India's Healthcare Sector Sees Robust Growth Amid Rising Patient Volumes

India's healthcare industry is experiencing a robust expansion, fueled by increased patient volumes and the addition of new hospital beds. According to Kotak Institutional Equities, the sector is expected to maintain its growth trajectory in the upcoming quarters, with profitability and margin expansion poised to benefit from rising occupancy rates at newly opened facilities.

Strong Financial Performance in Q1 FY27

The sector's promising outlook follows a successful first quarter of FY27, where Indian hospitals under Kotak's analysis reported a 21% year-on-year revenue increase and a 22% rise in EBITDA. The growth in average revenue per occupied bed (ARPOB) ranged from 5% to 14%, driven by higher patient volumes, improved pricing, and contributions from newly added beds.

All hospital companies covered in Kotak's report experienced double-digit sales growth during the quarter. Notably, Apollo Hospitals, Aster DM Healthcare, Medanta, and Rainbow Children's Medicare recorded revenue growth of 22%, 27%, and 33%, respectively. KIMS led the pack with a 35% increase, largely due to the expansion of its operations in Maharashtra, Kerala, and Karnataka.

Capacity Expansion and Margin Pressures

Despite the impressive revenue figures, the rapid addition of capacity has exerted pressure on margins. Operational beds increased by 15% year-on-year, with capacity beds up by 16%. This expansion led to ramp-up costs and losses at newly commissioned or acquired facilities, keeping the overall hospital EBITDA margin stable at 23%.

Kotak anticipates that these pressures will ease as newer facilities achieve higher occupancy rates, potentially improving profitability in the long term.

Diagnostics Segment Shows Strong Growth

The diagnostics sector also posted significant gains, with companies under Kotak's coverage reporting an 18% year-on-year sales increase and a 29% rise in EBITDA. This growth was attributed to higher test and patient volumes, better realizations, and sustained business-to-consumer traction.

Among the diagnostics companies, Dr. Lal PathLabs saw a 19% sales growth, while Metropolis Healthcare reported a 17% rise, with organic growth contributing approximately 16%.

Overall, India's healthcare services sector is demonstrating resilience and adaptability, with both hospitals and diagnostics companies capitalizing on increased demand and strategic expansions. As occupancy rates continue to climb and new facilities integrate into existing operations, the sector's profitability is expected to strengthen further.