Hospital chains record sharp rebound but don’t expect repeat show next year

The mid-sized and large publicly listed corporate hospital chains are likely to go back to a single-digit growth level in the coming year after a strong surge in business in the current financial year.

The poor performance in the first year of the Covid-19 pandemic, when many patients deferred non-essential surgeries and general hospital visits, was followed by a strong show in the current year, creating a high base.

Indeed, the aggregate occupancy for a set of seven mid-sized and large hospital chains listed on the bourses is likely to end FY22 with 62-63%, according to credit rating and research agency ICRA.

On a year-on-year basis, this translates to revenue growth of over 45%. The operating margins for the sample of companies comprising Apollo Hospitals, Fortis, Narayana Hrudayalaya, Aster DM Healthcare, Max, Healthcare Global and Shalby, is expected to expand by more than 800 bps to 20-21% in the year ending March 31, 2022.

The average revenue per operating bed is projected to end the current fiscal year with 11-12% growth on the back of a healthy pick-up in high-end elective surgeries, strong footfalls in metro cities and decreasing average length of stay (ALOS) resulting in faster throughput in discharges, noted ICRA.

In the first nine months of the current year (April-December 2021), the revenue and operating profit margins were at a multi-quarter high for the sample set, aided by a surge in Covid-related treatments, in addition to strong recovery in elective procedures. This is despite medical tourism revenues remaining subdued in H1 FY22 amid travel restrictions.

Meanwhile, credit metrics are expected to remain strong in both FY22 and FY23. The interest coverage ratio is expected to be in the range of around 5-6x in FY22 and FY23, while the net debt/EBITDA is expected to be in the range of 1-1.2x as on March 31, 2022 as well as at the end of the next financial year, according to the rating agency.

Net-net, the outlook for the industry remains stable given the rising incidence of non-communicable lifestyle diseases, growing per capita spend and awareness levels, increasing penetration of health insurance and healthy medical tourism volumes.