India’s insurance penetration rose to 41% in the financial year 2024, with most of the growth coming from government-backed insurance schemes. This marks a significant step in expanding healthcare access across the country.
According to a report from Asit C. Mehta Investment Intermediates Ltd. (ACMIIL), part of the Pantomath Group, India’s healthcare and hospital sector is now entering a phase of aggressive expansion. This shift comes after years of slow growth and consolidation.
New Hospitals Focus on Smaller Cities
A growing number of new hospitals are being planned and built in Tier 2 cities and beyond. Developers are moving outside the major metro areas to meet rising demand for healthcare in smaller cities and towns.
This trend reflects a long-standing imbalance in India’s healthcare system, where the need for services has often outpaced supply.
Sector Faces Mixed Financial Pressures
The hospital sector remains capital intensive, which affects its return on capital employed (ROCE). Compared to sectors like retail and consumer staples, hospitals continue to see lower ROCE due to high upfront investments in infrastructure and equipment.
However, the report notes that hospital operators benefit from higher operating margins. These stronger margins help offset the impact of large capital expenditures.
Hospital stocks have also seen a revaluation in the market. Analysts say this is justified, given the sector’s robust growth prospects and its ability to maintain healthy profit margins.
Challenges Ahead for Hospitals
Despite the positive outlook, the sector still faces some headwinds. Government price controls on healthcare services, affordability concerns, and competition from smaller single-specialty hospitals may put pressure on profits in the coming years.
These challenges are especially important as companies expand into price-sensitive regions.
Corporate Hospitals Lead the Expansion
Large hospital chains are leading the charge in the current wave of expansion. Backed by stronger balance sheets and increased awareness of healthcare after the COVID-19 pandemic, these corporate players are targeting underserved areas.
They are focusing on Tier 2 and smaller cities while still maintaining their presence in major urban centers.
Key Growth Drivers
Several factors are supporting the hospital sector’s growth. Rising insurance coverage—especially through public health schemes—is enabling more people to afford treatment.
India’s ageing population is also increasing the demand for healthcare services. Additionally, the country is becoming a hub for medical tourism, attracting patients from abroad for cost-effective treatment options.
Together, these trends are pushing India’s healthcare system into a new era of growth and investment.
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