The Indian medical sector is at a critical juncture.
One major aspect for success of Ayushman Bharat is the need to create healthcare infrastructure, including hospitals in Tier-II and Tier-III cities. The government will need to ensure that these entitities are profitable in their own right. IHH Healthcare’s acquisition of Fortis and Radiant Life Care buying into Max Healthcare are not encouraging signs. Medanta Medicity in Gurugram also seems to be scouting for a buyer.
The hospital business has been witnessing deterioration since the beginning of 2017. The performance of six hospitals, Apollo, Fortis, Narayana Hrudalaya, Healthcare Global, Max, and Shalby, tracked by ICRA, reported a 7 percent drop in EBITDA from Rs 556 crore in 2Q2018 to Rs 516 crore in 2Q2019, and a drop in operating margin from 15 percent to 13.3 percent during this period. The aggregate revenues grew by a modest 5 percent from Rs 3,707 crore in 2Q2018 to Rs 3,889 crore in 2Q2019. This comes on the back of the already subdued performance in FY2018, which saw the first fall in aggregate EBITDA of the sample set in over six years and also saw operating profitability hitting a multi-year low, dropping to 11.4 percent in FY2018 from the peak profitability of 15.7 percent during this six-year period.
However, despite these odds, there is no denying that the MedTech industry continues to offer unprecedented opportunities to investors and stakeholders. Presently valued at Rs 35,400 crore, it is growing at a CAGR of 15.8 percent. The government has overhauled the regulatory framework for medical devices, and brought it at par with international norms; FDI is permitted without any prior approval; IPR regime has been strengthened; and various fiscal measures have been introduced to promote R&D, manufacturing, and import of medical devices. Further, underlying fundamentals as demand for quality healthcare, rising per capita income, increasing penetration of medical insurance, and double-digit growth in medical tourism continue to favor the sector.
How the next couple of years pan out will set the tone for the future!