Revenue of healthcare players to grow 10-15% in FY'15

PTI Posted online: Sunday, Feb 02, 2014 at 0000 hrs
Mumbai : Revenues of most healthcare players are expected to grow 10-15 per cent in 2014-15 due to addition of more beds, but overall profitability might be affected by a long break-even period and high manpower costs, says a report.

Credit profiles, especially of the standalone hospitals with recent bed additions, are likely to be stressed in FY15, according to India Ratings & Research (Ind-Ra).

Larger players with multiple hospitals would be better placed, its "2014 Outlook: Health Care" report has said.

It said it has a stable outlook on the sector.

Growth will continue because of the wide gap between demand and supply, the report said, adding that the key drivers for demand will be increasing lifestyle-related health problems, the sector's immunity to economic cycles, improving health insurance penetration, increasing awareness and disposable income.

The growth is also likely to be boosted by government initiatives and increasing medical tourism

The industry is attracting investments towards health services like hospital beds and allied industries, Ind-Ra said, adding that majority of the investments in FY15 will continue to come from private sector.

It expects that the industry would get regulatory benefits.

The government has made important contribution to incentivise the investments in the sector through its insurance schemes, encouraging investments in public private partnership and also qualifying hospitals including medical colleges, paramedical training institutes and diagnostics centres for infrastructure lending, the report said.

These initiatives, it added, are likely to positively impact the occupancy levels and could also mean better lending terms in the form of concessional interest rates, longer moratorium and maturity, aiding in the capex plans of healthcare players.

Investments by large private sector entities in the healthcare industry were primarily restricted to high-cost, multi-specialty tertiary care facilities.

However, the report said that increasing competitive intensity and high real estate costs involved in the tier I cities have shifted the investors' focus towards relatively lower cost, under-penetrated Tier II and Tier III cities and also towards asset-light, less capital intensive models.

Business models such as single specialty, hub-and-spoke, health mall and day care/ambulatory services centres will attract investors in FY15.

Continuous capex in the last few years has however, led to a rise in borrowings for many players, impacting their credit profiles. Consolidation of operations leading to improved credit profile will be a positive for the sector.

Ind-Ra warned that the continuous debt-led capex, coupled with delays in commissioning of facilities and stressed profitability due to low occupancy could affect the outlook negatively.

Based on the World Health Organisation's estimates, India has 6.5 doctors per 10,000 people against the world median of 14.2. To achieve the government of India's goal of 20 beds per 10,000 people by 2020, Ind-Ra estimates 1.5 million beds will have to be added.

Based on capex announcements by the industry players, FY15 would be the year of peak capacity additions since FY11.