New Delhi: Hospital Industry is going to witness expansion as per the latest findings by the rating agency ICRA, the aggregate occupancy for its hospital industry sample set to remain healthy at 62 to 64 per cent in FY2023 and FY2024. This aggregate occupancy is backed by continued healthy demand for elective surgeries, recovery in medical tourism to pre-COVID levels, and continued market share gains for organised players.
The sampled hospital companies will have strong average revenue per occupied bed (ARPOB), aided by an improving payor mix, growth in surgery volumes, price revisions by companies to offset cost inflation and faster throughput in discharges. As per ICRA, ARPOB is expected to rise with a healthy growth rate of nearly 8 to 10 per cent for the sample set in FY2023. Given the high base, ARPOB growth in FY2024 is estimated to be moderate at about two to four per cent.
On the basis of trends, Mythri Macherla, Assistant Vice President & Sector Head, ICRA said, “COVID-related uncertainties resulted in deferment of organic capex plans of industry players over the last two years. Supported by sustained improvement in demand, sample set players have announced a sizable expansion with the addition of around 7,000 beds and an upgradation or refurbishment plan for the next three to four years. Further, some large players in the sector continue to scout for inorganic growth opportunities, which could translate into incremental beds being added through mergers and acquisitions. With robust performance expected in FY2023 and FY2024, the debt metrics will remain strong going forward, despite incremental debt funding for supporting expansion plans.”
The revenue growth of the ICRA-sampled hospital chains is estimated to be around 15 to 17 per cent on a YoY basis in FY2023, supported by strong occupancy and higher ARPOB. However, growth is expected to slightly moderate to approximately four to six per cent in FY2024. Despite high input cost inflation, improving operating leverage, supported by the increasing scale of operations and continued cost optimisation measures, is expected to support a healthy OPM of about 20 to 22 per cent in FY2023 and FY2024.
ICRA maintains a stable outlook on the Indian hospital industry, led by the rising incidence of non-communicable lifestyle diseases, growing per capita spending on healthcare, increasing awareness levels, increasing penetration of health insurance, and a revival in medical tourism volumes.
While most of the capacities are expected to be set up in metro cities, some of the large players are also entering into operations and management contracts to geographically diversify their presence in unexplored markets on an asset-light basis.
The in-patient footfalls for ICRA’s sample set during H1 FY2023 remained high at 1.3x of pre-COVID levels, backed by higher elective surgeries and a revival in medical tourism, coupled with changing patient preference towards large hospitals on the back of increasing insurance coverage.
According to ICRA, the average length of stay (ALOS) in H1 FY2023 at 3.6 days reached pre-COVID levels, and is expected to remain low, backed by faster throughput of patients, which is also supported by technological advancements. In Q2 FY2023, relatively higher patient flow for viral diseases led to occupancy expanding to 67.5 per cent from 61.7 per cent in Q1 FY2023. However, ARPOB slightly moderated on a sequential basis due to lower realisations from the viral diseases’ patients.
ICRA’s sampled hospital industry findings suggest that overall revenue growth and OPM set in H1 FY2023 stood at 12 per cent and 21.8 per cent, respectively, on the back of improvements in both occupancy (64.7 per cent vs 63.0 per cent in H1 FY2022) and ARPOB (12 per cent YoY growth). Q2 FY2023 witnessed the highest-ever quarterly OPM of 22.8 per cent, in the last several years, backed by improved occupancy, a better speciality mix, and a turnaround in the operations of many of the new centres for some hospitals.