Performance of hospital companies to remain strong in Q3 of FY22, says ICRA 

With the continued momentum of elective procedures and robust average revenue per occupied bed or ARPOB back with a decline in Covid-19 cases, the performance of parent companies of hospitals will remain strong in Q3 FY2022, credit rating agency ICRA said in a statement. 

 

With most patients reporting mild infections on account of Omicron, pent-up demand and market share gains for organised players in the high-end and complex surgery space supported healthy occupancy levels for the sample set, ICRA said. Hospitals witnessed an additional uptick in footfalls at metro centres 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 a sizeable year over year (Y-o-Y) growth of 14 per cent in ARPOB in Q3 FY2022. Sequentially, ARPOB remained flattish. Overall, revenues from ICRA’s sample set in 9M FY2022 grew by over 60 per cent on a Y-o-Y basis, while the operating profit margin was slightly over 20 per cent, the statement said. 

 

“Overall, revenue growth for the sample set in FY2022 is expected to be robust at over 40 per cent. Benefits from improving scale and strong ARPOB levels, cost-optimisation efforts, and ancillary revenues from Covid-19 have supported margin improvement for industry players in FY2022. For the sample set, operating profit margin is expected to be between 20-21 per cent in FY2022,” Mythri Macherla, Assistant Vice President and Sector Head at ICRA said. 

 

“Further, given the robust accruals and relatively lower debt levels, debt metrics for the sample set have witnessed considerable improvement in FY2022. 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,” Macherla said. 

 

ICRA said that it expects occupancy of its sample set to be 62-63 per cent in FY2022 and ARPOB to expand by 11-12 per cent. While occupancy is expected to be slightly moderate in FY2023 given the ongoing capacity addition, ARPOB is expected to expand steadily going forward. Operating profit margins are expected to remain healthy in FY2023 as well given the continued focus on cost optimisation in addition to scale benefits. 

 

ICRA said that given the favourable demand outlook for the industry, several large hospital players have recently announced sizeable capacity expansion plans across the country. Major cities and regions that will see bed additions over the next few years include NCR, Mumbai, Bangalore and Chennai. 

 

“Industry players had slowed down their greenfield expansions during the last two-three years as the focus was on improving returns on existing facilities. 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 project,” ICRA said in a statement. “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 remains. Further, timeline of these spends will also remain sensitive to the future waves of the pandemic, if any, and impact of the same on economic activity and mobility going forward,” the statement said.