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  • Feb 20, 2023 - Sinner or Saint, You Decide...a Sector for 2023 & Beyond

Sinner or Saint, You Decide...a Sector for 2023 & Beyond

Feb 20, 2023

Sinner or Saint, You Decide...a Sector for 2023 & Beyond

It was probably sometime in the year 1999. I vividly recall a conversation with my college batch mates, Vishal and Gaurav.

As always, the discussion was what all three of us were most passionate about - the stock market!

It was no different that day as we sat there sharing our thoughts, predictions, and recent stock investments.

But the highlight of that particular day was a heated debate between both Vishal and Gaurav over whether or not to invest in "Sin Stocks" and more peculiarly, the very definition of such stocks.

A "Sin Stock" is stock of a company that is associated with or is directly involved in, activities considered unethical or immoral. These could be gambling stocks such as Delta Corp or tobacco stocks like ITC.

Vishal believed that investing in hospital stocks was a sin just like buying shares of a cigarette manufacturer.

In his opinion, these companies depended on people being unwell, or rather profited based on the hope that more people were hospitalised or required medical procedures.

On the contrary, Gaurav, a proponent of hospital stocks was of the view that hospitals saved lives and were justified in earning profits from it.

He argued that India lacked hospital infrastructure for a majority of the population and hospital & healthcare companies were in fact the need of the hour. Hence, he found it offensive that such stocks could be labelled as sin stocks.

Further, Gaurav had recently invested Rs 50,000 in a hospital stock. He believed the industry had a lot of potential to grow.

As we grow older and usually a little wiser, we realise the thing with morality, is that there is no universally accepted definition of what is or what is not ethical or moral.

In discussing sinful investing, there is some grey area in defining a stock as sinful.

After a long argument, there was no real winner. Or at least, that's what I thought at the time...

Back to the present day.

I bumped into Gaurav at the airport last week. Coincidentally, we were on the same flight.

Over the course of the next few hours, we ended up reminiscing about the old times. It had been almost two decades since we had met.

At some point, we ended up discussing stocks again and we recalled that debate almost 24 years ago. I casually asked him what had happened with his investment. What followed next blew my mind.

That investment of Rs 50,000 in the hospital stock has grown exponentially to over Rs 20 million (m) at current market price.

Surprisingly, Gaurav continues to hold on to it as he still sees a lot of room for growth!

This got me thinking... first, should one have a notion of ethical and unethical investing in the markets? After all, everyone's notion of "sin" differs.

And aren't we always told that there is no room for emotions in the stock market?

Second and more important, while we always talk about auto, pharma, IT, infrastructure and in recent times, renewables, electric vehicles, and defence stocks, I suddenly realised that no one seems to talk much about hospital stocks.

But even then, this hospital stock has delivered a multibagger return of an incredible 41,000% over 23 years.

This week, I decided to check out this "backstage" industry and its leading stocks including Gaurav's massive winner. I wanted to see what the hype was about. The results were interesting.

Hospital Stocks: More than Just Patient Care

Everyone seems to agree that there is huge scope for sectors such as electric vehicles, renewable energy, defence among others going forward.

But if you were to think of it, healthcare, particularly hospitals, should be right up there among these hot sectors.

Here's why... Look around you. Do people seem to be getting healthier? Unfortunately, it's the very opposite...

Lifestyle disorders are on the rise due to a combination of rising incomes, accelerated pace of urbanisation and increased life expectancy.

Unhealthy eating habits and fat consumption is on the rise, which alongside reduced physical activity, is leading to an upswing in obesity, cardiovascular diseases, respiratory problems, and cancer.

An ageing population with a growing middle class and greater longevity is also bound to increase the demand for health services in India.

Additionally, an increase in the prevalence of lifestyle or chronic diseases, coupled with higher purchasing capacity, will enhance the demand for specialised healthcare.

Further, India is a preferred destination for Medical Value Travel (MVT) where patients from all over the globe come to. This is growing and has potential to become a huge opportunity and is expected to reach US$13.4 billion (bn) by 2026.

In terms of both employment and revenue, healthcare has grown to be one of India's most important industries over the last few years.

Hospitals, medical equipment, clinical trials, outsourcing, telemedicine, medical tourism, health insurance, and other related services make up the healthcare industry.

Due to its expanding coverage, services, and rising investment by both public and private entities, the Indian healthcare system has been expanding quickly.

The overall healthcare market was valued at Rs 21.1 trillion (tn) in FY 2021. It is estimated to reach Rs 110.2 tn by FY 2027.

The hospital industry in India accounts for 80% of the total healthcare market with annual revenues likely to grow robustly over the next few years due to rising domestic demand for healthcare as well as medical tourism.

But hasn't all this already been priced into these hospital stocks? After all, some of these stocks are currently trading at very healthy valuations.

Savvy investors like Gaurav were able to foresee this great boom decades ago and they have made a killing betting on stocks of such companies.

So, just like me, you too might be wondering, what now? Isn't it too late to join in now, after such a sharp run up in valuations over the years...

Not necessarily... While these stocks cannot possibly grow by another 40,000% over the coming decade or two, there may still be room for significant growth in the coming years.

Healthcare Stocks: Dare to Compare

First, the leading hospital players have established themselves in Delhi, Mumbai, Chennai, and Kolkata. They are now expanding into Tier-2 and Tier-3 cities such as Nashik, Indore, Visakhapatnam, Jaipur, Mohali, Surat, and Dehradun.

Lesser competition and lower real estate prices in these cities will provide these companies a distinct advantage.

Second, up to 65% of health facilities are concentrated in a handful of large cities across the country, catering to almost 50% of the population.

Only 35% of hospital beds are available to the other 50% of the population, who reside in the remaining states. To ensure that all individuals in the nation have equitable access to healthcare, it is only logical that hospital beds must increase significantly.

An additional 3 million beds will be needed for India to achieve the target of 3 beds per 1,000 people by 2025.

Presently, 30-35% patients in India undergo surgery compared to 60-65% globally. Similarly, only 15-20% of patients in India undergo radiation therapy as against 40-50% globally.

The scope for growth is just enormous.

Next, Medical Value Travel (MVT) is a US$600 bn industry and India can get substantial value from this.

India is already among the top 10 wellness tourism markets globally due to world-class hospitals, skilled medical professionals, superior quality healthcare and low treatment costs in comparison with other countries.

Another recent development that augers well for the hospital companies is their decision to go international.

Leading hospital chains are trying to reverse the medical tourism model, by speeding up direct entry into geographies such as the Middle East, Southeast Asia, Africa, and the rest of South Asia that are the sources of patients to India for various ailments.

The hospital industry in India is witnessing huge demand from both global and domestic investors.

The government's plans to increase budgetary allocation for public health spending to 2.5% of the country's GDP by 2025, is also expected to benefit the hospital sector.

Finally, based on management comments of the leading players, above all, the capital expenditure cycle is over or coming to an end for most healthcare companies and it is now time to reap the gains.

The coming years will herald a boom for the Indian healthcare industry. This will catalyse a win-win situation for healthcare companies and healthcare-seekers.

Here are the top 3 hospital stocks that one must watch out for.

#1 Apollo Hospitals Enterprise Ltd.

Established 40 years ago, today, Apollo Hospitals is Asia's foremost integrated healthcare services provider and is present across the healthcare ecosystem, including hospitals, pharmacies, primary care & diagnostic clinics.

The Group also has telemedicine facilities across several countries and health insurance services. It has got a digital presence with ASK Apollo & a digital health platform Apollo 24/7.

Apollo Hospitals is the exclusive supplier for Apollo Pharmacy Ltd, which operates India's largest standalone pharmacy chain with 5,000+ outlets.

Apollo Health & Lifestyle runs the largest chain of standardised primary healthcare models, multi-specialty clinics under the brand, Apollo Clinics in India, and Middle East.

Apollo Hospitals is miles ahead of the competition with 72 hospitals, over 12,000 beds, 5,000 pharmacies, and 1,500 diagnostic centres.

Moreover, it is planning to add 2,000 beds over the next 3-4 years and 800 pharmacy stores with a target to open 6,500 stores by 2025.

The company has entered into a 10-year commercial agreement with Amazon India, which is likely to aid in scaling up its customer base.

It is looking to increase its revenue contribution from international patients to 10% in FY23 and 15% in FY24 from the earlier level of 6%.

Apollo has been undergoing a transformational journey towards creating an omni-channel healthcare company that could set the platform for tapping new age investors enabling rapid scale up of the digital healthcare platform.

This has got many analysts excited as it is expected that Apollo Health & Lifestyle, the company's largest engine of growth may now break even shortly after significant cash burn over the last few years.

Optimistic management commentary projecting a breakeven for Apollo Health by the second half of the next financial year and a peak burn rate in the December 2022 quarter also indicates that the capex cycle is coming to an end.

This should boost profitability going forward.


Over the last 5 years, consolidated revenue has grown at a CAGR of 12.2% while profits have zoomed registering a CAGR of 55%.


The stock has gained 286% over the last 5 years rising from Rs 1,200 levels to the current market price of Rs 4,614.

For those of you wondering which stock Gaurav made a fortune in, look no further. It was this very stock. In 1999, Apollo Hospitals traded at under Rs 25 levels (the company announced a stock split from Rs 10 to Rs 5 in the year 2010).


Over the next 23 years, the stock gained a phenomenal 53,800% touching a life time high of Rs 5,930 in November, 2021. Since then, it has corrected and currently trades around 4,600 levels.

Apollo Hospitals is the first and only hospital company to be included as a member of the Nifty 50 stocks list since March 2022.

#2 Max Healthcare Institute Ltd.

Max Healthcare Institute Limited is India's second largest hospital chain operator with 17 healthcare facilities and over 3,400 beds across NCR, Delhi, Haryana, Punjab, Uttarakhand, and Maharashtra.

The company also has two strategic business units called Max Lab (non-captive pathology diagnostic services) and Max@Home in addition to its primary hospital business.

Through Max Lab, the company provides diagnostic, pathology, radiology, radiation oncology, and clinical services, in select specialties and departments to its Partner Healthcare Facilities and Managed Healthcare Facilities.

Analysts believe Max Healthcare has enormous growth potential as it enters its expansion phase and increases capacity over the next 5-7 years.

Max Healthcare is the first hospital chain to have been promoted and governed by private equity experts with a clear profit motive and having doctors provide their professional services at the company's hospitals.

In recent times, Max has completed four deals that might result in the addition of 2,200 beds in the coming years.

This includes exclusive rights to support the construction and offer medical care to a new 500-bed hospital in Saket, as well as the purchase of two land lots in Gurugram with the potential to add 1,000 beds.

The group which has land banks in cities including Mumbai and New Delhi plans to double its capacity by investing Rs 40 bn over the next four years. The capex outlay is to be spent largely through internal accruals.

In recent news, the group is eyeing Kolkata-based Emami Group's AMRI Hospitals with an offer of Rs 27 bn buy the AMRI chain in order to strengthen its position in the east.AMRI operates three super-specialty hospitals in Kolkata, as well as one in Bhubaneswar. The chain's hospitals have a total capacity of 1,200 beds.


Revenue has grown 271% from Rs 10.5 bn in 2020 to Rs 39.3 bn in the financial year ended 2022. Profit on the other hand has seen an exponential growth of 926% from Rs 590 m to Rs 6 bn for the same period.

The momentum has spilled over in the current financial year. For the 9-month period ended December, 2022, the company has reported revenue of Rs 33.4 bn. Profit at Rs 8.5 bn is already higher than the 12-month profit for the previous year.


Since its debut on the bourses in August 2020 at Rs 112, the stock has been an outperformer having risen 287% since then and currently trades at Rs 430 levels.

#3 Fortis Healthcare Ltd.

Fortis Healthcare Limited is one of the largest healthcare organisations in India with 36 healthcare facilities (including projects under development) and 4,000 operational beds.

SRL Ltd, a subsidiary of Fortis Healthcare, is among the leading diagnostic laboratory chains with an established strength of over 425 laboratories, 20+ radiology & imaging centres, and a footprint spanning 2250+ customer touch points.

The company is present in India, United Arab Emirates (UAE) and Sri Lanka. It employs 23,000 people. Fortis offers a full spectrum of integrated healthcare services from clinics to quaternary care facilities and a wide range of ancillary services.

Fortis plans to add approximately 1,500 beds over the next 3-5 years in the company's key geographic clusters which are Delhi, NCR, Maharashtra, Bengaluru, and Kolkata.

IHH Healthcare Berhad (IHH), a Malaysia based company acquired 31% stake in Fortis Group in 2018 and has been classified as the promoter of Fortis Group.

IHH was required to make an open bid to purchase a further 26% of the company's shares from the market.

However, Japanese pharmaceutical company Daiichi Sankyo challenged IHH's proposed acquisition of Fortis in an effort to hold the Fortis promoters accountable for an arbitration award of Rs 36 bn resulting from a fraud claim. Hence, the Supreme Court halted the IHH-Fortis agreement.Due to ongoing court processes, the open offer has since not been implemented.

IHH Healthcare Berhad is a leading premium healthcare provider operating in the home markets of Malaysia, Singapore, Turkey, and India. IHH provides a full spectrum of integrated healthcare services.

Fortis healthcare's association with IHH has provided an opportunity to gain from international experience and world class standards in patient care.

With IIH fully committed to Fortis and India, the company has been looking at potential targets to acquire as it is in a position for massive expansion but awaits its legal issues to get over.

Hence, despite Fortis being well positioned in terms of finances, analysts believe that the company's near future plans, might have to be put on hold.

That explains the lacklustre performance of the stock over the last few months.


While the stock rose from Rs 133 in January 2020 to Rs 300 in in August 2021, it has been unable to break out any higher.

Ever since, the stock has been rangebound trading between Rs 220 and Rs 300 levels. The current market price of the stock is Rs 268.


In FY 2022, the company reported a strong turnaround with a profit of Rs 5.5 bn as compared to a loss of Rs 1.1 bn in the previous year. This was on the back of a sharp revenue growth of 42% from Rs 40.3 bn in FY 2021 to Rs 57.1 bn in FY 2022.


The idea that avoiding "sin" stocks makes the world a better place is questionable. First, everyone has their own notion of what is right and wrong.

Second, buying a stock is not the same as giving money to the company.

Be it vice or virtue, we must choose for ourselves and not just blindly follow the crowd.

When it comes to hospital stocks, there seems to be tremendous growth opportunities in the Indian healthcare sector.

India's population in the 50+ age group exceeds 270 m people and this is expected to grow to over 310 m by 2031 making it the fourth largest in the world in terms of age category.

Hence, healthcare, medical products and service consumption in this age group is expected to create huge potential for the sector.

Currently, the country's hospital segment is under-invested which again creates the potential for significant investment and expansion in this sector.

Apart from hospital chains, pharma chains and diagnostic centres of these hospital companies may also see strong growth considering the rising demand for the same.

It is worth noting that markets may have priced in these factors pushing prices of hospital stocks to multi year highs.

For instance, Apollo Hospitals commands a PE of over 85 currently. However, the company's managing director, Suneeta Reddy believes the hospital chain is worth more than twice the valuation it currently commands.

Hence, as with any equity investment, one should do their own your due diligence and arrive at their own conclusions before making any investment decisions.

All in all, this sector might be worth looking at over the coming years.

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Yazad Pavri

Yazad Pavri
Cool Dad, Biker Boy, Terrible Dancer, Financial writer
I am a Batman fan who also does some financial writing in that order. Traded in my first stock in my pre-teen years, got an IIM tag if that matters, spent 15 years running my own NBFC and now here I am... Writing is my passion. Also, other than writing, I'm completely unemployable!

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