Hospital sector likely to post healthy growth in FY23: ICRA report

Aggregate bed occupancy seen at 64% due to 'sustained improvement in demand', says agency

The hospital industry is expected to post occupancy levels of 62-64 per cent in FY23 and FY24 backed by demand for elective surgeries, medical tourism and organised players improving their market share, said rating agency ICRA.

Average revenue per occupied bed (ARPOB) is likely to grow 8-10 percent for the ICRA sample set of companies. The sample includes the hospital business of seven listed companies: Apollo Hospitals Enterprise Limited, Fortis Healthcare Limited, Narayana Hrudayalaya Limited, Aster DM Healthcare Limited (India business only), Max Healthcare Institute Limited, Healthcare Global Enterprises Limited, and Shalby Limited.

Companies' price revisions will likely offset cost inflation, as ARPOB moderates to 2-4 percent in FY24.

“Covid-related uncertainties resulted in deferment of organic capex plans of industry players over the last two years. Supported by sustained improvement in demand, sample set players have announced a sizable expansion with the addition of around 7,000 beds and an upgradation or refurbishment plan for the next three-four years,” said Mythri Macherla, assistant vice president and sector head, ICRA.

Some large players are scouting for inorganic growth opportunities that could translate into incremental beds being added through mergers and acquisitions. “With robust performance expected in FY2023 and FY2024, the debt metrics will remain strong going forward, despite incremental debt funding for supporting expansion plans,” Macherla said.

While most capacities are expected to be set up in metro cities, some large players are entering into operations and management contracts to diversify their presence in unexplored markets on an asset-light basis.

The industry’s revenue growth is estimated to be around 15-17 per cent on a year-on-year (YoY) basis in FY23, supported by strong occupancy and higher ARPOB. Growth is expected to moderate to around 4-6 percent in FY24, given the high base and moderate growth in ARPOB.

Dilip Jose, managing director and CEO of Manipal Hospitals, expected industry revenue growth in FY24 would be higher, at around 10 per cent. “I think the sector has the potential for a double digit growth, especially if the expectations on medical value travel come through,” said Jose, whose company is India's second largest hospital chain.

“Despite high input cost inflation, improving operating leverage, supported by the increasing scale of operations and continued cost optimisation measures, are expected to support a healthy OPM of around 20-22 percent in FY2023 and FY2024,” ICRA said.

ICRA maintained its stable outlook for the industry, citing rise in non-communicable lifestyle diseases, growing per capita spend on healthcare, awareness, and increasing health insurance.

"Private sector hospitals account for 75% of the healthcare spending in India and with the increased demand for quality and personalised healthcare, rising burden of NCDs and YoY improvement in medical insurance penetration across India, we are anticipating promising growth opportunities for this sector," said Ashutosh Raghuwanshi, MD and CEO of Fortis Healthcare.

The in-patient footfalls for ICRA’s sample set in the first half of FY23 remained high at 1.3-times of pre-covid levels, backed by higher elective surgeries and revival in medical tourism coupled with changing patient preference towards large hospitals on the back of increasing insurance coverage.

Average length of stay (ALOS) in H1 FY23 at 3.6 days reached pre-Covid levels and is expected to remain low, backed by faster throughput of patients, which is also supported by technological advancements. In Q2 FY23, relatively higher patient flow for viral diseases led to occupancy expanding to 67.5 per cent from 61.7  per cent in Q1 FY23. However, ARPOB slightly moderated on a sequential basis due to lower realisations from the viral diseases’ patients.

Overall, the revenue growth and OPM for ICRA’s sample set in H1 FY23 stood at 12 percent and 21.8 percent, respectively, on the back of improvement in both occupancy (64.7 percent versus 63 percent in H1 FY22) and ARPOB (12 percent YoY growth). Q2 FY23 witnessed the highest-ever quarterly OPM of 22.8 percent, in the last several years, backed by improved occupancy, better speciality mix and turnaround in operations of many of the new centres for some hospitals.