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Adieu 2022!

As we usher in 2023, surgeries at hospitals are close to the pre-pandemic levels with a resurgence in non-Covid admissions. While Q4 FY2022 had witnessed a sequential decline in footfalls due to the Omicron variant of Covid, they improved in H1 FY2023, backed by higher electives and revival in medical tourism. The revenues of hospitals and nursing homes are expected to grow by 15 percent YoY in FY23 after a high optical growth of 26 percent in FY22, owing to the low base of FY21. Occupancy for FY23 is estimated at 63 percent, from 53 percent in FY21 and 61.6 percent in FY22. As a result of improving operating leverage and continued cost-optimization measures, operating profit margins in FY23 and FY24 are expected to remain healthy at over 20 percent. Several hospital companies have announced sizeable expansion and upgradation/refurbishment plans for the next three–four years, with metros continuing to be the focal points of supply additions. Further, some large players in the sector continue to scout for inorganic growth. The debt/OPBDITA is expected to remain healthy at ~0.7x in FY23 and FY24.

The MedTech industry is now playing an even more significant role in the delivery of healthcare to improve patient outcomes. It is at a critical juncture. Digital solutions, put in place during the lockdowns related to the Covid-19 pandemic, have evolved into clear customer-engagement preferences. Companies that wish to remain competitive are rethinking their traditional commercial models, and designing differentiated digital strategies for the future. The industry is at an inflection point in its adoption of remote sales and support models. Leading companies are embracing hybrid sales and raising the bar for others. They are upending their traditional GTM strategies by augmenting their field sales forces with remote sales organizations.

Having said that, large MedTechs face a value-creation challenge. A number of factors have contributed to the lower growth expectations. The drag of the legacy business, burden of scale, and the lure of near-term earnings perhaps top the list. Notably, high-growth small and midcap stocks, having maintained healthy growth prospects, well-stocked innovation pipelines, and portfolios ripe for acceleration through larger commercial engines, have been attractive targets for larger acquirers.

However, the fundamentals remain, says a McKinsey paper. Growth drives valu- ations, portfolio moves can accelerate growth, and today’s financial and strategic environment is attractive for M&A. Time will tell whether large MedTechs use portfolio moves as part of their solution.

We wish our readers a Merry Christmas and a Happy New Year!

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