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Most hospitals expect double-digit revenue growth in FY2022

The hospital sector witnessed a spike in Covid-19 occupancies during Q1 FY2022 in line with the active cases in India that touched an all-time high in May 2021, peaking at more than 4x the first wave peak. The overall occupancy levels were supported by longer average length of stay for Covid patients even as localised lockdowns resulted in a sequential decline in non-Covid occupancies to a certain extent. The blended occupancy of both Covid and non-Covid patients for ICRA sample set stood higher at 64.2% in Q1 FY2022 (against 36.9% in Q1 FY2021 and 58.8% in Q4 FY2021).

Most multi-speciality hospitals derived 25-30% of their Q1 FY2022 footfalls and revenues from Covid-19 treatments and vaccination drives. While the Y-o-Y revenue growth of 129% in Q1 FY2022 for ICRA sample set was optically high aided by the low base, the Q-o-Q revenue growth was also healthy at ~15%. However, higher share of revenues from Covid treatments resulted in a 4.2% Q-o-Q contraction in the average revenue per occupied bed (ARPOB) in Q1 FY2022, even as complex nature of infections and higher proportion of patients requiring critical care treatment and oxygen support aided Y-o-Y growth of 8.7% in ARPOB. Operating leverage benefits in addition to incremental revenues and margins from vaccination drives and Covid tests resulted in an improvement in OPM for ICRA sample set to 19.3% in Q1 FY2022 (against -9.3% in Q1 FY2021 and 18.4% in Q4 FY2021), the highest witnessed by the sample set in the last few years. This was despite absence of revenues from international patients.

Says Mythri Macherla, Assistant Vice President and Sector Head, ICRA, “While both in-patient (IPD) and out-patient (OPD) footfalls declined sequentially in Q1 FY2022 on account of Covid 2.0, footfalls were far higher than Q1 FY2021, wherein hospital operations were adversely impacted on account of the nationwide lockdown. Most hospitals have witnessed sequentially higher footfalls in July and August 2021 compared to Q1 FY2022 levels with resumption in elective surgeries and this is expected to support strong revenue growth momentum for FY2022 going forward.

To assess the on-ground sentiments and understand the outlook for FY2022, ICRA conducted a survey of its rated hospital entities. Key findings suggest that with strong performance in Q1 FY2022 and expected benefits from pent-up demand for electives, respondents expect occupancies in FY2022 to be better than FY2020 levels and ARPOB to remain range-bound in FY2022 despite higher contribution from Covid. More than 2/3rd of the survey respondents expect double-digit growth in revenues in FY2022, and OPM to revive and be higher than FY2020 levels on the back of healthy improvement in occupancy levels.”

The net debt for ICRA sample set increased by ~Rs. 350 crores as on June 30, 2021, compared to March 31, 2021 on account of advance payments for vaccine procurement and higher pharmacy stocking of Covid medicines. In terms of capex, many companies in the sector have gone slow on greenfield expansion in the last few years as the focus was on improving returns on existing facilities. Players are now looking at adding bed capacity within the existing infrastructure, and some of the larger players are actively scouting for inorganic growth opportunities. However, owing to the healthy cash generation and strong liquidity position, the interest coverage ratio is projected to improve to ~4.7x in FY2022 (from 2.6x in FY2021) and Net debt/OPBDITA to improve to 1.4x in FY2022 (from 1.6x in FY2021) for ICRA’s sample set.

The Government of India and the Reserve Bank of India have taken multiple measures to support the sector, including an on-tap liquidity window, dedicated ECLGS credit lines etc. which is likely to support liquidity of industry players. ICRA

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