The market cap of the Indian hospital sector surged 9 times from Rs 375 billion in FY20 to Rs 3.5 trillion in FY24 riding on improved pricing, higher insurance coverage, and dedicated shift towards complex surgeries such as transplants, a report showed on Monday.

Apart from the momentary Covid boost, there were many structural changes in the Indian healthcare space like increased health awareness, higher insurance coverage, growing acceptance towards modern hospital experience and price hikes, thereby leading to improvement in EBITDA, return on invested capital (ROIC) and cash flows, according to the report by JM Financial Institutional Securities Ltd.

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“This has brought in a lot of investor interest with eight hospitals raising Rs 36 billion (equity raise) over the last four years,” the findings showed.

With operating cash flow (OCF) generation of large listed players rising (Rs 60.5 billion in FY24 vs Rs 24 billion in FY20), there is a new capex cycle emerging.

“It is in this expansion phase, we prefer players that are diversifying, aligned with core philosophy, focusing on growth plus profitability and are available at reasonable valuations,” the report mentioned.

The hospital chains account for only 11-23 per cent of beds across key cities while small format hospitals (which may or may not sustain in the longer run) form the majority of beds at present.

Moreover, cities that are seeing good bed capacity addition, their population is also growing at a 3-3.5 per cent rate which can absorb sizable bed addition, said the report.

“Delhi-NCR is attracting the highest bed supply which will get absorbed, in our view, due to low bed density, a large catchment area and international patient footfalls,” the report noted.

The cities with high-bed density like Hyderabad and Bengaluru are seeing bed expansion in new neighbourhoods/outskirts (HITEC in Hyderabad and Electronic City in Bengaluru) and not in central-city areas. “Our analysis of 15 cities indicates that upcoming bed addition is unlikely to lead to lower occupancy for coverage universe; we believe investor concerns should be more focused on Hospital’s indiscipline approach to growth, overpricing, departing from core philosophy, over leverage and valuation,” the report noted.