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Higher Occupancy To Drive Recovery For Private Hospitals: CRISIL

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Higher occupancy due to a surge in Covid-19 treatments will help private hospitals bounce back with 15-17% growth in revenue this fiscal, a shade above what they attained in the pre-pandemic year of fiscal 2020.

 

According to CRISIL, this will aid recovery of operating margin by 100-200 basis points (bps) to 13-14%, but still fall short of the fiscal 2020 mark due to higher proportion of Covid-19 treatments, which are less profitable.

"That said, recovery in operating margins will render stability to credit profiles, even as capital spending is enhanced after the curtailment last year, an analysis of 40 hospital companies (including 36 rated by CRISIL Ratings), with a combined revenue of about Rs 32,000 crore, shows.

Higher Occupancy To Drive Recovery For Private Hospitals: CRISIL

To recall, the performance of hospitals was severely impacted in the first quarter of last fiscal due to postponement of elective surgeries and preventive healthcare (which together account for 60% of revenue), in addition to travel restrictions and curbs on Covid-19 treatment by private hospitals," a release by CRISIL states.

The sector clawed back in the second quarter and had recovered completely by the third as elective surgeries and preventive healthcare treatment increased and Covid-19 treatments, too, were permitted for most private hospitals. This helped limit the overall revenue decline to 12% for the full year.

 

Says Manish Gupta, Senior Director, CRISIL Ratings, "While the second wave lashed again in April, the first quarter this fiscal will be sharply better on-year, with occupancy of ~75%, almost double on-year. This will be largely on account of a surge in Covid-19 treatments more than offsetting the deferral of elective surgeries and outpatient footfalls. As the second wave recedes in the second quarter, we expect pent-up demand for non-Covid-19 treatments to rebound and support occupancies. Overall, higher occupancies of 65-70% this fiscal versus ~58% in the last, would drive rebound in revenue growth."

Higher occupancy should, in turn, drive recovery in operating margin as well, but remain short of the pre-pandemic level of 15%. Much of the revenue increase would be on account of Covid-19 beds, which can realise only 50-60% of average revenue per bed for non-Covid-19 treatments, as state governments cap the charges. Additionally, hospitals have to pay higher incentives to para-medical and support staff amid the second wave of the pandemic. This will weigh on margins.

Says Rajeswari Karthigeyan, Associate Director, CRISIL Ratings, "Recovery in revenue and margins will nevertheless spur hospitals to resurrect capex, which had almost halved on-year last fiscal. Much of the capex this fiscal is expected to be brownfield in nature, towards bed addition and related infrastructure including oxygen plants, and funded significantly through accruals. The Rs 50,000 crore liquidity window offered by the RBI to augment healthcare infrastructure is expected to help in this regard - the three-year loan tenure will suit brownfield expansions and low-cost funding will particularly help mid- and small-sized hospitals."

Read more about: hospitals crisil
Story first published: Wednesday, June 23, 2021, 8:53 [IST]
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