Stories
Hospital Stocks Face Valuation Reset Amid Price-Cap Fears, Nomura Warns
- •Indian hospital stocks risk a deeper valuation reset if price controls on medicines and consumables tighten, according to Nomura.
- •Supreme Court criticism of high mark-ups on medicines triggered a sharp selloff in major hospital stocks like Apollo Hospitals and Fortis Healthcare.
- •The Supreme Court highlighted a cancer drug with an MRP nearly 10 times its acquisition cost and noted that 82% of medicines in India are non-scheduled, allowing for significantly higher mark-ups.
- •Nomura indicates that while the immediate earnings impact is uncertain, the risk to valuations is clear, with Indian hospitals trading at a 121% premium to global peers.
- •The brokerage suggests hospital profitability may be nearing its peak due to rising insurer bargaining power, tighter regulation, increased competition, and higher doctor costs.
Key Questions Answered
The selloff was triggered by Supreme Court criticisms regarding high mark-ups charged by private hospitals on medicines and medical consumables, specifically questioning why a cancer drug with an acquisition cost of around Rs 2,700 carried an MRP of Rs 27,000.
Following the 2017 stent price cap, Apollo Hospitals experienced immediate revenue and EBITDA compression in FY18, but the impact was fully recovered by the end of FY19 as the hospital offset lower stent pricing through higher procedural charges.
Between December 2019 and September 2026, average valuation multiples for Indian hospitals expanded by 81 percent while international hospital valuation multiples contracted by 30 percent, pushing Indian hospitals from a 22 percent pre-COVID discount to a 121 percent premium.
