With number of Covid-19 cases rising, elective surgery volumes at hospitals have taken a hit across the country. In addition to lower number of patient footfalls, large number of healthcare workers testing positive for Covid-19 is also expected to impact services offered by hospitals to a certain extent. While most patients are currently experiencing relatively mild symptoms and do not require oxygen even during hospitalisation, the situation continues to remain evolving and impact of the same on performance of hospitals will remain a key monitorable. While Covid admissions typically entail relatively lower ARPOBs, longer average length of stay supports higher occupancy for hospitals, ICRA said in a release.

Hospitals reported strong performance in Q2 FY2022 supported by healthy ramp-up in elective procedure volumes and strong ARPOB levels. Pent-up demand and market share gains for organized players in the high-end/complex surgery space also supported healthy occupancy levels for ICRA’s sample set of seven listed companies. According to Mythri Macherla, Assistant Vice President & Sector Head, ICRA, “Uptick in footfalls at metro centers of hospitals in addition to higher amount of surgical work coupled with lower number of Covid admissions resulted in sizeable Q-o-Q growth of 12.5% in ARPOB levels. Overall, sample set revenues grew by 85% while operating margins were slightly over 20% in H1 FY2022.”

ICRA’s sample set of companies are Apollo Hospitals Enterprise, Fortis Healthcare, Narayana Hrudayalaya, Aster DM Healthcare (India business only), Max Healthcare Institute (previously part of Max India), Healthcare Global Enterprises, and Shalby.  

For the full year, FY2022, overall revenue growth is expected to be robust with continued footfall momentum for elective surgeries post Covid second wave till December 2021. Benefits from improving scale and strong ARPOB levels, cost-optimization efforts, and ancillary revenues from Covid-19 are expected to support margin improvement for the sample set to 18-20% in FY2022. Further, given robust accrual levels and relatively lower debt levels, debt metrics for the sample set are expected to witness considerable improvement in FY2022. Given the strong demand for healthcare sector and continued patient preference for branded hospitals, revenue growth and margins are expected to remain healthy for the industry going forward as well.

In terms of capex, players in the sector have gone slow on greenfield expansion in the last few years as the focus was on improving returns on existing facilities. Players are now looking at adding bed capacity within the existing infrastructure while some have announced new greenfield projects. Some of the larger players are also actively scouting for inorganic growth opportunities.

Adds  Macherla, “ICRA  expects occupancy to improve to 60-62% in FY2022 with an upside bias in case there are high number of hospitalisations (akin to the second wave) on account of the recent resurgence in cases. Further, despite relatively lower ARPOBs for Covid, ARPOB for the sample set is expected to expand by at least 6% in FY2022 given the strong industry performance in H1 FY2022. While resurgence in cases and restrictions being imposed are expected to result in some uncertainty in footfalls for hospitals in Q4 FY2022, performance in Q3 FY2022 is expected to have been strong on the back of continued traction in elective surgeries till first half of December 2021. While some hospitals have recently announced capacity addition plans, timeline of these spends will remain a monitorable given the Covid third wave and impact of the same on economic activity and mobility levels going forward.”