Healthy occupancy, increasing ARPOBs to keep credit profiles stable despite sizeable capex
Revenue of private hospitals will grow 10-11 per cent in fiscals 2023 and 2024 on the back of healthy bed occupancy and sustenance of high average revenue per occupied bed (ARPOB), supported by increasing domestic demand and pick-up in medical tourism.
The operating margin of private hospitals will continue to remain healthy at 16-17 per cent until fiscal 2024, although moderating by 200-250 basis points on-year due to an increase in employee expenses and pre-operative costs given sizeable bed addition, and rising competition. In fiscal 2022, private hospitals reported an all-time high operating profitability of ~19 per cent due to a surge in treatment during the second wave of the COVID-19 pandemic, which also pushed up occupancy levels, and, later, pent-up demand for elective surgeries.
Healthy cash generation, leading to limited reliance on external borrowing to fund higher capex (both greenfield and brownfield) will in turn help private hospitals maintain adequate debt protection metrics and keep credit risk profiles stable.
An analysis of 87 companies rated by CRISIL Ratings, with revenues totalling ~Rs, 41,000 crore representing two-thirds of large private hospitals2 indicates as much.
Anuj Sethi, Senior Director, CRISIL Ratings, said, “Growing health awareness, especially after COVID-19, leading to an increase in domestic demand together with the recovery in medical tourism, will ensure bed occupancy being maintained at almost similar levels of~60% (past five fiscals average) even as bed addition continues; occupancy dipped only once during this period to ~53 per cent due to lockdown enforced during the first phase of the pandemic. Further, the rising insurance coverage will make quality treatment more accessible, and support demand as well. In addition, average revenue per occupied bed (ARPOB) which grew ~20 per cent in fiscal 2022, will continue to register modest growth, supporting revenues.”
Says Poonam Upadhyay, Director, CRISIL Ratings, “Given healthy growth prospects, players rated by CRISIL Ratings have intensified bed expansion, including brownfield, since fiscal 2023, that had slowed during the pandemic years. These players are adding ~12 per cent of existing capacity i.e. ~6000 beds over two fiscals (fiscal 2023 and 2024) at a cost of ~Rs 13,000 crore; an almost similar number of beds were added over the prior four fiscals ending 2022 for Rs 11,500 crore. We expect credit risk profiles to remain stable on the back of healthy operating margin and cash generation, thereby limiting material debt addition for capex.”
