Indian Listed Healthcare Universe: Annual Analysis

Deep research is central to Perpetuity’s investment culture. Each year, we let the numbers reveal how the listed healthcare sector is evolving. This blog continues our annual analysis of the sector’s financial performance and the structural shifts shaping its growth.

Healthcare Sector Performance Across Decades:

Healthcare, often considered a 'defensive sector', has delivered returns consistent with that perception. Except over the 10-year horizon, which begins at the cyclical peak of US generics in FY16, the sector has outperformed broader markets across time horizons. In FY26, it outperformed the BSE 500 by ~524 bps; YTD FY27, the BSE Healthcare Index is up 21.0% versus 14.4% for the broader BSE 500. This performance comes despite peak price erosion in US generics about three years ago. The outperformance reflects not only a re-rating driven by strong earnings growth, but also an improvement in the quality of earnings across the sector.

Fundamental shifts in the composition of both the index and the underlying sector are important to understanding the nuances of its performance and valuation.

The Composition Shift: Healthcare is No Longer Just Pharma

The Indian listed healthcare sector is no longer synonymous with pharma. Nearly a decade ago, pharma accounted for ~93% of the listed healthcare universe; today, its share has declined to ~three-fourths of aggregate healthcare market capitalisation. Hospitals now comprise ~18% of the listed healthcare sector (~₹6.7 lakh crore), diagnostics ~2%, and pharma distribution and medical devices ~0.5% each. Consumer healthcare contributes ~1.2%, while healthcare IT services contribute ~1.8%. Together, the 169 companies we track had an aggregate market cap of ~₹36.8 lakh crore as of 21 August 2026.

The rise in the number of listed healthcare companies is also noteworthy. Eleven companies were listed in FY26 alone; since COVID (post-FY20), the sector has added 49 companies over six years.

This mix shift means that historical pharma-led valuation benchmarks are becoming less representative of the broader healthcare sector

Beyond Pharma: Selected Healthcare Segments Command a Premium

While the healthcare sector trades at an aggregate ~26.8x EV/EBITDA, hospitals, diagnostics, medical devices and consumer healthcare command an average premium of ~30% to pharma on a trailing EV/EBITDA basis. As these non-pharma segments form a growing share of aggregate healthcare market cap, the sector's valuation multiple should be viewed in the context of this changing mix.

The Changing Mix Has Lifted the Sector’s Valuation Base: 5-year average valuation multiple is ~21.9x vs. 15-year average of ~18.5x

A growing pipeline of hospital, diagnostics, and medical-device listings suggests the sector's composition will likely diversify beyond pharma over time — a shift that could influence its aggregate valuation multiple, depending on how these segments are priced relative to existing constituents.

Pharma is Shifting from Generics to Branded Businesses 

Within pharma, the top 10 globally diversified companies account for ~40% of market cap and therefore offer a useful proxy for analysing the sector's business mix. As highlighted in our previous blogs, the revenue mix of these industry leaders is shifting towards more sustainable branded businesses. Over the past decade, branded businesses' share of revenue for these players has risen from ~40% to ~47%. The trend continued in FY26; excluding gRevlimid, branded businesses represented ~48% of FY26 revenue. These businesses: including domestic formulations, emerging-market sales and specialty revenue, tend to be steadier and more sustainable, with higher margins and ROCE.

A Better Business Mix is Strengthening Margins, Cash Flows and Balance Sheets

Key Trends from the Aggregate Analysis of 121 Listed Pharma Companies:

• Growth sustains at early double-digit post-COVID: The sector's growth slowed after the FY16 peak in US generics, but returned to the early teens post-COVID, as reflected in an FY20-FY26 revenue CAGR of ~11%. Even excluding ~USD 800 million of gRevlimid revenue in FY26, the sector still recorded a ~10.8% CAGR over the same period.

• Margins near a decadal high: Assuming ~90% gross and EBITDA margins for gRevlimid, the listed pharma universe's gross margin, excluding gRevlimid, was ~66.4% in FY26 - a decadal high. Its EBITDA margin on the same basis was ~22.1%, just ~60 bps below the previous peak a decade ago (excluding the one-off FY21 margin).

• Despite higher capex in FY26, the sector ended the year with net cash of ~₹169 billion, providing a strong war chest for future growth. Recent deal activity, including Sun’s ~$11.75 billion acquisition of Organon—signals a shift towards niche specialty businesses and away from the plain-vanilla generics that historically dominated sector EBITDA.

• Cash generation has strengthened post-COVID: Over the past three years, CFO/revenue has averaged ~16.8% and FCF/revenue ~8.1%, materially above the levels recorded in the early part of the decade.

• ROCE sustains in the high teens despite increased capex: Despite higher capex in FY26, aggregate sector ROCE remained at ~17%, still below the ~20% peak a decade ago. As Indian pharma players invest to move beyond highly competitive generics and climb the specialty/branded curve, near-term ROCE may be diluted in pursuit of growth.

• R&D and Capex Accelerated Sharply in FY26 for Top 10 Globally Diversified Players:

The next test is whether these investments can generate sufficient incremental returns to offset the near-term dilution in ROCE.

Domestic Formulations Growth Reaccelerated in FY26:

A key contributor to stronger Indian pharma market (IPM) growth is GLP-1 brands, now generating annualised sales of ~₹3,300 crore (July’26 annualised). In FY26, GLP-1 brands added ~150 bps to IPM growth. More importantly, even excluding GLP-1, the IPM grew ~13% YoY during April-July 2026. Whether this low-teens growth can be sustained is the key variable to watch, as it could support stronger domestic formulations growth for listed pharma companies, which trade at a premium to the overall pharma sector.

US Generics: Overall FY26 US formulations revenue was flat across the 18 pharma companies that disclose these sales. Excluding Revlimid, however, revenue grew 6% in FY26, in line with the ~6% CAGR over FY24-FY26. With Revlimid sales becoming negligible in Q1FY27, the top six players reported an aggregate revenue decline of 11% YoY. In contrast, the 12 emerging players with sub-$500 million sales grew 19% YoY in aggregate. These players also delivered aggregate growth of 16% in FY26, led by Rubicon. Product launches have driven this growth; whether it can be sustained will depend on the depth and quality of the launch pipeline. Another noteworthy trend is the substantial improvement in US generics price erosion over the past two years, as shown in the chart below.

Healthcare’s Aggregate Scorecard: 170 Companies

The aggregate scorecard captures the transformation of the Indian listed healthcare universe over the past decade. Revenue has nearly tripled from ~₹2.25 lakh crore in FY16 to ~₹6.28 lakh crore in FY26, PAT has risen from ₹27,420 crore to ₹82,904 crore, and EBITDA margins have expanded from 21.2% to a record 22.7%. Over the same period, the balance sheet has shifted even more strikingly: from ₹33,071 crore of net debt to ₹2,975 crore of net cash. Aggregate sector ROCE stands at 17.1%; it has improved since COVID but remains below the level of a decade ago.

Margin Expansion has been Broad-Based since COVID:

Between FY20 and FY26, sector revenue compounded at ~12% while EBITDA compounded at ~16%. EBITDA margin expanded from 19.0% in FY20 to a record 22.7% in FY26. Importantly, this expansion was broad-based, spanning pharma, diagnostics, hospitals and pharma distribution.

The durability of these margins depends on the source of the expansion. Some gains came from temporary factors - COVID-era diagnostics pricing and the high-margin Revlimid opportunity in pharma; but much of that benefit had faded by FY26. The remainder is more structural: higher hospital occupancy, sustained ARPOB growth from a better case mix, and greater scale and operating leverage in diagnostics.

The sector's re-rating has coincided with the emergence of a broader healthcare universe. The number of listed companies has nearly doubled over the past decade, and a pipeline of hospital, diagnostics, medical-device and distribution listings is expected to add to this further. Manipal Health's August 2026 listing added another ₹1 lakh crore company, while Apollo HealthTech's listing may offer a reference point for valuing pharma distribution businesses.