MB Stories
Q2FY23 performance indicates the roller coaster ride for hospitals is finally ending
With renewed impetus from PMJAY and government focus continuing on the healthcare sector, the overall healthcare delivery market, mainly comprising hospitals, is expected to report ₹5.6 lakh crore by value in fiscal 2022-23. Growth is being contributed by stabilization of regular treatments, surgeries, and OPD amid minimization of disruption due to the pandemic and expansion of average revenue per occupied bed (ARPOB) for the sector.
A potential upside is also expected from Covid treatments, especially for hospitals where occupancies were typically on the lower side. Within the overall healthcare delivery market, the in-patient department (IPD) is expected to account for nearly 70 percent (in value terms), while the balance is to be catered by the out-patient department (OPD). Though in terms of volumes, OPD volumes outweigh IPD volumes, with the latter contributes the bulk of the revenues to healthcare facilities.
Over the last four years, major hospital chains have added supply (~70% of their incremental supply during the period) in tier II and III locations, to create a referral network into their main center by tapping into the underserved creamy tier II areas. The government is also expected to augment this via Prime Minister Atmanirbhar Swasth Bharat Yojana for strengthening primary, secondary, and tertiary healthcare infrastructure in the country.
The other contributors to the demand are more structural in nature, like, increase in lifestyle-related ailments, increasing medical tourism, rising incomes and changing demography.
Private players versus government are expected to continue to hold majority share of treatments (in value terms). The share held by the private players is expected to increase from 58 percent in fiscal 2021 to nearly 73 percent in fiscal 2025.
Further, in fiscal 2021, Crisil Research estimates indicate revenues of private hospitals (including multispecialty chains) to have declined by 10–15 percent due to reduction in both outpatient and inpatient footfalls (with OR falling to 25–30% in April). However, the focused super specialized companies like Kids Clinic (Cloudnine), Motherhood saw better resilience with the revenue witnessing growth in FY21 versus FY20.
In fiscal 2022, with pent-up deferred procedures as well as some benign push from the low base of the preceding year, the revenues of hospital chains are expected to grow by 20–25 percent. Margins are also expected to bounce back to pre-Covid levels owing to high-realization procedures being catered to. However, the pace of recovery is contingent on the resurgence of Covid cases in the country.
Bumpy ride for hospitals seems almost over
The corporate hospitals are now banking on elective procedures to achieve a double-digit revenue growth in FY23. What is interesting is that the sector expects to have better operating margins in FY23 compared to FY22.
Apollo Hospitals. In Q2FY23, Apollo Hospitals’ consolidated revenue from operations grew by 14 percent year-on-year (YoY) to ₹4251 crore, of which healthcare services accounted for 53 percent, followed by digital health and pharmacy distribution (39%), and diagnostics and retail health business (7%). Revenue from the healthcare services business grew 5 percent YoY to ₹2277 crore, while the digital health and pharmacy business registered a growth of 43 percent to ₹1668 crore. However, its consolidated net profit declined 20 percent to ₹213 crore in the second quarter that ended in September. The healthcare major had reported a net profit of ₹267 crore in the July–September period of the previous fiscal.
Apollo Hospitals Enterprise Ltd. (AHEL), which covers the diagnostics business, posted a revenue of ₹318 crore during Q2FY23, a 12-percent YoY growth after normalizing Covid-related revenues. Apollo Diagnostics recorded its highest-ever revenues during the quarter and also crossed the landmark of ₹100 crore in revenue. It posted a revenue of ₹104 crore during the latest quarter.
“The current revenues (of diagnostics business) are largely between southern and eastern markets. We have made entries into Mumbai and Delhi over the last 12 to 18 months only. Their contribution to overall current revenues is miniscule. We expect to achieve ₹1000 crore in topline from its diagnostics business over the next three years,” said C Chandra Sekhar, CEO, AHLL.
In H1FY23, Apollo Diagnostics added over 260 collection centers and nine third-party labs, taking the overall network to 1500 centers across 200 cities, and serving over 13,000 customers every day.
The total number of pharmacies as of September 30, 2022, was 5002. The company added 527 stores (at a gross level) and closed 54 stores, implying net additions of 473 stores in Q2FY23.
Aster DM Healthcare announced that the consolidated revenue from operations was up 12 percent YoY to ₹2816 crore for the quarter that ended on September 30, 2022. Meanwhile, EBITDA (excluding other income) was at ₹319 crore as compared to ₹343 crore in Q2FY22. Excluding losses due to new hospitals, EBITDA stands at ₹342 crore. During the quarter, the operational revenue increased by 12 percent YoY to ₹2816 crore compared to ₹2504 crore in Q2FY22.
“In Q2, we had a revenue growth of 12 percent on a consolidated basis. Revenue in the GCC increased 9 percent over the last year while strong growth momentum in India continued, with revenues growing 24 percent over Q2FY22. In the GCC region, we have inaugurated the 101-bed Aster Hospital in Sharjah in October 2022, the soft launch of which was done in May 2022. The plan is to add many tertiary care treatments to the bouquet of services in the future,” said Dr Azad Moopen, Founder Chairman and Managing Director, Aster DM Healthcare.
Fortis Healthcare reported a consolidated profit after tax of ₹218.3 crore for the second quarter ended September 2022 as compared to ₹130.6 crore recorded in the year-ago period. Its consolidated revenue for the September quarter of FY23 stood at ₹1607 crore, up 9.9 percent as compared to ₹1462.5 crore in the corresponding period of the last fiscal. Its Q2FY23 hospital business revenues were at ₹1297 crore versus ₹1098.5 crore in Q2FY22.
The earnings before interest, tax, depreciation and amortization (EBITDA) stood at ₹316 crore in Q2FY23, improving by 9 percent YoY. The EBITDA margin stood at 20 percent.
The ARPOB (average revenue per occupied bed) was ₹1.97 crore in Q2FY23, compared to ₹1.87 crore in Q2FY22. The average occupancy rate rose to 69.6 percent, compared to 64.2 percent in the corresponding period of the previous year. The diagnostics business net revenues dropped 15 percent YoY to ₹310.2 crore primarily impacted by lower Covid and its allied test volumes.
“Our Q2FY23 consolidated results reflect the robust performance of our hospital business that now contributes 77 percent to our consolidated EBITDA and has seen healthy margin expansion. The hospital business performance has enabled us to maintain our consolidated margins at around 20 percent despite Covid volumes significantly impacting the diagnostics business,” said Ravi Rajagopal, Chairman, Board of Directors, Fortis Healthcare.
Fortis has 4100 operational beds and 400 diagnostics centers.
Max Healthcare Institute. In Q2FY23, the company reported highest-ever gross revenue of ₹1567 crore, up 9 percent YoY and 6 percent quarter-on-quarter (QoQ). On a like-to-like basis, the gross revenue for the quarter reflects a growth of 17 percent YoY.
The net profit during Q2FY23 includes one-time impact of ₹244 crore due to reversal of deferred tax liability, relating to intangible assets transferred to Max Healthcare, pursuant to voluntary liquidation of Saket City Hospital and distribution of its business undertaking in August 2022.
The network operating EBITDA stood at ₹410 crore compared to ₹362 crore in the corresponding quarter last year (Q2FY22) and ₹370 crore in the previous quarter (Q1FY23). Operating EBITDA margin during the quarter improved 100 bps YoY and 110 bps QoQ to 27.7 percent. Profit after tax for the quarter stood at ₹511 crore, compared to ₹207 crore in the corresponding quarter last fiscal.
Bed occupancy in Q2FY23 stood at 78 percent; about 1 percent of total occupied beds were used for Covid-19 patients. The average revenue per operating bed (ARPOB) improved to ₹66,000 from ₹59,000 in Q2FY22.
“The growth in Q2FY23 revenue and operating EBITDA were driven by higher occupancies, improved payer mix and increased ARR in the outpatient department.
International patient revenue grew 16 percent YoY and reflected 110 percent of pre-Covid average. The performance for Q2FY23 is as per our expectations and reflects the focus on execution across the organization in line with our articulated strategy,” said Abhay Soi, Chairman and MD, Max Healthcare.
HealthCare Global Enterprises. In Q2FY23, the company’s revenue from operations stands at ₹420 crore as compared to ₹352 crore in the corresponding quarter of the previous year, reflecting YoY growth of 19.3 percent. Adjusted EBITDA stands at ₹81 crore, as compared to ₹63.3 crore in the corresponding quarter of the previous year, a growth of 28.0 percent YOY and 7.2 percent QoQ.
Revenue from matured centers stands at ₹309 crore, a growth of 19 percent YoY. EBIDTA from matured centers stands at ₹77.7 crore, a growth of 20 percent YoY.
Revenue from emerging centers stands at ₹94.5 crore a growth of 26 percent YoY. EBIDTA from emerging centers stands at ₹9.5 crore a growth of 187 percent YoY.
Overall ARPOB stood at ₹36,914 versus ₹36,437 in Q2FY22, a growth of 1.3 percent. Overall AOR stood at 66.4 percent versus 56.1 percent in Q2FY22, a rise of 1030 basis points (bps).
“While our mature centers continue to show higher than the market growth rate, the growth strategies implemented for the emerging centers have started showing promising results. Jaipur center has more than doubled its revenue whereas Kolkata and Mumbai have grown by 40 percent and 30 percent, respectively, on a YoY basis in the current quarter. Our differentiated and specialized cancer care, along with strong brand positioning, has enabled us to attain leadership positions in 13 out of 18 locations where we are present,” said Raj Gore, CEO, HealthCare Global Enterprises.
Narayana Hrudayalaya. The healthcare major has posted a consolidated net profit of ₹168.9 crore in Q2FY23, translating into YoY growth of 69.9 percent and QoQ growth of 52.6 percent respectively. Consolidated total operating income was ₹1141.60 crore for Q2FY23 as against ₹940.70 crore in the corresponding period of the previous year, reflecting an increase of 21.4 percent YoY and 10.5 percent QoQ respectively.
Consolidated EBITDA stood at ₹274.9 crore, reflecting a margin of 24.1 percent as against ₹181 crore in Q2FY22, translating into a YoY growth of 51.9 percent and QoQ growth of 37.5 percent respectively.
Total expenses rose 15.8 percent YoY to ₹946.82 crore in Q2FY23.
“Building upon the momentum of the previous quarter and backed by continued strong performance across our units, we are pleased to have delivered record profitability for the group during the quarter gone by. Anchored by our flagship units along with sustained uptick in other hospitals, ensured that our Indian operations, after having been severely impacted during the pandemic, are back to a healthy growth trajectory. Separately, after the blip in the previous quarter, our Cayman Islands’ operations retracing the strong traction generated over the last couple of years also recorded their highest-ever profitability during this period. While the results do bear out our focus on execution, as articulated, we are looking to also pursue strategic growth avenues as reflected in our recent acquisitions across our core Bengaluru region as well as Cayman Islands,” said Dr Emmanuel Rupert, Managing Director and Group CEO, Narayana Hrudayalaya.
Krishna Institute of Medical Sciences (KIMS). KIMS reported a 19-percent YoY jump in consolidated net profit to ₹97.11 crore in the quarter ended September 2022 from ₹81.72 crore in the same quarter previous year. Its revenue from operations rose to ₹564 crore, up 37 percent YoY, against ₹412 crore in the same quarter a year ago.
In September, Kotak Institutional Equities initiated coverage on KIMS with a buy rating and a target price of ₹1590. Armed with a solid execution track record, a calibrated expansion approach, and a healthy balance sheet, KIMS is well positioned to build on its strong hospital network in AP/Telangana with entries in neighboring states.
Chemistry automation – A true walk-away system, ideal choice for the laboratory
Prasenjit Das
General Manager,
Peerless Biotech Pvt. Ltd.
Starting in the ’80s or ’90s, very few companies were having chemistry automation in their portfolio and similarly a niche user segment of laboratories was there, who could afford procuring and maintaining the same.
The revolution in chemistry automation had started in India during the middle of the first decade of the twentieth century, with several pioneers launching their desk-top models in IVD chemistry automation segment. The main focus was to empower the laboratories to have an experience of automation with minimal investment and with minimal maintenance cost. This step truly empowered several laboratories to own their personal automation.
During those days, the chemistry automation segment was classified as entry-level, mid-level, and high-throughput automation. The major expansion of the market happened in the entry-level automation, which was tagged with 80–120 tests/hour throughput as these were with smaller foot-print and affordable in terms of investment and maintenance.
However, those models were having their own limitations as majority of them were not equipped with on-board laundry, which was against the philosophy of a true walk-away system in automation.
With time, the need of the market changed and accordingly technology brought advancements in chemistry automation.
Today’s users prefer a true walk-away automation with on-board wash station, offering uninterrupted work-flow in the system. Another preference is a constant throughput of minimum 200 tests/hour, which really offers 200 tests/hour, with typical mixed chemistry workload in any laboratory, enabling the users to make an attempt in increasing the business by taking new assignments, resulting in higher revenue with lower turnaround time (TAT).
Along with the right throughput, the users’ expectation is to use both chemistry and turbidimetry assays extensively in their clinical chemistry automation. On-board mixer has empowered today’s models to perform both the assays with high precision and high reproducibility.
Today, a good price-value proposition of initial and recurring investments has become a point of consideration. Today’s users prefer to invest on minimum 200 tests/hour models, which will cater to the daily need. Models like EuroLab 200 are developed with high-end upgraded technology, keeping the needs of the users in mind and making a new desire point in the industry.
Mixed Q2 for pathology labs, but gradually getting better
After a mixed performance in the quarter, July–September 2022-23, listed players in the diagnostic healthcare space are set to witness near-term headwinds due to competitive pressures, a seasonally weak December quarter, and higher valuations.
Dr. Lal PathLabs and Thyrocare Technologies are down 4–6 percent, while Metropolis Healthcare has shed 18 percent during this period.
Dr. Lal PathLabs. The Q2 results of the company, while delivering on the margin front, lagged behind estimates as far as non-Covid business was concerned. On a higher base, non-Covid organic growth came in at 6.5 percent, compared with the year-ago quarter. This is lower than the three-year annual revenue growth of 9.2 percent.
Its consolidated profit after tax declined 24.8 percent to ₹72.4 crore in the second quarter ended September. The company had posted a profit after tax (PAT) of ₹96.3 crore in the year-ago period.
Its revenue from operations, however, grew 7.1 percent to ₹533.8 crore during the period under review, from ₹498.4 crore in the corresponding quarter of the previous year.
“Instead of increasing the test prices, we are focusing on driving volumes to achieve scale benefits, thereby maintaining our margins,” said Om Manchanda, Managing Director, Dr. Lal PathLabs.
Thyrocare Technologies. Q2FY23 performance of the company was below estimates on all fronts. Non-Covid pathology revenue grew by 4.6 percent QoQ, but volumes were flat sequentially. Total revenue was up 5.6 percent QoQ (−23.4% YoY) to ₹130 crore. Imaging revenues posted healthy growth of 30.4 percent/13.9 percent YoY/QoQ. EBITDA margin contracted by 470 bps QoQ to 23.4 percent due to limited room for operating leverage and ESOP charges. While margins in the near term are likely to remain under pressure, given the company’s focus on volume growth led by aggressive expansion and discounting, operating leverage should support margins over the medium term.
Non-Covid business was up 5.6 percent QoQ to ₹120 crore. Volumes remained flat QoQ while realizations per test improved by 4.6 percent. Non-Covid revenue CAGR over 3 years stood at 3.1 percent with volumes growing 4.9 percent over the same period. Volume recovery in the base pathology business is slower than peers, but is expected to improve in the coming quarters, especially with integration of API Holdings (API). API’s share in non-Covid business stood at ~12 percent in Q2FY23 versus ~13 percent in Q1FY23.
The company added >400 active pin codes during the quarter; it is extending its lifestyle range by >25 packages. 10 labs are currently NABL-accredited and the company is on track to process 90 percent of samples in NABL-accredited labs by FY23. Most of the investments in manpower are now complete and management does not anticipate any more increase during the current year.
Metropolis Healthcare. The company outperformed Dr. Lal PathLabs and met street expectations with a non-Covid revenue growth of 16 percent. At ₹288 crore, the company recorded its highest quarterly revenue in the quarter. While the wellness segment accounted for 12 percent of revenue, the company is seeking to increase this share to a fifth of sales by catering to the affordable and premium segments.
The company’s operating profit margin at 26.3 percent was down 350 bps YoY, but increased sequentially by 180 bps.
Vijaya Diagnostic Centre. The South India-based chain too, beat estimates with an overall revenue growth of 10 percent and 15 percent sequentially. Its non-Covid sales were up 15 percent, aided by healthy pricing growth. Non-Covid volumes rose 18 percent QoQ. Operating profit margins were up 216 bps on a sequential basis to 40.4 percent.
The company is among the few players to offer high growth visibility over the next two to three years due to expansion plans with radiology providing a competitive edge as it is insulated from competition.
Margins improved 181 bps to 21.4 percent QoQ. The company is expected to improve its volumes in light of the aggressive addition of collection centers.
The real threat remains from the top-tier health technology (tech) platforms and large offline entrants. The pricing of incumbents, such as Metropolis, is 2–3× higher than the cheapest organized alternative across cities, even for specialized and semi-specialized tests. Apart from pricing, there can be additional pressure on margins due to higher tech and marketing spends.
The road ahead
Recovery in the base business may help hospitals and diagnostics post healthy YoY growth. Hospitals are likely to report robust operating performance, driven by rising occupancy, stable average revenue per occupied bed (ARPOBs), and traction in international patients. Diagnostics would benefit from seasonality. Overall performance of the diagnostics sector is expected to stay bleak amid heightened competition.
