Ushering in FY19!

The MedTech industry’s fortunes are very closely linked with those of its buyers, the hospitals; as are the IVD industry’s with the diagnostic centers. The aggregate revenue of five listed hospital chains in April-December 2018 showed an increase of 9 percent, as against 15 percent in Apr-Dec 2017. OPBIDTA growth too fell to minus 3 percent in Apr-Dec 2018 as against a growth of 15 percent in Apr-Dec 2017. The aggregate operating profit margins also declined from 15.1 percent in the first nine months FY17 to 13.7 percent in the first nine months FY18, resulting in decline in absolute OPBIDTA from USD 15.02 billion to USD 14.9 billion during the same period. On a year-on-year basis, all quarters of the first nine months FY18 saw weaker revenue growth and decline of over 100 bps in the operating margin.

This decline may be largely attributed to multiple regulatory interventions as demonetization, price caps on medical devices, and the goods and services tax.

As we usher in FY19, ICRA, the credit rating agency, expects an annual revenue growth of 12-14 percent over the next five years. Demand is expected to rise at a steady pace owing to the underlying fundamentals, including growing population, increasing life expectancy, rising incidence of non-communicable diseases related to lifestyle, and increasing health insurance coverage. Medical tourism is also expected to be a major contributory factor.

The announcement of the National Health Protection Scheme in the union budget that envisages health insurance cover for 100 million families has the potential to significantly increase healthcare spend in the country. This is likely to improve the occupancies at implementing hospitals. Considering that the scheme will bring private sector healthcare providers to tier-3 and tier-4 cities, the investment in mid-size hospitals with more than 50 beds too is likely to increase.

The mission will bring a huge supply side response. And of course, the tendering process followed for procurement by the government will ensure that only those suppliers that have the ability to compete on a low-price model will be able to improve their respective credit metrics!