Healthcare sector revenues to grow 15% annually over next 3yrs

Mumbai: The healthcare sector revenues are expected to grow at 15 per cent annually over the next three financial years (FY2018-FY2020) led by rapid expansion in health insurance coverage through government-sponsored schemes, says Crisil Ratings.

"The Rs 4.8 lakh crore healthcare delivery sector in India has been showing strong demand growth and stable cash flows, and should maintain its momentum despite regulatory hiccups," the agency said in a statement today.

While strong demand will necessitate capital expenditure, stable cash flows from existing operations will continue to support credit profiles, it said.

"Profitability of hospitals, however, could see some pressure because of regulatory interventions, and they are expected to cope by adjusting cost and pricing structures," Crisil said.

It said the sector revenues are expected to grow by 15 per cent annually over the next three years on the back of increase in health insurance coverage through government-sponsored schemes.

The number of people covered by health insurance has nearly doubled to 42 crore in the past three fiscals, it said.

"Changing lifestyles, ageing population and increasing health awareness are the other drivers of demand," it added.

A study of 144 hospital firms rated by Crisil shows significant bed additions being undertaken to capitalise on demand prospects.

Large corporate chains with over Rs 400 crore revenue are expected to witness increasing capacity by 25 per cent between fiscals 2018 and 2019, entailing an investment of Rs 5,000 crore.

"That would be 50 per cent more than the annual average capex in the past three fiscals ended 2017. Small and medium hospitals will also follow suit, based on their ability to fund expansions," Crisil said.

"Hospital firms are likely to sustain their credit profiles despite large capex, backed by strong demand growth, stable cash flows from existing beds, and strengthening of business profiles through geographical diversification," Crisil's Senior Director Anuj Sethi said.

He also said prudent funding mix and longer loan-repayment tenure will further support credit profiles amid large capex.

Stable cash flows from mature beds, of over 5 years, enable better absorption of gestation losses from newer beds. At present, for large hospital chains, mature beds account for a healthy 60 per cent of capacity.

Another factor that supports credit profiles is the measured approach that corporate chains take when undertaking capex to enter new markets, it said.

"In tier I and II cities, they prefer buyouts or tie-ups with regional hospitals to reduce the time-to-market and to improve return on investments. This approach synergises the best practises and infrastructure of large chains with the local market knowledge and experience of regional players," it said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.