Hospital stocks price movement
Shares of the listed hospital companies rallied up to 5 per cent on the BSE in Friday’s intra-day deals on reports that the government intends to cap trade margins on non-scheduled cancer drugs at 30 per cent.
Fortis Healthcare, Apollo Hospital Enterprises, Max Healthcare Institute, Global Health, Yatharth Hospital & Trauma Care Services, Krishna Institute of Medical Sciences (KIMS), Narayana Hrudayalaya and Artemis Medicare Services were up 2-5 per cent in intra-day deals.
At 09:25 AM, the BSE Hospitals index was up 1.5 per cent, as compared to a 0.32 per cent rise in the BSE Sensex.
However, in the past two weeks, the hospital index tanked 12 per cent after the Supreme Court raised concerns over the wide gap between price-to-retailer (PTR) and MRP of essential medicines, citing a cancer drug priced at ₹27,000 MRP versus ₹2,700 PTR.
Why are hospital stocks in focus?
According to a Business Standard report, the Centre has decided to cap trade margins for all non-scheduled anti-cancer drugs at 30 per cent of the MRP.
According to reports, the National Pharmaceutical Pricing Authority (NPPA) has approved in principle a proposal to cap trade margins at 30 per cent on identified non-scheduled anti-cancer medicines under Paragraph 19 of the Drug Price Control Order, 2013. The Directorate General of Health Services (DGHS) is expected to submit a list of medicines to be covered by October 14. NPPA estimates the move could reduce maximum retail prices by 20–70 per cent and generate annual patient savings of around ₹2,500 crore.
Non-scheduled anti-cancer medicines reportedly have average trade mark-ups of 170 per cent, reaching up to 700 per cent in some cases. The anti-cancer medicines market comprises around 225 drugs and 500 formulations, with an annual turnover of about ₹12,500 crore. Scheduled cancer drugs account for around ₹2,250 crore, while the balance comprises non-scheduled medicines. Non-scheduled formulations are monitored to ensure that their prices do not increase by more than 10 per cent in a year.
ICICI Securities view on Indian Pharma and Hospitals
ICICI Securities in a note said that they believe the effect of this regulation in a pharma/medicine supply chain would mostly affect retailer margins. Hospital consumables constitute 35 per cent of the overall bill with an average EBITDA margin of 30-35 per cent. Earlier the capping was expected to be around 16 per cent, affecting the hospital stocks sentimentally negatively.
The brokerage firm expects an earnings before interest, tax, depreciation and amortization (EBITDA) margin impact of 2-4 per cent on hospital EBITDA but will need further clarity as the matter is subjudice and the list of the drugs will be released later on. “As far as the impacts on pharma margins are concerned we will need further details from management interactions,” it added.
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