homehealthcare NewsHospital, diagnostics companies poised for growth in India — these analysts see their strong growth potential in tier 2, 3 towns
Hospital, diagnostics companies poised for growth in India — these analysts see their strong growth potential in tier-2, 3 towns
The healthcare sector is witnessing significant growth potential, particularly in Tier-2 and Tier-3 towns where healthcare infrastructure is expanding. However, stakeholders should remain cautious about the valuations in hospitals, as they seem to be on the higher side. By considering a valuation that aligns with the sector's growth rate, investors can make sound investment choices that maximize their potential returns while mitigating risks.
India's healthcare services companies are now well poised for growth in terms of their structural framework, according to many sector analysts, including Vishal Manchanda, a leading pharma analyst at Systematix Group.
In a recent interview with CNBC-TV18, Manchanda expressed optimism regarding the structural stability of hospital and diagnostics companies, while also highlighting the significant growth potential in Tier-2 and Tier-3 towns.
“The hospitals and diagnostic space remains structurally well poised. Especially the tier-2, tier-3 towns is where the large growth is yet to come. So the structural growth will continue in this space,” he said.
He believes these areas, which often experience an undersupply of healthcare facilities, present ample opportunities for healthcare providers to expand their services. As more people in these regions gain access to better healthcare facilities, there is a significant potential for growth and development in the healthcare sector.
However, Manchanda also expressed concerns regarding the valuations in hospitals. He noted that the current valuations appear to be excessive, indicating a potential risk for investors. While the healthcare sector exhibits promising growth prospects, it is essential to ensure that valuations are reasonable and aligned with the sector's overall performance.
“I do not have a coverage on hospitals and diagnostics space but I see the valuations going crazy. I think the structural growth opportunity is 12-13 percent. Two times growth is what would be fair,” he said.
Manchanda suggested that a fair valuation for the healthcare sector would be two times its growth rate. This approach balances the growth potential with a realistic assessment of the sector's performance, enabling investors to make informed decisions.
Manchanda also has a hold rating on Mankind Pharma with a price target of Rs 1,425. He believes if the stock rallies further, probably Mankind would be where Cipla is today.
JP Morgan has initiated coverage on the hospitals sector saying there is secular growth opportunity and supply shortages offer promising growth prospects. Furthermore, a sustained demand and occupancy at near optimal level necessitates expansion. The profitability of hospitals has improved and is likely to sustain. JP morgan forecasts 19 percent earnings before interest, tax, depreciation and amortisation (EBITDA) CAGR over FY23 to 26 for stocks under its coverage.
JP Morgan is overweight on Apollo Hospitals and Fortis Healthcare with target prices of Rs 5,950 and Rs 355 respectively. Max Healthcare and Medanta have a neutral rating with target price of Rs 620 and Rs 710 respectively. JP Morgan projected potential upside of up to 21 percent for the stocks.
For more details, watch the accompanying video
(Edited by : C H Unnikrishnan)
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