APOLLO HOSPITALS, FORTIS; CANCER DRUG CAP MAY HIT EBITDA

Experts maintained its ‘Neutral’ ratings on Apollo Hospitals and Fortis, estimating that the government’s decision to cap trade margins on non-scheduled anti-cancer drugs at 30% could have a mid-to-high single-digit impact on the EBITDA of its covered hospitals. Given that a significant proportion of oncology drugs are dispensed through hospital channels, hospitals are expected to bear the greatest direct impact, followed by wholesalers, while retailers are likely to experience minimal effects. On October 8, the government approved a 30% cap on trade margins for non-scheduled anti-cancer drugs, calculated as a percentage of the maximum retail price (MRP). The move is expected to reduce medicine prices by up to 70% and deliver annual savings of approximately Rs 25 billion to patients. The regulation covers around 110 anti-cancer drugs, including 35 patented medicines, and applies to branded and generic formulations, as well as domestic and imported products, irrespective of patent status. Apollo Hospitals experienced revenue and EBITDA compression of approximately Rs 100 million per quarter in FY18 following the cap on stent prices. However, the impact was fully recovered by the end of FY19. Apollo’s EBITDA margin declined to 11.6% in FY18 from 12.0% in FY17, but the company subsequently mitigated the pressure through service price increases and higher bundled pricing.