Private hospitals in India will invest about Rs 32,500 crore to add over 30,000 beds in the next four to five years, says ratings agency ICRA. Metros are expected to remain focal points for this capacity expansion with cities such as Delhi-NCR, Mumbai and Bangalore likely to witness sizeable bed additions in the next few years, the agency says.

In its latest outlook on the Indian hospital industry, ICRA says growth will be led by continued demand for elective surgeries, higher preference for large hospital players aided by increasing insurance penetration, the rising incidence of non-communicable lifestyle diseases, and higher medical tourism volumes.

“Given the strong operating metrics and demand outlook, industry players have announced sizeable capex plans for the next four to five years. Cumulatively, ICRA’s sample set companies are expected to add about 3,900 beds over FY2024 and FY2025, translating to 15% of their existing bed capacity. Exhibiting similar trends, the broader industry has also announced significant bed additions,” Mythri Macherla, assistant vice president & sector head, ICRA says.

ICRA’s sample set includes the hospital business of nine listed companies, Apollo Hospitals Enterprise Limited, Aster DM Healthcare Limited (India business), Fortis Healthcare Limited, Healthcare Global Enterprises Limited, Krishna Institute of Medical Sciences Limited, Max Healthcare Institute Limited, Narayana Hrudayalaya Limited, Rainbow Children’s Medicare Limited and Shalby Limited.

ICRA expects the aggregate occupancy for its sample set companies to remain healthy at 64-65% in FY2024 (65.1% in FY2023) backed by sustained healthy demand for healthcare services, continued market share gains for organised players and revival in medical tourism post the pandemic. The average revenue per occupied bed (ARPOB) is expected to witness a healthy growth of 8-10% in FY2024 (following an expansion of 10% in FY2023). This will be aided by improving specialty and case mix, better payer mix (with a higher contribution of cash and insurance patients) and annual price revisions by companies to offset cost inflation supporting the ARPOB growth for the sample set. Overall, ICRA estimates revenue growth at 12-14% in FY2024.

“To overcome the impact of inflation, hospitals have employed cost optimisation measures such as consolidation of suppliers and centralised procurement to enable rationalisation of consumables cost and capex, improvement in efficiencies through the use of digital tools, energy consumption from renewable energy resources, and in-house management of onsite pharmacy operations, against outsourcing to third parties. Improving operating leverage coupled with aforementioned cost optimisation and digitisation measures are expected to support a healthy operating profit margin of about 22-23% for these companies in FY2024,” Macherla says.

In addition to setting up new greenfield and brownfield facilities to enhance their capacities, hospital chains are also looking at inorganic opportunities, which has led to increasing consolidation in the industry in the last two years, ICRA notes.

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