Indian Hospital Industry in the Pink of Health with Rise in NCDs & Higher Medical Tourism Volumes: ICRA Reports

The rising incidence of non-communicable lifestyle diseases, rising per capita healthcare spending, rising levels of awareness, rising health insurance penetration, and rising medical tourism volumes all contribute to ICRA's continued stable outlook on the Indian hospital sector. This outlook is supported by expectations of healthy revenue growth and strong margins for ICRA's sample set.

It noted in its reports that it anticipates the overall occupancy for the sample set of hospitals in the hospital industry to remain robust at 63-65% in FY2024 (compared to 65.1% in FY2023), supported by a persistently strong demand for healthcare services and ongoing market share gains for organized providers. Given the high base of the prior year, the average revenue per occupied bed (ARPOB) is anticipated to have moderate growth of 5-7% in FY2024 (after experiencing an expansion of 10% in FY2023). The ARPOB growth for the sample set will be supported by an improved specialty mix, a better payor mix (with an emphasis on cash and insurance patients), and annual price revisions by businesses to counteract cost inflation. ICRA predicts that overall revenue growth would be 8–10% in FY2024.

"Supported by sustained improvement in demand, ICRA's sample set companies have announced sizeable expansion plans with the addition of over 8,400 beds and an upgrade/refurbishment plan over the next four years," stated Mythri Macherla, assistant vice president & sector head, ICRA. This amounts to a capacity increase of more than 26% from March 2023 levels. Additionally, some significant businesses in the sector are still looking for inorganic expansion possibilities, which can result in the addition of extra beds through mergers and acquisitions. Even with additional debt finance for expansion, excellent accruals should keep the debt metrics healthy moving forward. In the previous two years, there have been agreements totaling over Rs. 27,000 crore in private equity investments in the Indian hospital sector. Except for Q3 FY2023, when patients postponed elective surgeries due to the holiday season, the in-patient footfalls for ICRA's sample set increased sequentially throughout FY2023.

This improvement was largely made possible by the strong recovery of medical tourism and the shift in patient preferences towards large hospitals as a result of expanding insurance coverage. The average length of stay (ALOS) was 3.6 days in FY2023, and it is anticipated that this number would stay low because to better patient throughput and other technological developments. While turnaround in operations of many of the new centres for some hospital companies improved the sample set return on capital employed (ROCE) to 18% in FY2022 (from 6% in FY2021), relatively higher capital expenditure moderated the same to 16% in FY2023. Going forward, the ROCE is expected to remain between 13-15% for the sample set, supported by incremental absolute OPBDITA, despite additional capital being deployed towards setting up new capacities.