Revenue of private hospitals to increase 10-11% in fiscal year 2023 and 2024; CRISIL Ratings

"Given healthy growth prospects, players rated by CRISIL Ratings have intensified bed expansion, including brownfield, since fiscal 2023," asserted Poonam Upadhyay, director of CRISIL Ratings. A comparable number of beds were added over the previous four fiscal years ending in 2022 at a cost of Rs. 11,500 crore. These players are adding about 12% of the existing capacity, or roughly 6000 beds, over two fiscal years (fiscal 2023 and 2024).

We anticipate stable credit risk profiles due to healthy operating margins and cash flow, which will restrict the need for significant capex debt growth, according to Upadhyay. The private hospitals' revenue will increase by 10–11% in the fiscal years 2023 and 2024 as a result of strong bed occupancy and the maintenance of high average revenue per occupied bed (ARPOB), which are backed by rising domestic demand and a recovery in medical tourism.

Private hospitals' operating margins will stay stable at 16–17% through fiscal 2024, though they will moderate by 200–250 basis points annually due to rising employee costs, pre-operative costs associated with significant bed additions, and increased competition. Due to an increase in treatment during the second Covid-19 pandemic wave, which also drove up occupancy levels, and later, pent-up demand for elective surgeries, private hospitals recorded an all-time high operating profitability of about 19% in fiscal 2022.

According to a CRISIL Ratings analysis of 87 companies, which account for about two-thirds of large private hospitals and have revenues of about Rs. 41,000 crore, healthy cash generation and a reduced need for external borrowing to fund higher capex (both greenfield and brownfield) will help private hospitals maintain adequate debt protection metrics and maintain stable credit risk profiles. "Growing health awareness, especially after Covid-19, will increase domestic demand while also resulting in a recovery in medical tourism, ensuring bed occupancy being maintained at almost similar levels of around 60% (past five fiscals average) even as bed addition continues," said Anuj Sethi, senior director at CRISIL Ratings. "Occupancy dipped only once during this period to around 53% due to lockdown enforced during first phase of the pandemic," he added. Additionally, expanding insurance coverage will support demand by increasing availability to high-quality care. Additionally, Sethi noted that average revenue per occupied bed (ARPOB), which increased by about 20% in fiscal 2022, will continue to expand slowly, supporting revenues.

Private hospitals are seeing a gradual return of medical tourism — accounted for 10-12% of revenue pre-pandemic — that got affected considerably during pandemic, amid travel restrictions. Lower cost of treatments, modern facilities with well-trained personnel, and increasing air-connectivity are expected to restore revenue from medical tourism to pre-pandemic levels. This will further support occupancy levels despite aggressive bed additions. "Given healthy growth prospects, players rated by CRISIL Ratings have intensified bed expansion, including brownfield, since fiscal 2023," asserted Poonam Upadhyay, director of CRISIL Ratings.

A comparable number of beds were added over the previous four fiscal years ending in 2022 at a cost of Rs. 11,500 crore. These players are adding about 12% of the existing capacity, or roughly 6000 beds, over two fiscal years (fiscal 2023 and 2024). We anticipate stable credit risk profiles due to healthy operating margins and cash flow, which will restrict the need for significant capex debt growth, according to Upadhyay. Though interest coverage and debt/Ebitda (earnings before interest, taxes, depreciation, and amortisation) ratios of these rated players are likely to moderate marginally till fiscal 2024, these will remain comfortable at 5.2-5.5 times (6.6 times in fiscal 2022) and 1.8-1.9 times (1.5 times) respectively.

That said, any resurgence of Covid-19 or intense viral cases that triggers lockdown and restricts travel, or any regulatory intervention that impedes the performance of private hospitals, will bear watching in the road ahead, added the rating agency.