The muted performance of the hospital sector continues in Q2 FY2019. The companies in ICRA’s sample set reported a 7% drop in earnings before interest, tax, depreciation and amortisation (EBITDA), from Rs. 556-crore in Q2 FY2018 to Rs. 516-crore in Q2 FY2019 and; drop in operating margin from 15.0% to 13.3% during this period. The aggregate revenues grew by a modest 5% from Rs. 3707-crore in Q2 FY2018 to Rs. 3889-crore in Q2 FY2019.
Says Shubham Jain, Group Head and VP, ICRA, “The aggregate number of operational beds has gone up by 4%, from 20,665 beds in Q2 FY2018 to 21551 beds in Q2 FY2019 but the aggregate occupancy level has dropped during this period, from 65.6% to 63.9%. This is due to capacity expansion, recalibration of the payee-mix and the specialty-mix at some of the facilities and; a sharp drop in occupancy of one of the largest players due to their internal challenges, including corporate governance and liquidity issues. Consequently, the occupied bed nights grew by a modest 2%.”
The regulatory environment continues to be the overarching challenge for the hospital sector. The wide-ranging regulatory restrictions from multiple authorities continue to supress the average revenue per occupied bed day (ARPOB) of the players with the latest quarter also seeing sub-par growth in ARPOB and a drop in the profitability margin.
Adds Jain, “Nonetheless, the impact of these factors has likely peaked and sans any additional measure, the worst is behind for the sector. Further, the significant capex in the last four years will start showing marked results going forward and start-up costs of new hospitals will be much lower. Structurally, in the long term, underlying fundamentals continue to favour the sector. This is because of the significant shortage of beds in the country, and the increase in the disease burden and ageing demographic profile. Further, the demand for quality healthcare will be supported by the rising per capita income, increasing penetration of medical insurance and double-digit growth in medical tourism.
