to their larger peers. For example, the stocks of Jupiter Life Line, Yatharth Hospital, and Artemis Medicare Services are now trading at price-to-earnings (PE) ratios higher than those of established giants like Fortis Healthcare, Global Health (Medanta), and KIMS. As a result, these stocks are no longer seen as value buys by some investors.