Healthcare stocks, just like pharma stocks have risen up to be among the most important sectors to watch out for investors. This sector witnessed added interest ever since the COVID-19 pandemic struck the world in 2020, pushing higher demand for services provided by healthcare and pharma stocks.
As a result, healthcare stocks in India have become an attractive option for investors who want to diversify their portfolio.
India's administration has launched various programs and initiatives to boost the healthcare industry. One such effort is the Ayushman Bharat scheme, which has the goal of offering health insurance to over 100 million households in the country.
Just like Pharma stocks, Healthcare shares are also benefiting from the recent rise in awareness for healthcare and related areas ever since the coronavirus pandemic.
Medical treatments abroad are extremely expensive, whereas India is quickly emerging as the top destination for medical tourism. Medical tourism essentially means people visiting the country for the sole purpose of getting treated for a serious illness for a cheaper cost.
Some of the top healthcare stocks in India include Apollo Hospitals, Max Healthcare, Fortis Group, Dr Lal Pathlabs among others. These companies have a strong presence in the Indian healthcare market and have shown consistent growth over the years.
Let’s have a look at what makes the aforementioned stocks some of the top ones in India.
The market cap of Apollo Hospitals is roughly Rs 62,300 crores, making it one of the biggest healthcare stocks in India. Notably, over the past five years the Apollo Hospitals share price has witnessed a mammoth growth of close to 285%. Moreover, for the financial year ended 31st March 2022, the company delivered impressive return ratios in the form of Return on Equity (19.1%), Return on Capital Employed (14.5%) and Return on Invested Capital (14.2%).
Max Healthcare has a market capitalization of about Rs 45,000 crores which makes it one of the leading healthcare companies of India. The company’s network of hospitals stands at 17 with 3,270 operating beds. Notably, for the year ended March 31, 2022, the company reported a total income from operations of Rs 51,710 crores, up 43.6% from the previous year while net profit for the same period came in at Rs 8,380 crores compared to a loss of Rs 950 crores in the previous year.
Dr Lal Pathlabs is one of the leading diagnostic companies of India having a market cap of close to Rs 16,000 crores. Notably, the share price has appreciated by close to 125% in the past five years, serving more than 100 million patients over the same time period. Additionally, the company has 277 labs spread across India with 31 NABL accredited labs. Also, it has 4,731 patient service centers at the end of December 2022.
Similar to pharma shares, healthcare stocks function in fiercely competitive markets and factors such as intellectual rights, growth potential, regulatory changes, sales numbers all form the basis of healthcare sector evaluation.
Furthermore, generic principles of valuation analysis and fundamental analysis of stocks such as revenue, profit, PE ratio, return on equity among others must be done. Let's have a deeper look at them.
The Indian medical and healthcare industry is one of the most regulated ones in the world. Before investing in any stock in this sector, a prospective investor should keenly analyze the regulations that can affect the smooth functioning of these stocks.
Consistent revenue growth over a considerable period, say 5 years, should be a characteristic of these companies. Moreover, revenue from operations or the core business should witness a steady growth as these revenues are considered to be persistent.
Net Profit Growth
The healthcare industry is characterized by high operating expenses in the form of beds, doctors fee, staff fees, electricity, machine fixed costs etc. In such a situation, an efficient company in this sector should be able to manage their expenses efficiently and effectively. This would result in net profit growth and creation of wealth for shareholders.
For those seeking portfolio diversification and growth potential in India's burgeoning healthcare sector, investing in healthcare stocks could be a strong fit. It's crucial, however, to understand that these stocks also carry risks, so assuming a long-term perspective and a willingness to take on risk is essential for investors weighing this option.