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Hospital sector may see 12-14% revenue growth over 5 yrs: Icra

PTI:  April 06, 2018

Mumbai: The long-term outlook for the hospital sector is stable with annual revenues likely to grow at 12-14 per cent over the next five years on rising demand and medical tourism, rating agency Icra said today.

The agency expects the growth momentum to improve the credit metrics of the companies operating in the sector.

"The long-term outlook remains stable notwithstanding the current headwinds and regulatory challenges in the sector," it said.

Icra expects demand to continue rising at a steady pace owing to the underlying fundamentals, including growing population, increasing life expectancy, rising incidence of non-communicable diseases related to lifestyle, and increasing health insurance coverage.

Medical tourism is also expected to boost revenues, according to the agency, given the affordability and quality of care in the country.

"We expect an annual revenue growth of 12-14 per cent over the next five years, which is also likely to result in the improvement in credit metrics of the companies operating in the sector," it said.

Over the last few quarters, the performance of the hospital sector has been affected due to multiple regulatory interventions in the form of demonetisation, price caps on medical devices and the goods and services tax (GST).

The performance of five listed hospital chains in the country, which together operate more than 20,000 beds suffered as a result of regulatory interventions, according to Icra.

"In nine months of FY18, the growth in aggregate revenues of the sample set slowed down to around 9 per cent against growth of around 15 per cent in the first nine months of FY17," said Shubham Jain, vice-president, Icra.

The operating profits before interest, tax, depreciation, amortisation (OPBIDTA) growth was around 15 per cent in first nine months FY17, which fell sharply to minus-3 per cent in first nine months FY18.

The aggregate operating profit margins also declined from 15.1 per cent in the first nine months FY17 to 13.7 per cent in the first nine months of FY18, resulting in decline in absolute OPBIDTA from Rs 15.02 billion to Rs 14.90 billion during the same period.

Jain noted that additionally, on a year on year basis, all quarters of the first nine months FY18 saw weaker revenue growth and decline of over 100 bps in operating margin.

According to Icra, a major development for the industry has been the announcement of the National Health Protection Scheme (NHPS) in the 2018-19 budget that envisages health insurance cover for 100 million families (around 500 million beneficiaries) for a sum of up to Rs 0.5 million per family per year.

"Launch of a government-funded healthcare plan of this scale has the potential to significantly increase the healthcare spend in the country," it said.

The agency expects the introduction of NHPS to likely improve the occupancies at implementing hospitals albeit with lower profit margins.

Jain said regulatory intervention in terms of pricing caps are expected to continue to exert pressure on the margins in the near term.

"However, the hospitals may gradually offset these costs over the medium term by general hike in tariffs and by re-looking at the pricing of various procedures, products and services," he added.

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