India's hospital chains grow bigger even as expansion squeezes margins: EY

Rising occupancies, more complex treatments and steady patient volumes are driving growth across hospitals and diagnostics. The next challenge is managing costs while adding thousands of new beds

India's healthcare industry is entering a new growth phase as hospital chains add beds, expand into new markets and strengthen existing networks despite short-term pressure on profits, according to an EY report.

 

According to EY's Healthcare Newsletter: Q4FY26 and FY26 Update, hospitals and diagnostics companies continued to post healthy revenue growth in FY26, helped by higher occupancies, rising patient volumes and a growing share of specialised treatments. At the same time, many companies are stepping up investments in new hospitals, brownfield expansions and acquisitions, reflecting confidence that demand for organised healthcare will remain strong in the years ahead.

 

What is driving the healthcare boom?

 

 

According to the report, unlike earlier phases when pricing drove growth, hospitals are increasingly benefiting from higher patient volumes and a richer treatment mix. Apollo and Max Healthcare reported 16 per cent revenue growth in FY26, while Fortis, KIMS and Medanta also posted double-digit growth.

 

The report finds that hospitals are treating more patients requiring specialised procedures in areas such as oncology, cardiology, neurosciences and organ transplants. These treatments typically generate significantly higher average revenue per occupied bed than routine medical care.

 

Aster DM Healthcare, for example, said cardiology and oncology together contributed nearly a quarter of its revenue after recording growth of 25 per cent and 23 per cent respectively during the year.

 

Most leading chains reported occupancies ranging between 60 per cent and 75 per cent during FY26. Max Healthcare maintained occupancy at around 76 per cent, Apollo at 67 per cent, Fortis at 68 per cent and Medanta at 62 per cent. Such occupancy levels help hospitals absorb fixed costs while leaving room for future growth. 

Infographic created using ChatGPT

 

Why are hospital chains expanding so aggressively?

 

Apollo plans to add around 3,400 beds between FY27 and FY30. Medanta expects to add about 2,700 beds over the next three to four years. Fortis plans another 1,800 beds, while the combined Aster DM and Quality Care platform intends to add roughly 4,445 beds. Max Healthcare is expanding across multiple cities including Lucknow, Pune, Dwarka and Dehradun, while KIMS is building new hospitals in southern India.

 

Companies are increasingly using brownfield expansions, operations and management agreements, and acquisitions to grow faster while deploying less capital. EY identifies this as one of the defining themes shaping the sector today.

 

Brownfield projects add capacity within existing campuses, reducing costs and allowing faster monetisation.

 

Why are profits coming under pressure?

 

The report says almost every major hospital chain showed that newly commissioned facilities temporarily reduced profitability because new hospitals typically operate below optimal occupancy during their initial years.

 

Apollo's hospital margins declined marginally because of pre-opening losses from four new hospitals. KIMS reported lower earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins after commissioning hospitals across Maharashtra, Karnataka and Kerala. Medanta's margins were affected by the ramp-up of its Noida facility, while GPT Healthcare and Jupiter Life Line also highlighted start-up costs from new hospitals.

 

What is driving growth in diagnostics?

 

Companies such as Dr Lal PathLabs, Metropolis, Thyrocare and Vijaya Diagnostics continued to report healthy revenue growth, supported by increasing test volumes, wellness packages and specialised testing.

 

Metropolis reported 24 per cent revenue growth in FY26, while Thyrocare grew 21 per cent and Vijaya Diagnostics nearly 19 per cent. Dr Lal PathLabs expanded revenue by about 12 per cent while maintaining Ebitda margins of around 28 per cent.

 

Rather than depending solely on traditional pathology tests, companies are expanding into preventive health check-ups, genomics, wellness testing and specialty diagnostics, areas that generally offer higher margins.

 

Network expansion also remains aggressive. Metropolis now operates more than 5,000 collection centres across 750 towns, while several players continue to add laboratories and customer touchpoints across smaller cities.

 

Why are investors still betting on healthcare?

 

Despite geopolitical uncertainty, EY says investor sentiment remains positive, with private equity activity staying healthy and several companies preparing for IPOs. Although healthcare deal activity slowed in Q4FY26 from the previous quarter, the report expects activity to pick up in the first half of FY27 as investors continue to view healthcare as a defensive sector.

 

The latest results indicate that India's organised healthcare industry is shifting from consolidation to expansion. Demand is no longer concentrated only in metro cities. Companies are steadily entering Tier-II and Tier-III markets while simultaneously strengthening their presence in existing clusters through acquisitions and brownfield projects.

 

The challenge now will be balancing growth with profitability. Opening hospitals requires significant capital, and margins often remain under pressure until occupancy improves. However, if patient demand continues to grow at its current pace, today's investments could lay the foundation for the next decade of expansion.