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The changing Indian healthcare landscape

The healthcare sector poised for an era of transformative growth presents a compelling investment landscape.

The landscape of Indian healthcare is undergoing rapid advancements, with notable changes anticipated in 2024. Among these changes are ground-breaking developments in preventive care and wearable technologies, the transformative influence of IoT, ML, and AI in healthcare, an increase in electronic health records (EHR), and the growing prominence of geriatric healthcare as a key specialty, among others.

Over the past 40 years, non-communicable diseases (NCDs) have changed the world. They have become the leading cause of death and suffering in most countries, contributing to 71 percent of global deaths. Close to 30 percent of these are those between 30 and 60 years of age. Alarmingly, WHO also predicts one in four Indians has a risk of dying from an NCD before they reach the age of 70. This health crisis not only affects individuals but also poses a substantial economic burden. A World Economic Forum report estimates that India could incur a staggering cost of USD 4.58 trillion between 2012 and 2030 due to NCDs and mental health conditions.

Preventive healthcare measures have never been more important. Prevention is not just better than cure; it is the foundation of a healthier society. Projections suggest that India’s preventive healthcare sector is on track to reach a substantial USD 197 billion by 2025, boasting a commendable CAGR of 22 percent.

According to the India Ageing Report 2023, India’s ageing population is expected to double by 2050 to 20.8 percent of the total population. This growing aging demographic is accompanied by a surge in age-related health challenges. This may require realigning primary healthcare services to better care for the new diseases among the target population. Attention is required for age-related diseases, such as those caused by an inevitable biological decline (cataract and macular degeneration that affect eyesight, sensorineural deafness, osteoporosis and osteoarthritis which weaken the bones, cognitive impairments like Alzheimer’s disease and dementia, heart failure, etc.), metabolic diseases (hypertension, coronary artery disease, stroke, diabetes), or environmental exposure (cancer, COPD, etc.).

Indian healthcare stands on the threshold of exponential growth, fuelled by rapid digital transformation. A recent study by the Boston Consulting Group (BCG) and B Capital predicts that digital healthcare in the country will grow tenfold to a USD 37-billion industry by 2030, with the healthcare sector as a whole growing to USD 458 billion. Automation, digitization, robotics, 3D printing, deep science, genomics and molecular biology, integration of AI and machine learning further assist in early diagnosis, and personalized treatment plans are revolutionizing healthcare delivery.

Gen AI has the potential to reimagine much of the healthcare industry in ways that we have not seen to date with previously available technologies. Once gen AI matures, it could also converge with other emerging technologies, such as virtual and augmented reality or other forms of AI, to transform healthcare delivery. For example, a healthcare provider could license its likeness and voice to create a branded visual avatar with whom patients could interact. Or a physician could check, against the full corpus of a patient’s history, how their approach for that patient aligns (or deviates) from other similar patients who have experienced positive outcomes. These ideas may seem distant, but they have real potential in the near term as gen AI advances.

But first, private payer, hospital, and physician group leaders should prioritize the responsible and safe use of this technology. Protecting patient privacy, creating the conditions for equitable clinical outcomes, and improving the experience of healthcare providers are all top goals. Getting started today is the first step in achieving them.

Adoption of telehealth is expected to continue to evolve. The emergence of virtual hospital wards, i.e., a centralized hub for remote monitoring of multiple patients in their respective homes, will be the next stage of this paradigm. Many medical institutions have already implemented telehealth & telemedicine trends. Improved video conferencing platforms, enhanced security measures for patient data protection, and the integration of artificial intelligence for diagnostics and triage are just a few examples of how technology has evolved to meet the demands of telehealth. As technology continues to progress, telemedicine is likely to incorporate even more innovative solutions, further enhancing the quality of care delivered remotely.

Digital twins – virtual models of real-world objects, systems or processes – will add considerable value to the healthcare domain. The immense capacity to optimize resources, streamline clinical workflows, and elevate decision-making processes positions digital twins as a key healthcare tool.

Medical XR (extended reality), which encompasses augmented reality (AR) and virtual reality (VR) is gaining considerable ground in the healthcare sector, with several innovative use cases coming to the fore. Surgeons will increasingly leverage AR to visualize realistic and detailed 3D models of patient’s anatomy, enhancing the precision of surgical procedures.

The Indian healthcare market presents a compelling investment landscape, characterized by robust growth potential, diverse opportunities, and strong government support. Addressing the infrastructure gap remains crucial for realizing the full potential of this rapidly expanding sector.

FY24 is expected to close with a revenue increase by 12–14 percent for the listed hospitals, says an ICRA study. This may be attributed to strong occupancy coupled with healthy ARPOB. Many hospital players are scouting for inorganic opportunities to expand their network, resulting in consolidation. Further, private equity investments have also increased in the recent past.

Continued benefits from cost optimization measures are expected to support healthy operating profit margin (OPM) of 22–23 percent in FY24.

H1 FY24 saw a YoY growth of 14.3 percent on the back of buoyant occupancy levels, and 10.5 percent YoY growth in ARPOB. The OPM in H1 FY24 remained healthy at 22.7 percent supported by benefits from cost optimization, recovery in international patient footfalls, and digitization initiatives.

Aggregate occupancy, supported by continued healthy demand for healthcare services is estimated to remain strong between 64 and 65 percent in FY2024.

The ARPOB for the sample set is expected to witness YoY growth of 8–10 percent in FY2024, despite the high base of FY2023. ARPOB growth continues to be supported by better payor mix, improving specialty mix, and annual tariff hikes taken by hospitals. They are expected to add over ~1500 beds and ~3400 beds in FY24 and FY25, respectively. This cumulatively translates into ~15 percent of the existing capacity. Most of the expansion is expected to be in the form of brownfield expansion.

The sample set included hospital business of nine listed companies, Apollo Hospitals Enterprise Limited, Aster DM Healthcare Limited (India business only), Fortis Healthcare Limited, Healthcare Global Enterprises Limited, Krishna Institute of Medical Sciences Limited, Max Healthcare Institute Limited, Narayana Hrudayalaya Limited, Rainbow Children’s Medicare Limited and Shalby Limited.

Credit metrics for companies in the sample set are expected to remain strong. The net debt/OPBDITA is expected to be low in the range of ~0.3–0.4× as on March 31, 2024, but is expected to moderate to ~0.6–0.7× as on March 31, 2025, and the return on capital employed (RoCE) is to remain between 15 and 17 percent despite ongoing capital expenditure (CapEx).

2024 will be a watershed moment for the healthcare industry in terms of the scale at which it adopts digital technologies and the varied use cases it makes possible. Hospital ecosystems in the midst of a transformative phase will witness several new use cases and disruptions made possible.

The Covid-19-induced pandemic presented many challenges to the healthcare industry and accentuated the digital chasm that needed to be bridged. The solution was to enable rapid digitization of healthcare that would facilitate new ways of working and addressing challenges. As a result, 2023 saw rising investments in building smart hospitals, specifically in the areas of digital surgery, personalized healthcare, clinical decision support, AI-assisted medical imaging, etc.

These megatrends reflect the opportunities and challenges that lie ahead for the providers. They have transformed the healthcare industry from being extremely tech-averse to leading tech adoption in less than a decade.

2024 will determine the new healthcare ecosystem that could change how healthcare experiences are delivered!

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