Due to the high operating leverage, the EBITDA margin is likely to rise to ~13 per cent in FY2022
While the healthcare sector’s performance has recently been affected due to COVID-19, the long-term outlook remains stable on the back of a swift rebound in occupancy as well as the structural factors. ICRA expects the
occupancy of companies in the sector to bounce back substantially, to 60 per cent in FY2022, from the estimated occupancy of 52 per cent in FY2021, and the revenue growth to be at ~20 per cent in FY2022, against an estimated contraction of ~19 per cent in FY2021, aided by a lower base as well.
There has already been a significant sequential improvement in occupancy every month after the sharp fall in April and the pent-up demand is also likely to support the performance, as elective procedures cannot be delayed indefinitely, by domestic as well as international patients.
Due to the high operating leverage, the EBITDA margin is likely to rise to ~13 per cent in FY2022, against an estimated EBITDA margin of ~9 per cent in FY2021. The capital expansion was already slowing down, even pre-Covid, and is likely to remain modest in FY2022 as the players have adequate capacity to grow over the medium term and the near-term focus is on better utilisation of existing facilities rather than expansion of
the network. Consequently, the capex as well as start-up costs of new hospitals are likely to be much lower going forward, which will also aid profitability. The net debt is expected to stay largely range-bound, but the debt protection metrics are likely to improve significantly due to a sharp rise in accruals.
According to Kapil Banga, Assistant Vice President, ICRA, “The credit risk profile of entities in the sector had been on improving the trajectory over the last two years and notwithstanding the near-term disruption
due to the pandemic, as well as given the essential nature of the services, ICRA believes the sector will resume on its growth trajectory in FY2022. The risks to the recovery could be in the form of additional regulatory measures, protracted restrictions on international travel and jump in COVID-19 cases.”