Hospital sector set to grow 40% in FY22

After two years of Covid-19 pandemic affecting overall operations, the Indian hospital sector is set to grow revenues by over 40% and operating profit margins between 20-21% in FY2022. However, revenue growth will moderate in FY2023 given the large base of growth in this year, says an analysis by research firm ICRA.

Revenues for its sample set of hospitals in nine months of FY2022 grew by over 60% on a year-on-year (y-o-y) basis, while operating profit margin was slightly over 20%. This was on the back of continued momentum of elective procedures and strong average revenue per occupied bed (ARPOB), which grew by 14% in Q3.

“Overall, revenue growth in FY2022 is expected to be robust at 40% plus. Benefits from improving scale and strong ARPOB levels, cost-optimisation efforts, and ancillary revenues from Covid-19 have supported margin improvement for industry players in FY2022. Operating profit margin is expected to be between 20-21% in FY2022," said Mythri Macherla, assistant vice president and sector head, ICRA.

Given the strong demand for healthcare and continued patient preference for branded hospital chains, revenues and profit margins are expected to remain healthy for the industry going forward as well, she added.

ICRA says the bed occupancy is set to be 62-63% in FY2022 and ARPOB to expand by 11-12%. While occupancy is expected to slightly moderate in FY2023 given the ongoing capacity addition, ARPOB is expected to expand steadily going forward. Operating profit margins are expected to remain healthy in FY2023 as well, given the continued focus on cost optimisation in addition to scale benefits.

Mild infections on account of Omicron, pent-up demand and market share gained by organised players in the high-end and complex surgery space have resulted in healthy occupancy levels. Hospitals witnessed additional uptick in footfalls at metro centers on the back of revival in international patient footfalls. Further, higher amount of surgical work and faster throughput of discharges has been reflected in lower average length of stay (ALOS).

Several large hospital players have recently announced sizeable capacity expnsion plans across the country and places like NCR, Mumbai, Bangalore and Chennai will soon see big bed capacity additions. Industry players had slowed down their greenfield expansions during the last two-three years as the focus was on improving returns on existing facilities. This, along with the seemingly receding threat of the pandemic, has led to players now looking at adding bed capacity within their existing infrastructure, while some players have announced new greenfield projects.