MB’s Take

The overall healthcare growth story and the macro indicators are intact, reveal the results declared by listed hospitals and lab chains

The financial results of the six listed hospitals reveal that the companies have recovered from the Covid-19 distress they faced in 2020-21.

The six leading listed hospital groups, Apollo Hospitals Enterprise, Narayana Hrudayalaya, Max Healthcare Institute, Aster DM, Healthcare Global Enterprises, and Shalby have seen a combined 41 percent increase in income in the nine-month period, April-December 2021 period over April-December 2020. The combined income of the six hospitals was ₹26,185.83 crore in April-December 2021, up from ₹18,528.56 crore in April-December 2020. Max Healthcare reported a 73 percent increase, Narayana Hrudayalaya a 58 percent, and Apollo and HCG each a 44 percent increase. Aster DM saw a 43 percent increase in revenue and Shalby Limited, with a smaller, base saw an 86 percent increase in revenue in the same period.

The combined profit-after-tax (PAT) saw an 803 percent increase in the same period, with Apollo Hospitals Enterprise reporting a whopping 5620 percent increase, from a loss of ₹17.49 crore to a profit of ₹965.47 crore. The combined PAT of the six hospitals was ₹2111.18 crore in April-December 2021, as compared to a loss of ₹300.35 crore in April-December 2020.

Financial Results (9 Months) – YoY Comparison

Revenue (₹ cr)
Hospital	Apr-Dec 2021 9M ended FY2022	Apr-Dec 2020 9M ended FY2021	Change %
Apollo Enterprise	11163.62	7716.60	7716.60
Narayana Hrudayalaya	2785.39	1764.22	57.88
Max Healthcare Institute	3095.31	1789.31	72.99
Aster DM	7554.17	6237.71	21.10
Healthcare Global Enterprises	1042.82	727.94	43.26
Shalby	544.53	292.78	85.98
Total	26185.83	18528.56	41.33
PAT (₹ cr)
Hospital	Apr-Dec 2021 9M ended FY2022	Apr-Dec 2020 9M ended FY2021	Change %
Apollo Enterprise	965.47	-17.49	5620.13
Narayana Hrudayalaya	273.01	-82.32	431.66
Max Healthcare Institute	481.32	-184.19	361.32
Aster DM	299.72	42.35	607.72
Healthcare Global Enterprises	47.74	-91.29	152.29
Shalby	43.92	32.59	34.77
Total	2111.18	-300.35	2411.53

The diagnostic laboratory chains are finding the going a little tough. With huge capacities created for molecular biology tests in the past two years to cater to a huge surge in demand for Covid testing, they are now working out strategies to utilize these capacities.

Financial Results – QoQ Comparison

Revenue (₹ cr)
Hospital	Q3 FY2022	Q2 FY2022	Change %
Apollo Hospitals Enterprise Ltd	3656.08	3722.69	-1.79
Narayana Hrudayalaya	966.50	952.41	1.48
Max Healthcare Institute	1022.77	1049.64	-2.56
Aster DM	2661.09	2513.45	5.87
Healthcare Global Enterprises	360.98	355.26	1.61
Shalby	165.19	134.05	23.23
Total	8832.61	8727.50	1.20
PAT (₹ cr)
Hospital	Q3 FY2022	Q2 FY2022	Change %
Apollo Enterprise	228.37	247.82	-7.85
Narayana Health	97.49	97.49	-1.86
Max Healthcare Institute	189.75	144.65	31.18
Aster DM	148.34	106.91	38.75
Healthcare Global Enterprises	-45.78	103.09	-144.41
Shalby	12.94	16.82	-23.05
Total	631.12	718.63	-12.18

The key strategy is to use the reverse transcription-polymerase chain reaction (RT-PCR)-equipped or molecular labs created for conducting other tests – hepatitis B and C, HIV, tuberculosis (TB), dengue, and chikungunya. The expansion and investments were primarily in equipment, which will now need to be removed or redeployed. Of course, investment for setting up such infrastructure is about ₹45 lakh per lab, and that has already been recovered through Covid testing.

Financial Results – YoY Comparison

Revenue (₹ cr)
Hospital	Q3 FY2022	Q2 FY2022	Change %
Apollo Hospitals Enterprise Ltd	3656.08	2765.35	32.21
Narayana Hrudayalaya	966.50	754.93	28.02
Max Healthcare Institute	1022.77	835.12	22.47
Aster DM	2661.09	2233.31	2233.31
Healthcare Global Enterprises	360.98	279.83	29.00
Shalby	165.19	184.43	-10.43
Total	8832.61	7052.97	25.23
PAT (₹ cr)
Hospital	Q3 FY2022	Q2 FY2022	Change %
Apollo Enterprise	228.37	130.43	75.09
Narayana Health	97.49	40.81	138.88
Max Healthcare Institute	189.75	90.36	109.99
Aster DM	148.34	92.42	60.51
Healthcare Global Enterprises	-45.78	-29.25	56.51
Shalby	12.94	10.79	20.01
Total	631.12	335.56	88.08

ICICI Securities expects diagnostic companies to observe mid-teens growth in base (non-Covid) business in calendar year 2022 (CY22). “Low base of non-Covid portfolio of H1CY21 would likely help in registering very strong growth in H1CY22, while Covid-19 related revenues would contract sharply. We also expect a faster shift from unorganized to organized players in the current environment, as larger brands are associated with safety and hygiene and have an efficient home collection process, which has seen increased traction, as well as likely consolidation in the industry,” the analyst noted.

Financial Results (9 Months) – YoY Comparison

Revenue (₹ cr)
Diagnostic Centre	Apr-Dec 2021 9M ended FY2022	Apr-Dec 2020 9M ended FY2021	Change %
Lal Pathlabs	1642.40	1181.10	38.24
Thyrocare Technologies	485.40	356.58	36.13
Metropolis Healthcare	934.38	716.24	30.46
Vimta Labs	205.20	151.43	35.51
Total	3267.38	2405.35	862.04
PAT (₹ cr)
Diagnostic Centre	Apr-Dec 2021 9M ended FY2022	Apr-Dec 2020 9M ended FY2021	Change %
Lal Pathlabs	283.50	208.20	36.17
Thyrocare Technologies	154.90	75.66	104.73
Metropolis Healthcare	174.20	121.75	43.08
Vimta Labs	29.50	13.66	115.88
Total	642.09	419.27	222.82

Financial Results – QoQ Comparison

Revenue (₹ cr)
Diagnostic Centre	Q3 FY2022	Q2 FY2022	Change %
Lal Pathlabs	509.000	512.700	-0.722
Thyrocare Technologies	118.800	191.400	-37.931
Metropolis Healthcare	295.663	308.192	-4.066
Vimta Labs	68.054	75.618	-10.003
Total	991.517	1087.910	-8.860
PAT (₹ cr)
Diagnostic Centre	Q3 FY2022	Q2 FY2022	Change %
Lal Pathlabs	57.30	95.00	-39.68
Thyrocare Technologies	21.50	77.73	-72.34
Metropolis Healthcare	41.04	58.27	-29.57
Vimta Labs	11.68	9.74	19.89
Total	131.52	240.74	-45.37

Financial Results – YoY Comparison

Revenue (₹ cr)
Diagnostic Centre	Q3 FY2022	Q2 FY2022	Change %
Lal Pathlabs	509.000	465.90	9.25
Thyrocare Technologies	118.80	140.85	-15.65
Metropolis Healthcare	295.66	278.52	6.16
Vimta Labs	68.05	59.00	15.35
Total	991.52	944.27	5.00
PAT (₹ cr)
Diagnostic Centre	Q3 FY2022	Q2 FY2022	Change %
Lal Pathlabs	57.30	94.50	-39.37
Thyrocare Technologies	21.50	32.39	-33.62
Metropolis Healthcare	41.04	58.57	-29.93
Vimta Labs	11.68	8.07	44.78
Total	131.52	193.53	-32.04

It is an effort to reduce India’s dependence on the import of high-end medical devices. The Indian medical devices market has a significant presence of multinational companies, with about 80 percent of the sales by value generated from imported medical devices. The Indian medical devices sector’s contribution has become even more prominent as India supported the global battle against the Covid-19 pandemic through the production of medical devices and diagnostic kits, e.g., ventilators, RT-PCR kits, IR thermometers, PPE kits, and N-95 masks.

A long-awaited policy finally in the offing
The Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, Government of India, has recently presented an Approach Paper on Draft National Medical Devices Policy 2022 for consultation. In order to drive the growth of the sector, the paper has been prepared with the aim to facilitate an orderly growth and provide a clear direction to meet the underlying objectives of accessibility, safety, and quality, while ensuring focus on self-sustainability and innovation. Feedback from the industry and stakeholders has been sought.

The sector requires special coordination and communication among industry and stakeholders because of its diversified nature, continuous innovation, and variation. The Department of Pharmaceuticals (DoP), Ministry of Chemicals and Fertilizers, through various programmatic and schematic interventions, such as the PLI scheme for promoting domestic manufacturing of medical devices and the promotion of medical devices parks, intends to encourage the domestic manufacturing of medical devices. Realizing that the sector demands a high level of coordination between the regulators who have a specific legal function but are spread over various departments, such as DoHFW, Consumer Affairs, Atomic Energy Regulation Board, National Institute of Biologicals, MoEF&CC, the DoP attempts to resolve many of the issues through institutional arrangements, viz., Standing Forums and Regulatory Round Tables.

The proposed policy strives to put in place a comprehensive set of measures for ensuring sustained growth and development of the MedTech sector and address the further challenges of the sector, such as regulatory streamlining, skilling of human resources, lack of technology for high-end equipment, and lack of appropriate infrastructure, through a coherent policy framework.

In addition, the marketing practices of the medical devices sector are currently being voluntarily regulated by the Uniform Code for Pharmaceuticals Marketing Practices (UCPMP). Based on the request of the MedTech industry to have a separate uniform code and having realized such needs, the Department of Pharmaceuticals (DoP) has prepared a separate Uniform Code for Medical Device Marketing Practices (UCMDMP) in consultation with the industry.

A parliamentary panel has also recommended framing a new price control regime, specific for medicines and medical devices for Covid-19 management, and putting them under price control with no annual increase in prices allowed till the pandemic is entirely over in the country.

The Parliamentary Standing Committee on Chemicals and Fertilizers recommended covering medical devices for Covid-19 treatment under the National List of Essential Medicines for effective price control, while also suggesting exemption of basic customs duty and GST on medicines and medical devices for fighting the pandemic. The Committee, therefore, recommends that all medical devices critical to Covid-19 treatment, like ventilators and oxygen concentrators, should be covered under the National List of Essential Medicines for effective price control.

Arguing that the price range of oxygen concentrators is still on the higher side even after trade margin rationalization (TMR), the panel recommended that the DoP and the National Pharmaceutical Pricing Authority (NPPA) should consider capping of the prices of various types of oxygen concentrators so as to make them affordable to common man.

Other key proposals include:

• Incentivizing the export of medical devices and related technology projects through tax rebates and refunds;
• Increasing government spending on high-risk projects in the medical devices sector;
• A single-window clearance system for licensing medical devices;
• Pricing environment with no price control on newly developed innovation in the sector;
• Allot a dedicated fund for encouraging joint research involving existing industry players, reputed academic institutions, and start-ups;
• Building competitiveness through fiscal and financial support for stimulating the development of the local manufacturing ecosystem with private sector investments;
• Infrastructure development to provide the best-in-class physical foundation, including medical devices parks with common facilities, such as testing centers, to improve cost competitiveness and enhance attraction of domestic manufacturers;
• Facilitating R&D and innovation with a focus on enhanced collaboration in innovation and R&D projects, global partnerships, and joint ventures among key stakeholders to bridge the gap between academic curriculum and industry requirements;
• Incorporate a framework for a coherent pricing regulation, to make available quality and effective medical devices to all citizens at affordable prices;
• NPPA shall be strengthened with adequate manpower of suitable expertise to provide effective price regulation, balancing patient and industry needs; and
• Pharmaceuticals Department will also work with the industry to implement a Uniform Code for Medical Device Marketing Practices (UCMDMP).

Why the new policy? India’s medical devices sector has so far been regulated as per the provisions of the Drugs and Cosmetics Act of 1940, and a specific policy on medical devices has been a long-standing demand from the industry. In February 2020, the government notified changes in the Medical Devices Rules, 2017, to regulate medical devices on the same lines as drugs under the Drugs and Cosmetics Act, 1940. This was necessitated after revelations about faulty hip implants, marketed by Johnson & Johnson, exposing the lack of regulatory teeth when it came to medical devices.

The government said the transition from partial regulation of selected medical services to the complete regulation and licensing of all medical devices is underway, and is expected to be completed by October 2023, requiring more clear articulation in terms of quality assurance and certification.

India has one of the lowest per capita spending on medical devices at USD 3, compared to the global average per capita consumption of USD 47, and significantly lower than the per capita consumption of developed nations like the USA at USD 415 and Germany at USD 313. This policy will also help in increasing India’s per capita spending on medical devices.

Indian players in the MedTech space have so far typically focused on low-cost and low-tech products, like consumables and disposables, leading to a higher value share going to foreign companies. With the new policy, India’s import dependence is expected to decrease from 80 percent to nearly 30 percent in the next 10 years.

The policy envisions that by 2047, India will have a few National Institutes of Medical Devices Education and Research (NIMERs) on the lines of NIPERs, will be home and originator to 25 high-end futuristic technologies in MedTech, and will have a MedTech industry of USD 100-300 billion size with 10-12 percent of global market share.