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Indian industry seems more resilient to weather the storm

Hospitals seem structurally well placed with expectations of a normal Q1FY23 to be driven by higher in-patient volume and, thus, higher in-patient conversion. One important lever could be the incremental elective surgeries, which were optically postponed in Q4 amid rapid spread of Omicron wave. International patient mix is expected to improve sequentially, although various management commentaries have indicated it to be below pre-Covid level. Amid optical initiatives like tele-consultation, digital app-based drives for treating patients at remote locations, zoning of patients, besides higher focus on insurance or out-of-pocket payees, the hospitals are expected to maintain Q3FY22 momentum, if not surpass it.

Hospitals continue to maintain cost-rationalization drives, such as keeping doctors on variable payroll, besides optical tilt in payee mix toward self-pay, private insured from government scheme, and government-sponsored mix. In addition, maturing profile of hospitals, reduction in ALOS, along with ramp up in occupancy and ARPOB levels, have moved hospitals to a better margin profile. During Q1FY23, hospitals were operating at a normalized level in terms of mix of high-end elective surgeries driving ARPOB levels for hospital chains.

In Q1FY23, ICICI Direct Research expects, results are yet to be announced, a QoQ revenue growth for Apollo Hospitals of 9.9 percent, Shalby 18.2 percent, Narayana Hrudayalaya 5.5 percent, and Healthcare Global 2.9 percent. And in Q1FY23, the expected increase in PAT QoQ forecast is 173.8 percent for Apollo Hospitals, 90.7 percent for Shalby, 25.3 percent for Narayana Hrudayalaya, and 81.7 percent for Healthcare Global.

Having said that, not all hospitals are embarking on an expansion path. While, over the next five years, Apollo Hospitals has announced expansion plans, a combination of greenfield and brownfield of ₹1500 crore, Max Healthcare ₹3700 crore, and KIMS Hospitals ₹1700 crore; Healthcare Global Enterprises, Kovai Medical Centre, and Narayana Hrudayalaya seem to be in a declining CapEx investment mode.

Shifting gears, so far in 2022, the rupee has shed 6.94 percent versus the US dollar. The going becomes tough for an industry that has a dependency of as high as 85 percent for its equipment on imports. Moving forward, with the RBI recently announcing a slew of measures, such as relaxation of norms for firms’ overseas borrowing and wider investment in debt, some degree of foreign flows may materialize in the later half of the year. And, if India’s inflation does begin to soften, as some indicators suggest, foreign investors may again consider parking funds in domestic assets as the RBI lifts interest rates further.

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