scorecardresearchHospital revenue growth to moderate in FY23; profitability, debt metrics to remain robust: ICRA

Hospital revenue growth to moderate in FY23; profitability, debt metrics to remain robust: ICRA

Updated: 20 Apr 2022, 06:22 PM IST
TL;DR.

  • ICRA said overall, revenues from its sample set in nine months of FY22 grew by over 60 percent on a YoY basis, while operating profit margin was slightly over 20 percent.

ICRA expects occupancy of its sample set to be 62-63 percent in FY22 and ARPOB to expand by 11-12 percent.

ICRA expects occupancy of its sample set to be 62-63 percent in FY22 and ARPOB to expand by 11-12 percent.

Rating agency ICRA said the domestic hospital industry will see moderate revenue growth in FY23 due to the large base of FY22.

"The performance of ICRA’s sample set of hospital companies remained strong in Q3FY22 on the back of continued momentum of elective procedures and strong average revenue per occupied bed (ARPOB)," said ICRA.

With most patients reporting mild infections on account of Omicron, ICRA said pent-up demand and market share gains for organised players in the high-end/complex surgery space supported healthy occupancy levels for the sample set.

Hospitals witnessed an additional uptick in footfalls at metro centers on the back of a revival in international patient footfalls. Further, a higher amount of surgical work and faster throughput of discharges as reflected in the lower average length of stay (ALOS) resulted in sizeable year-on-year (YoY) growth of 14 percent in ARPOB in Q3FY22. Sequentially, ARPOB remained flattish.

ICRA said overall, revenues from its sample set in nine months of FY22 grew by over 60 percent on a YoY basis, while the operating profit margin was slightly over 20 percent.

“Overall, revenue growth for the sample set in FY22 is expected to be robust at over 40 percent. Benefits from improving scale and strong ARPOB levels, cost-optimization efforts, and ancillary revenues from Covid-19 have supported margin improvement for industry players in FY22," said Mythri Macherla, Assistant Vice President & Sector Head, ICRA.

"For the sample set, the operating profit margin is expected to be between 20-21 percent in FY22. Further, given the robust accruals and relatively lower debt levels, debt metrics for the sample set have witnessed considerable improvement in FY22."

"Given the strong demand for healthcare and continued patient preference for branded hospital chains, revenues and profit margins are expected to remain healthy for the industry going forward as well. However, given the large base of FY2022, revenue growth of the sample set is likely to moderate to a certain extent in FY2023,” said Macherla.

ICRA expects occupancy of its sample set to be 62-63 percent in FY22 and ARPOB to expand by 11-12 percent. While occupancy is expected to be slightly moderate in FY23 given the ongoing capacity addition, ARPOB is expected to expand steadily going forward. Operating profit margins are expected to remain healthy in FY23 as well given the continued focus on cost optimisation in addition to scale benefits.

Given the favourable demand outlook for the industry, several large hospital players have recently announced sizeable capacity expansion plans across the country.

Major cities/regions which will see bed additions over the next few years include NCR, Mumbai, Bangalore, and Chennai among others. Industry players had slowed down their greenfield expansions during the last two to three years as the focus was on improving returns on existing facilities, said ICRA.

This apart, with the threat from the pandemic seemingly over, players are now looking at adding bed capacity within their existing infrastructure, while some players have announced new greenfield projects.

Some of the larger players are also actively scouting for inorganic growth opportunities. However, a key monitorable regarding the funding pattern for the expansion plans remain.

Further, the timeline of these spending will also remain sensitive to the future waves of the pandemic, if any, and the impact of the same on economic activity and mobility going forward, ICRA added.

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First Published: 20 Apr 2022, 06:22 PM IST