India’s Hospital Sector Is Likely To Grow 10-12% Coming Year

The hospital sector in India is now on a growth path and is expected to continue the scene in the coming year. The hospital sector, which posted the best growth in revenues and earnings before interest, tax, depreciation, and amortization (EBITDA) in the second quarter of FY20 since the first quarter of FY17, is likely to report a 10-12 percent growth in revenues in short-to-medium term during the new year, said credit rating and industry analysis firm ICRA.

"We believe the performance of healthcare companies will improve further going forward, however concerns on any incremental regulation having a temporary impact remain. Structurally, in the long term, underlying fundamentals such as the significant shortage of beds in the country, and the increase in the disease burden and an aging demographic profile continue to favor the sector," said Kapil Banga, Assistant Vice President, ICRA.
The brokerage, which studied the revenues of the top six listed hospitals for the second quarter of FY20, said the aggregate revenues of these companies grew 14 percent on a year-on-year (Y-o-Y) basis to Rs 4,807 crore from Rs 4,206 crore a year ago in the same quarter.
The earnings before interest, tax, depreciation, and amortization (EBITDA) grew by 38 percent to Rs 757 crore from Rs 547 crore. The EBITDA margin improved substantially from 13 percent to 15.7 percent during the same period, on account of better revenues and the positive impact of implementation of IndAS 116 (the new lease accounting standard in which lessees are allowed to recognize a lease liability reflecting future lease payments), besides better occupancy and average revenue per occupied bed (ARPOB). 
While the aggregate number of operational beds increased by a modest 2 percent to 24,669 as on September 30, 2019, from 24,187 beds as on September 30, 2018. The occupancy of the sample set (Apollo Hospitals, Fortis Healthcare, Narayana Hrudalaya, Healthcare Global Enterprises, Max India and Shalby) improved from 61.7 percent in Q2 of FY2019 to 62.7 percent in Q2FY2020, reflecting better asset utilization. The ARPOB of the sample set grew by a healthy 8 percent in Q2FY20 on a Y-o-Y basis, compared to the six-year compounded annual growth rate (CAGR) of 6 percent.

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