Healthcare industry outlook 2022 | Value Research Sailesh Raj Bhan, Deputy CIO – Equity Investments, Nippon India Mutual Fund, gives his outlook on the healthcare sector for 2022
Interview

Sectoral outlook 2022: Healthcare

Sailesh Raj Bhan, Deputy CIO - Equity Investments, Nippon India Mutual Fund, gives his outlook on the healthcare sector for 2022

The healthcare sector seems to have lost steam as the pandemic threat has subsided. What are the key triggers for it in 2022? What should investors expect?
The Indian healthcare sector has been doing exceedingly well in handling the pandemic from a healthcare-provider point of view despite the several disruptions it faced in the last 21 months since March 2020. The shift in demand patterns like the sharp preponement of global and local demand followed by a lull did impact some earnings growth in the first half of 2021, which is naturally a by-product of consumption of excess inventory, given that the products have a shelf life. On the vaccine front, the ramp-up of supplies from India in the last 12 months has been unprecedented in supporting the recovery from the pandemic.

The coming year presents an interesting opportunity for Indian healthcare businesses. The recent pullback after a strong CY20 for the sector has made valuations reasonable.

The domestic branded business is back to its long-term growth averages as normalisation has returned, which should benefit profitability. The long-term trend of rise in the share of domestic business in profitability for companies continued even through the pandemic and is the most sustainable part of the pharma businesses from a profit, growth, and capital-efficiency point of view. The 50 plus age population in India, which is close to 27 crore in number, would rank as the fourth largest in the world if considered as a separate nation. The consumption of medical services and products in the 50 plus age group is many times higher on a per-capita basis than any other segment of the market. The chronic nature of India's disease profile is an added burden, which with better diagnosis is a long-term need to be serviced by Indian branded companies. Similar trends support significant investment in the hospital sector, which is under-invested in India.

In the near term, with normalisation, the utilisation levels in hospital infrastructure should continue to support better profitability and in the medium term, COVID-induced health-insurance push for better coverage should be a positive for the hospital sector. Diagnostic players and pharmacy chains are likely to continue strong growth in line with sector trends, with continued gains in market share from the unorganised sector.

With India emerging as a globally competitive hub for pharma manufacturing, the journey will accelerate global market share gains in the US and European markets. The profit pressures of the last six to 12 months on costs and pricing should reduce as excess inventory pressures ease. With the Indian pharma sector exporting to over 100 countries in the world, market share gains should continue, given India's competitive advantages driven by quality and scale.

Long-term trends of backward integration with a view of improving supply-chain robustness will continue to accelerate as Indian companies try to capture the government's PLI benefits to increase investments.

In the near term, overall earnings growth in the sector should improve in 2022, supporting the sector's valuations post the recent correction as business trends normalise. The long-term trends in each of the areas continue to remain positive for the sector, given the attractive economics of the healthcare businesses.

This interview was conducted in December 2021.

Also in the series:

Sectoral outlook 2022: Engineering & Infrastructure

Sectoral outlook 2022: Hospitality, Travel & Tourism

Sectoral outlook 2022: IT & Telecom

Sectoral outlook 2022: Automobiles

Sectoral outlook 2022: Consumption

Sectoral outlook 2022: Chemicals & textiles

Sectoral outlook 2022: Banking & finance

Sectoral outlook 2022: Energy and metals/mining


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