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2023- A stable year ahead!

The Union Budget is round the corner. The industry is expecting a dedicated institute for research on medical devices, NIMER. Production-linked incentive scheme is expected to be extended to high-end medical devices. Zero-rating GST, lower-cost financing, lower custom duties aligned with the neighboring countries, policies to increase supply of medical professionals, increasing public expenditure to 2.5 percent of GDP, and an infrastructure status to the healthcare industry continue to be some of the major expectations.

The Indian hospital industry is expected to post robust performance in FY23, concludes an ICRA study of selected listed hospitals. Backed by healthy demand for elective surgeries, recovery in medical tourism, and continued market share gains for the organized players, occupancy is expected to remain healthy at 62–64 percent in FY23 and FY24. Improving payer mix, growth in surgery volumes, and price revisions by companies are expected to aid healthy growth of ~8–10 percent in ARPOB. This translates to healthy revenue growth of ~15–17 percent. Despite high input cost inflation, operating leverage and continued cost-optimization measures are expected to support healthy operating margin of ~20–22 percent in FY23 and FY24.

Shifting gears, despite global recession fears, 2022 was a historically strong year for deal activity across PE, VC, and M&A, topped only by 2021’s figures. Venture-backed founders are feeling the sting of valuation declines and wishing they had raised more capital in 2021 or early 2022. M&A revenues for health systems hit USD 45 billion in 2022, higher than the recent historic high of USD 44 billion, recorded in 2017. The sponsors and some strategics have ample capital to deploy, although they are proceeding with caution. Price matching represents a temporary hurdle as buyers demand more favorable terms and sellers resign themselves to lower-than-2021 valuations. Continued cost inflation puts over-leveraged companies in a precarious position, but many PE-backed platforms continue to grow at a healthy pace. Demand trends in most healthcare services categories, especially home health and behavioral health, are favorable and sponsors will continue to find ways to transact as long as the macroeconomic environment does not take a severe turn for the worse.

Challenges persist but life goes on, as does business.

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