Revenue of private hospitals will grow 10-11% in fiscals 2023 and 2024 on the back of healthy bed occupancy and sustenance of high average revenue per occupied bed (ARPOB), supported by increasing domestic demand and pick-up in medical tourism, according to CRISIL Ratings.

Operating margin of private hospitals will continue to remain healthy at 16-17% until fiscal 2024, although moderating by 200-250 basis points on-year due to increase in employee expenses and pre-operative costs given sizable bed addition, and rising competition, the ratings agency says.

In fiscal 2022, private hospitals had reported an all-time high operating profitability of around 19% due to a surge in treatment during the second wave of the Covid-19 pandemic, which also pushed up occupancy levels, and, later, pent-up demand for elective surgeries.

Healthy cash generation, leading to limited reliance on external borrowing to fund higher capex (both greenfield and brownfield) will in turn help private hospitals maintain adequate debt protection metrics and keep credit risk profiles stable, says CRISIL.

Growing health awareness, especially after Covid-19, leading to increase in domestic demand together with recovery in medical tourism, will ensure bed occupancy being maintained at almost similar levels of around 60% even as bed addition continues, says Anuj Sethi, senior director, CRISIL Ratings.

Rising insurance coverage will make quality treatment more accessible, and support demand as well, Sethi adds.

Average revenue per occupied bed (ARPOB) which grew around 20% in fiscal 2022, will continue to register modest growth, supporting revenues, he says.

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, that had slowed during the pandemic years, says Poonam Upadhyay, director, CRISIL Ratings.

CRISIL analysed 87 companies with revenues totalling ₹41,000 crore, representing two-third of large private hospitals.

These players are adding around 12% of existing capacity i.e. around 6000 beds over two fiscals (fiscal 2023 and 2024) at a cost of ₹13,000 crore; almost similar number of beds were added over the prior four fiscals ending 2022 at a cost of ₹11,500 crore, Upadhyay says.

"We expect credit risk profiles to remain stable on the back of healthy operating margin and cash generation, thereby limiting material debt addition for capex," she adds.

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, the ratings firm says.

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, it adds.

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