Hospital Shares Slip for Second Session Amid Medicine Pricing Issues; Apollo, Max Feature in Top Nifty Losers

Shares of hospital companies came under pressure again on Thursday, October 1, on continuing worries over possible government move towards regulation of medicine mark-ups by private hospitals. 

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Apollo Hospitals Enterprise and Max Healthcare Institute are some of the major losers during early trade along with featuring among the top Nifty 50 laggards as a result of Supreme Court's observations made this week regarding medicine price issues in hospitals. 

Apollo Hospitals, Max Healthcare Extend Losses 

Apollo Hospitals Enterprise shares declined 2.3% to trade at Rs 7,978 in early trade, whereas Max Healthcare Institute lost 2.2% to trade at Rs 909.05. 

The sell-off was also evident in shares of other hospitals with Krishna Institute of Medical Sciences (KIMS) down 2.8% at Rs 725.85. Fortis Healthcare is also down 2.2% at Rs 753. 

Aster DM Quality Care shares are down 1.4% to Rs 687.60. Shares of Yatharth Hospital & Trauma Care Services are also down 0.3% to Rs 1,029.10. 

The broader healthcare space saw relatively modest losses in comparison. The Nifty Healthcare index was down 0.4%, while the Nifty Pharma index slipped 0.1% in early trade. 

At 9:16 am, the Sensex was down 120 points, or 0.17%, at 72,360. The Nifty declined 56 points, or 0.25%, to 22,564. Market breadth remained weak, with 911 shares advancing against 1,474 declining. 

Supreme Court Observations Put Medicine Mark-Ups in Focus 

The latest decline came after hospital stocks saw a sharp sell-off in the previous session following the Supreme Court’s observations on medicine pricing. 

The court expressed concern over steep mark-ups on medicines sold by hospitals and questioned whether a uniform margin of 16% could be applied. 

During the proceedings, the court referred to a cancer medicine carrying an MRP of Rs 27,000 even though its price to retailers was Rs 2,700. It also raised concerns about hospitals requiring patients to buy medicines from their in-house pharmacies. 

The observations led to widespread selling in hospital shares on Wednesday. 

Apollo Hospitals ended the previous session 6.6% lower, while Fortis Healthcare lost 6.9%. Max Healthcare declined 5.8%, Aster DM Quality Care fell 5.2%, and Yatharth Hospital dropped 7.6%. KIMS ended 3.2% lower. 

The Nifty Healthcare index had fallen 2.6% in the previous session, while the Nifty Pharma index declined 1.8%. 

Brokerages Await Clarity on Possible Impact 

The eventual financial impact remains uncertain and would depend on the extent and form of any regulatory intervention. 

Jefferies estimated that medicines and consumables contribute around 15-20% of hospital revenue. Under different price-cap scenarios, the brokerage estimated a potential EBITDA impact of 2-5%, assuming hospitals are unable to pass on the impact. 

Jefferies maintained its positive view on the sector and noted that previous regulatory concerns had typically resulted in periods of consolidation in hospital stocks. 

HSBC also identified possible pricing intervention as a concern for the sector. At the same time, it noted that the impact on the ground remains uncertain and that further regulatory developments need to be monitored. 

For now, the issue has not resulted in a binding price-control order. The uncertainty surrounding what could follow, however, continued to weigh on hospital shares for a second consecutive trading session.