Apollo Hospitals, Fortis, Max Health: Hospital stocks remain under pressure; what exactly is the issue?

Hospital and healthcare stocks remained under pressure in early trade on Thursday, October 1, following a steep correction in the previous session as investors continued to assess the potential impact of tighter regulation on medicine mark-ups at private hospitals.

The selling pressure comes after the Supreme Court raised concerns over steep mark-ups on medicines and asked the government to examine the issue, including the possibility of a uniform margin on medicines.

The developments have raised concerns over the potential impact on pharmacy-related revenues and profitability for hospital chains, keeping stocks such as Apollo Hospitals, Fortis Healthcare and Max Healthcare under pressure.

The matter is scheduled to come up for further hearing on October 12.

A mark-up on a drug is the extra amount added to the cost of a medicine before it is sold to the patient.

What exactly is the issue?

The Supreme Court has raised concerns over steep mark-ups on medicines sold by private hospitals, particularly cancer drugs. The court highlighted an instance where a cancer drug supplied to retailers for around ₹2,700 was reportedly sold at an MRP of nearly ₹27,000, describing such pricing practices in strong terms. It has asked the Centre to consider whether a uniform 16% margin should be allowed on medicines to curb excessive pricing and reduce the burden on patients and taxpayers.

The court also raised concerns over corporate hospitals requiring patients to buy medicines from their in-house pharmacies, potentially limiting their access to cheaper alternatives outside the hospital. The bench further questioned whether pharmaceutical companies are the main beneficiaries of such high mark-ups, or whether hospitals are capturing a significant portion of the difference.

The matter is being heard in petitions seeking stricter price controls under the Drugs (Prices Control) Order (DPCO), along with action against alleged overpricing and the non-prescription of generic medicines.

What analysts say on hospital stocks

Most analysts remain broadly constructive on Indian hospital stocks despite the recent correction triggered by regulatory concerns around medicine and consumable pricing.

BofA and Jefferies view the correction as potentially short-lived, while HSBC sees pricing control as a key headline risk but remains uncertain about any on-ground changes.

Macquarie estimates that medicines, consumables and implants account for around 21% of private hospital revenues and says changes in medicine pricing could have a meaningful impact on sector profitability.

BofA

BofA said the correction driven by regulatory news flow tends to be short-lived and believes the risk from the Parliamentary Committee’s recommendations is low probability. It noted that drugs and consumables account for around 25-30% of tertiary care bills, while a large part of pharmacy drugs have regulated margins of 16-20%.

BofA also pointed out that increasing insurance penetration has led to package or bundled pricing for procedures, where product- or service-specific margins are not separately disclosed. The investment firm reiterated its Buy rating on Apollo Hospitals and Fortis Healthcare, while maintaining a Neutral rating on Max Healthcare.

HSBC

HSBC said pricing control or any other government intervention remains a key market concern for hospitals. It considers pricing control a headline risk, although it remains uncertain whether there would be any changes on the ground.

The investment firm said current discussions pertain to drug pricing in government channels only and that it will watch for further developments. Max Healthcare, Fortis Healthcare, Global Health (Medanta), and Narayana Health have revenue exposure of 17-21% to government schemes, while Aster and Apollo Hospitals have exposure of 9-11%. Manipal Health has 14% exposure to CGHS and other government health programmes. HSBC prefers Aster and Apollo Hospitals.

Macquarie

Macquarie said the cost of medicines, consumables and implants accounted for around 21% of private hospital revenues on average in FY26. As companies do not separately disclose pharmaceutical-related costs, the investment bank estimates that approximately two-thirds of this is attributable to pharmaceuticals.

Its sensitivity analysis suggests that changes to medicine pricing and margin structures could have a meaningful impact on sector profitability, with potential EBITDA implications ranging from the high-single digits to double digits. Macquarie assumes that hospitals will be able to offset 60% of the revenue impact through repricing of treatment packages and other service components.

The next Supreme Court hearing in the matter is scheduled for October 12.

Jefferies

Jefferies said hospital stocks corrected sharply amid regulatory concerns around consumables and oncology drug pricing. It estimates these categories account for 15-20% of hospital revenue and calculates an EBITDA impact of 2-5% under various price-cap scenarios and assuming hospitals are unable to pass on the impact.

The brokerage noted that past regulatory overhangs have led to stock consolidation but have typically proved to be attractive entry points in a sector with strong fundamentals. Jefferies maintains a Buy view on hospitals.

Axis Capital

Axis Capital said pharmacy remains a high-margin area for hospitals and is therefore likely to remain exposed to regulatory scrutiny. However, it believes the mark-up example cited by the Supreme Court is an exception rather than the norm.

The investment bank believes some recommendations of the Parliamentary panel may be considered. It estimates that hospitals generate around 15-17% of inpatient revenue, or around 12-15% of total revenue, from medicines.

KIMS has a higher pharmacy revenue contribution of around 20-22%, which is at the higher end of the industry average. Overall, Axis Capital estimates that hospitals generate around 15% of their revenue from inpatient pharmacy.

How stocks were performing in early trade

The NIFTY Healthcare index dropped 2.57% on Wednesday, September 30. At 10:19 AM, the index was trading 0.03% lower at 16,132.75.

Apollo Hospitals Enterprise was down 1.44% to ₹8,048 on the NSE, while Fortis Healthcare traded 1.87% lower at ₹755.60.

Max Healthcare Institute was also down around 1% at ₹920.80 on the NSE.