With reference to potential expansion in India's healthcare industry, domestic brokerage HDFC Securities has begun covering healthcare companies. The firm has assigned a recommendation of 'buy' to both Apollo Hospitals and Medplus Health Services, with target prices of ₹850 per share and ₹7,030 per share respectively.

Furthermore, Max Healthcare Institute, Dr. Lal PathLabs, and Metropolis Healthcare have been rated as "add" by HDFC Securities, with price targets of ₹900, ₹2,700, and ₹2,010, respectively. The brokerage believes that the growing middle class in India, along with factors including aging populations, an increase in lifestyle-related disorders, increased knowledge of healthcare, and technology improvements, would propel the country's healthcare industry to further growth.

The country's healthcare system, which is mainly made up of hospitals (57% of all hospitals), diagnostic centers (8%), and retail pharmacies (19% of pharma share), is expected to grow at an 11–12% CAGR between FY23 and FY28, reaching an estimated ₹16.5–17.5 trillion by that year, according to the brokerage.

Hospital sector: Following the FY14–19 capital expenditure phase to increase bed capacities, the companies are now in an execution phase where they are concentrating on enhancing payer mix, occupancy, and case mix. This has resulted in a steady increase in ARPOB and the use of advanced technology to reduce ALOS, all of which have contributed to a notable increase in the hospital business's EBITDA margin.

The brokerage anticipates that this growth momentum will continue, with a focus on increasing occupancy throughout the network of hospitals and consistent rise in ARPOB. It is of the opinion that the upcoming capital expenditure phase, commencing in FY25, would bolster expansion; however, this time around, it is focusing on strategic expansion with an emphasis on the asset-light model, which may have a slight effect on profitability.

Diagnostic industry: The management of health and the avoidance, assessment, and treatment of illness depend heavily on diagnostics. It plays a part in all phases of the healthcare value chain, from diagnosing illness to monitoring and managing patients after treatment. The industry saw a fall in FY23, mostly as a result of a precipitous dip in COVID-19 and COVID-19-allied testing revenues. The ex-COVID industry saw expansion and revival.

Based on favorable macroeconomic conditions, global expansion, price increases for certain tests, volume recovery, and scale-up in the wellness and preventive care sector, the brokerage anticipates growth to normalize to 12–13% during FY23–26E.

It made clear that intense competition from well-funded online rivals like Reliance and Tata, as well as from established hospitals like Apollo, Aster, and Max, corporations like Lupin, and up-and-coming digital businesses, would probably continue to pose serious obstacles for traditional businesses.

Retail pharmacies: The firm estimates that the Indian retail market as a whole grew at a consistent 9% CAGR from 2018 to 2023, reaching a valuation of ₹76,066 billion. By 2027, it anticipates growing at a 10% CAGR to reach ₹1,13,399 billion. 

"Within the retail market, the retail pharmacy and wellness categories were 3% of India’s retail market at ₹2,272 billion in 2023, reflecting a CAGR of 10% over 2018–23 and is expected to see a CAGR of steady 12% to reach ₹3,575 billion by 2027," stated HDFC Securities. 

The firm anticipates that the pharmaceutical business share in the entire retail market will increase from 3% in 2023 to 3.2% in 2027 due to faster-than-industry growth.