Medanta, Max: Analysts pick best hospital stocks to buy post CGHS revision

The CGHS rate revision could lift hospital chains' revenues and margins, say analysts. Here are the listed stocks set to benefit most from the policy update

Hospital stocks to buy after CGHS rate revision: The government's recent decision to revise Central Government Health Scheme (CGHS) rates for government employees and pensioners could boost revenue of hospitals and healthcare operators by up to 3 per cent over the next one year, according to analysts.

 

An upward revision in the rates, they said, could support the top line and margins of hospital chains as hospital operators would be able to narrow the realisation gap between CGHS revenue and cash and/or third-party insurance-based revenue, aided by steady patient volume flow under the category. At present, realizations in CGHS channels are 35-40 per cent lower than cash/TPA channels.

 

 

"We see a large part of the incremental revenue flowing into Ebitda as costs are already in the base for the CGHS business and can result in 18-200 basis points (bps) expansion in Ebitda margins," noted those at HSBC. Ebitda is earnings before interest, tax, depreciation, and amortisation.

 

A back of the hand calculation suggests that listed corporate hospital chains, including KIMS, Max Healthcare, and Medanta, have 15-20 per cent exposure to scheme business, including state government schemes.

 

Assuming a weighted average of 15 per cent increase in scheme-sponsored average revenue per occupied bed (ARPOBs), most analysts expect overall ARPOBs to improve by 2.5-3.5 per cent, which would result in 11-13 per cent increase in Ebitda and 0.3-3 per cent increase in revenue for listed players.

 

CGHS rate revision

On October 3, the Union Health Ministry announced the revision in CGHS rates for nearly 2,000 medical procedures – a first since 2014.

 

The new rates, which would be applicable October 13, 2025, onwards, will vary across hospitals based on their accreditation status, type, city classification, and ward entitlement (general ward vs semi-private and private ward).

 

For instance, CGHS rates for non-NABH (National Accreditation Board for Hospitals & Healthcare Providers) will be 15 per cent lower than NABH or NABL (National Accreditation Board for Testing and Calibration of Laboratories) accredited hospitals.

 

Similarly, rates for super specialty hospitals shall be 15 per cent higher than rates applicable to NABH-accredited hospitals for the corresponding specialities within the same city. However, tariffs in Tier 2 and Tier 3 cities shall be 10 per cent and 20 per cent, respectively, lower than rates in hospitals located in Tier 1 cities.

 

According to Emkay Global Financial Services, the move addresses the long-standing demand of private healthcare operators to improve pricing of scheme patients (owing to inflationary medical costs).

 

However, the order is "disproportionately positive" for super-specialty hospitals (corporate hospitals) with immediate bed expansion plans in tier-1 cities, it said.

 

"When hospitals are ramping up occupancies/expanding beds at new units, scheme patients typically, account for a larger share of the business (versus mature units), as companies target quicker break-even. Thus, the CGHS rate hike should aid faster-than-expected break-even for hospital chains looking to expand. Additionally, higher rates for super-specialty hospitals, located especially in tier-1 cities, would see higher benefits," it said.

Investment strategy: Hospital stocks to buy

Among listed players, Apollo Hospitals and Aster have a 2-per cent revenue exposure to CGHS channel. While Medanta has 10-12 per cent exposure, Max Health has 18-20 per cent.

 

In this backdrop, analysts at HSBC pick Apollo Hospitals as their preferred stock pick given the stock’s firm growth outlook for the core hospitals business along with scale-up potential for the 24/7 digital health platform.

 

Those at Emkay Global, meanwhile, expect KIMS, Max Health, and Medanta to gain the most from the revision given their 18-22 per cent exposure to scheme business (CGHS + other state government schemes).

 

Choice Institutional Equities, too, prefers Medanta, Max Health, Narayana Hrudayalaya, and Yatharth Hospital and Trauma Care Services.

 

"The revised rates could lead to a 0.5-3 per cent increase in revenue with most of this flowing through Ebitda and net profit. Ebitda margin is expected to improve by 35-170 bps with hospitals seeing a partial impact in FY26 and a full impact in FY27," it said, adding that if other state schemes adopt a similar approach, the overall impact on profitability could be higher.