Health risks for hospitals amid SC diktat, steep valuations

Others including Global Health (4.2%) which runs the Medanta chain of hospitals, Krishna Institute of Medical Sciences, Fortis Healthcare, and Apollo Hospitals shed up to 4.2%.While the Supreme Court’s move comes as a negative surprise for the hospitals, their rich valuations have triggered panic among the investors who have scurried to book profits in these counters.

Nuvama in a note said that this move could likely lead to strong resistance by private hospitals and it will be difficult to standardise treatment procedures with a one-size-fits-all move given the complexity varying on a case-to-case basis.

“If a middle ground has to be reached, a price range on non-complex procedures looks more probable. Until any clarity emerges, hospital stocks could remain volatile given rich sector valuations,” the Nuvama note said.

Meanwhile, Kotak Institutional Equities said that the SC diktat served as a reminder of regulatory risks.

The order comes on a public interest litigation (PIL) filed before the apex court where it has directed the central government that if it does not come out with a proposal for hospital rates in line with the Clinical Establishment Act (CEA) it will implement CGHS rates across hospitals as an interim measure. The Center has to come out with the proposal along with the states. Echoing a similar view, Kotak said that it will be very difficult to implement uniform pricing across hospitals. “Apart from practical challenges and the unavailability of uniform rates for prominent hospitals, implementation of this pan-India might also likely warrant a change in legislation, as only 12 states and 7 union territories (UTs) have adopted the Act,” Kotak said, pointing to a very low probability of implementation.Also Read: CG Power shares surge 11% after government’s nod to semi-conductor facility

However, this diktat creates an overhang amid steep valuations, it said further.

Companies having the highest exposure measured as a percentage of operational beds falling under states and UTs which have adopted the Clinical Establishment Act (CEA) are Medanta, KIMS, Rainbow, Apollo, Max, Narayana and Aster DM in the pecking order, the Kotak report said.

Kotak’s recommendations:

— Apollo Hospitals: ADD | Target: Rs 6,860 | Upside: 12%– Aster DM Healthcare ADD | Target: Rs 480 | Upside: 2%– KIMS: ADD | Target: Rs 2,275 | Upside: 1%– Narayana Hrudayalaya: REDUCE | Target: Rs 1,365 | Upside: 2%– Global Health: REDUCE | Target: Rs 1,160 | Downside: 15%– Max Healthcare: REDUCE | Target: Rs 705 | Downside: 11%– Metropolis Healthcare: REDUCE | Target: Rs 1,500 | Downside: 6%– Rainbow Children’s Medicare: REDUCE | Target: Rs 1,215 | Downside: 10%

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)