If you’ve been watching India’s hospital stocks lately, you’ve probably felt the rush. A steady stream of expansions, improving margins, double-digit EBITDA growth and digital upgrades make the sector look like a textbook defensive-plus-compounding bet. 

Demand is structural. Pricing is flexible. Competition is manageable.

But as with many things in India, the story isn’t just what’s happening. It’s how it’s being built. And in the case of hospitals, what’s being built today might not fully solve the problem investors think they’re buying into.

Let’s start with what the market sees.

A Sector in Growth Mode

In Q4FY25, hospitals (in the listed space), on average, posted 14.7% YoY revenue growth and around 20% EBITDA growth. ARPOBs, the all-important average revenue per occupied bed, rose across the board. KIMS Hospitals saw a 21% jump, Fortis Healthcare clocked 8%, Apollo Hospitals 5% and even Narayana Hrudayalaya, with its famously low-cost model, nudged up 3%.

Operating leverage is kicking in. Profit grew as margins expanded despite the new hospital drag. Management commentary is confident, even exuberant. Apollo plans to add 4,300 beds in the next few years. KIMS expects to grow its capacity 45%. Jupiter has its eyes set on Thane, Pune and Dombivli expansions. Fortis, Medanta and Max Healthcare are all in some phase of capital deployment.

The structural case is clear: India has just 1.3 beds per 1,000 people. The WHO recommends 3. 

The private sector owns just ~25% of hospital beds, but handles 60–70% of tertiary care. 

Add ageing demographics, lifestyle diseases, rising insurance penetration, and government schemes like Ayushman Bharat, and you’ve got a robust demand engine.

But before rushing to buy hospital stocks, investors need to ask: What exactly are we paying for?

The ARPOB Arms Race

Hospital chains are increasingly relying on ARPOB expansion to drive earnings. Max Healthcare now boasts an average revenue per patient stay of Rs 77,100, the highest among peers. Apollo is at Rs 63,569, Fortis at Rs 59,870. These levels have steadily moved up over the past few years.

At first glance, this seems positive: stronger case mix, more surgeries, better insurance coverage. But a high ARPOB strategy hinges on two assumptions: sustained demand from higher-income urban patients and minimal government intervention.

Neither is guaranteed.

A large chunk of India’s population is still underinsured or reliant on capped schemes. Reimbursement rates under Ayushman Bharat are far below private hospital ARPOBs. And with rising public pressure, regulatory controls on prices of implants, drugs, and services may tighten. The bigger the hospital chains grow, the more likely they’ll come under scrutiny.

Occupancy Drag Is Real

There’s also the issue of capacity addition outpacing utilization. KIMS saw its occupancy drop to 48% after adding new beds in Nashik and Vizag. Jupiter Life Line added 78 beds in Indore in January and occupancy in the hospital fell to 40–45%. While these additions are meant to capture future demand, they bring short-term margin pressure.

This raises a red flag: revenue growth today might be masking underperformance in newer assets.

Most companies project breakeven in 18–24 months for greenfield assets. But in Tier 2/3 markets, ramp-up can take longer, especially without established local trust, adequate specialists, or tie-ups with insurers. If growth slows or costs rise, that payback period stretches, impacting returns on capital.

Capital Allocation Discipline Will Be Key

Hospitals require heavy upfront capex — Rs 7–20 million per bed on average. Medanta has kept this lower (~Rs 4.7 million per bed), thanks to leased land and revenue-share models. But as companies expand into new cities, land and construction costs can balloon.

Not all management has shown the same level of discipline. The temptation to chase size and brand value, especially with public listings and ESG interest, can lead to value-destructive capex.

In an environment where returns on incremental capital deployed are closely watched, brownfield expansions with faster payback may offer better IRRs than glitzy greenfield projects.

Tech: A Selling Point, Not a Differentiator

Nearly every hospital chain is talking up its digital transformation:

  • Apollo has its HealthCo platform and diagnostics integration.
  • Medanta has mobile apps and digital OT notes.
  • Narayana’s ATHMA and AADI platforms offer real-time vitals, nurse dashboards, and analytics.
  • Metropolis and Dr Lal are digitizing test reports and sample tracking.

These moves are necessary, but they don’t create competitive moats. Tech is no longer a differentiator; it’s table stakes. It may help reduce cost per patient, but unless it translates into materially higher occupancy, lower turnaround times, or better outcomes, the long-term value impact is modest.

The real differentiation still lies in cost structure, clinical talent, doctor loyalty, and patient trust.

What About Medical Tourism?

India remains a top destination for global patients seeking low-cost surgeries. Some hospital chains, particularly Medanta and Apollo, benefit from this. But medical tourism is sensitive to global events, currency swings, and visa regimes. It’s a good margin booster, not a core business model.

Over-relying on foreign patients, especially when Indian demand is underserved, could backfire in the long run.

So, Should You Buy?

The fundamentals are sound. Hospitals offer:

  • Steady compounding revenue growth (10–15% CAGR)
  • High operating leverage
  • Structural demand visibility
  • Pricing flexibility in core services
  • Growing insurance penetration
  • Defensive sector appeal

But at current valuations, much of this seems priced in. Stocks like Max and Apollo trade at 40–50x FY26 earnings. Even Narayana, the most capital-efficient player, is nearing 50x. That leaves little margin of safety.

Moreover, regulatory risks are rising. Price controls, insurance scheme limits and GST on health services are all wild cards.

Bottom Line

Investors need not avoid the sector. But they do need to be selective. The hospital space isn’t a uniform growth story; it’s a mix of premium infrastructure chasers and disciplined operators.

The smarter bet may be on hospital chains that:

  • Stick to simpler, replicable formats
  • Focus on brownfield expansion over capital-heavy greenfield builds
  • Maintain lean cost structures without relying on ultra-high ARPOBs to make their math work
  • Prefer operating leverage and throughput over brand-building or luxury formats
  • Show a clear path to profitability in new units within 18–24 months
  • Have a strong execution record in Tier 2/3 cities without margin dilution

Think of it this way: the Apollo–Max model is built for dominance and brand; the Narayana–KIMS model is built for scale and efficiency.

Both can work, but at lofty valuations, investors should ask: Is the market already pricing in the next five years of growth?

Because in this market, more beds don’t always mean a better business.

Disclaimer

Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information. 

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. 

Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s) and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein.  The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors.  Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.