Max, Fortis set for robust earnings growth on new CGHS rates: Jefferies

Jefferies expects the rate revisions to significantly impact hospitals, including Max and Fortis, that cater to CGHS patients.

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26 Aug, 2025 12:21

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Earnings for hospitals including Max Healthcare Institute and Fortis Healthcare are poised for outperformance as they benefit from higher rates for certain Central Government Health Scheme (CGHS) services, broking firm Jefferies said.

CGHS offers subsidised medical treatment at several hospitals including private ones to over 4.2 million current and former employees of the central government. The hospitals are subsequently reimbursed by the government.

The revision of CGHS rates in April focused on in-patient (IPD) and out-patient (OPD) consultations as well as room rent charges. Rents were increased by 50 percent and OPD/IPD consultation charges were raised by 133 percent and 17 percent, respectively.

Jefferies expects the rate revisions to significantly impact Indian hospitals that cater to CGHS patients.

According to reports, rates for treatment packages and diagnostics will also be revised from July. While the exact rate revisions for these packages are yet to be determined, news reports suggest they could range from 5 percent to 30 percent.

Even though the revised rates may be lower than what hospitals sought, Jefferies said they will happen sooner than later because some private hospitals had started to surrender their CGHS empanelment due to low reimbursement rates and high wait times for payments.

The global research firm expects the revised CGHS rates to boost the financials of companies as they haven’t been factored in the Street's earnings estimates for hospitals. The revision could be a step towards earnings upgrades and even drive outperformance from the sector, Jefferies said.

Wider horizon

The impact of the CGHS rate hike will extend to other schemes. CGHS rates are also utilised by the Ex-Servicemen Contributory Health Scheme and by many public sector undertakings (PSUs). About 70 percent of PSU patients who seek treatment at top private hospitals benefit from CGHS rates.

Most of these patients live in the National Capital Region, which includes New Delhi and the adjacent cities of Noida, Ghaziabad and Gurugram, among others. The headquarters of many central government departments are located in New Delhi.

Max Healthcare has 75 percent of its beds in the NCR, while Fortis Healthcare has 40 percent of its beds in the region, the broking firm noted. These hospitals get a significant portion of their sales from patients covered by these schemes.

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Margins to improve

As most hospitals struggle to sustain EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins on the back of a strong capital expenditure cycle, the revision of CGHS rates could provide the much-needed impetus to fuel growth in profitability.

Fortis got 17.3 percent of its revenue from these patients and Max Healthcare 19.2 percent, the highest CGHS contribution in the sector. Jefferies said the rate hikes will benefit these two hospitals the most.

Accordingly, the broking firm estimates the FY24 EBITDA for Fortis to be the highest at 5.6 percent, followed by Max at 4.4 percent and Medanta and Apollo Hospitals Enterprise at 3 percent each.

Rosy picture

With the rate revision to bloom fully by July, the outlook for hospitals in the second half of FY24 has improved significantly.

“If it happens on time from July onwards, hospitals will surprise positively on ARPOB (Average Revenue Per Occupied Bed) growth from Q2 or Q3 of FY24 onwards," Jefferies said in its report.

However, it may take some time for hospitals to add beds, which will pressure margins in the near term. Still, they will bounce back to strong profitability once the rate revision starts to reflect in their numbers, the brokerage said.

Jefferies is bullish on the positive trend within the sector as it believes the rate revision impact will be strong enough to be felt by FY24 onwards even if new beds are added. Jefferies chose Max Healthcare as its top pick in the sector.

At 10.54 am, shares of Max Healthcare were trading with gains of 2.61 percent at Rs 571.95, while Fortis Healthcare was up 0.71 percent at Rs 282.50 on the National Stock Exchange.

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