ICRA Ratings expects the long-term outlook of the healthcare sector to remain ‘Stable’ despite its performance being recently affected due to Covid-19. The Stable outlook is on the back of structural strengths. The occupancy of companies in the sector is expected to bounce back substantially, to 60% in FY2022, from the projected occupancy of 52% in FY2021; and the revenue growth is estimated to rise to 20% in FY2022, against an expected contraction of 19% in FY2021, aided by a lower base.
Kapil Banga, Assistant Vice President, ICRA, said, "There has been significant sequential improvement in occupancy every month after the sharp fall in April and majority of the players are expected to back in operating profits, starting from the month of August, after reporting EBIDTA losses in Q1 and July. Pent-up demand is also likely to support the performance, as elective procedures cannot be delayed indefinitely, by domestic as well as international patients."
The significant capex in the last five years has started contributing to the profitability and the capex as well as startup costs of new hospitals are likely to be much lower going forward, which will also aid profitability and debt protection indicators over the medium term.In FY2020, ICRA upgraded seven ratings and downgraded four (credit ratio of 1.75) and in FY2021 YTD, it has upgraded two entities and downgraded one (credit ratio of 2). The credit risk profile of entities in the sector had been on improving trajectory over the last two years and notwithstanding the near-term disruption, as well as given the essential nature of the services, the sector will report a speedy recovery.
The ARPOB and margins from the treatment of Covid-19 patients is much lower than that of electives and the margins from Covid-19 patients were further impacted due to the price caps placed by certain state governments; nonetheless, the contribution margin from treatment of Covid-19 patients has been positive and it has cushioned the pressure on profitability during these challenging times due to a sharp drop in electives and medical tourism.
Banga added, "Over the medium-to-long run, the demand is expected to continue to rise steadily, given the underlying fundamentals, including a growing population, increasing life expectancy, rising incidence of non-communicable lifestyle diseases, growing per capita spend, increasing penetration of health insurance and double-digit rise in medical tourism (excluding impact of Covid-19). On the supply side, India currently faces significant shortage of beds and Government investments towards hospital bed addition are limited. This provides private sector players with the opportunity to step in to fill the gap."
