Revenue, profitability of private hospitals to be hit in short-term: Icra

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Published: April 24, 2020 1:30 AM

The ratings agency explained that private sector is dominated by small doctor-run facilities in terms of number of facilities and number of beds.

As the epidemic has significantly impacted hospital operations, the occupancy has dropped sharply (Representational image)

The Covid-19 epidemic has not just impacted the functioning of hospital sector, but has also dragged down the short- term outlook to negative on account of a sharp fall in volumes both at the out- patient department (OPD) and the in-patient department (IPD). According to Icra, short-term outlook for the sector has turned negative due to a sharp fall in volumes at the OPD and IPD with recovery expected to be gradual. However, the long-term outlook of the sector remains stable.

As the epidemic has significantly impacted hospital operations, the occupancy has dropped sharply, from 60-70% in weeks just preceding the spread of Covid-19 to 25-30%. Revenues too are expected to decline by over 50% and the high operating leverage inherent in hospital business, coupled with sharp drop in revenues is likely to translate into losses for the players in Q1 FY2021, it warned.

Commenting on the sector’s performance, Icra’s assistant vice president, Kapil Banga said short-term outlook for the sector has turned negative due to a sharp fall in volumes. “However, we continue to maintain the stable outlook for long term as we believe the performance of healthcare companies will remain robust over the long run due to favourable supply-demand dynamics, an ageing demographic profile, rising per capita income, increasing penetration of medical insurance, rising healthcare awareness and double-digit growth in medical tourism (excluding the period of impact of Covid-19). Nonetheless, our concerns remain on the transient impact of any incremental regulation,” he added.

The aggregate revenues of companies in Icra’s sample set grew by around 11% y-o-y from Rs 4,269 crore in Q3 FY19 to Rs 4,740 crore in Q3 FY20. The Ebitda grew by a robust 32%, from Rs 557 crore to Rs 738 crore. Ebitda margin improved substantially from 13% to 15.6% during the same period aided by better revenues and the positive impact of IndAS 116 implementation.

“Even in 9M FY20, the revenues grew by a healthy 13% from Rs 12,696 crore to Rs 14,401 crore; Ebitda increased by 44% from Rs 1,523 crore to Rs 2,193 crore, and Ebitda margin improved from 12% to 15.2% during this period,” it noted. “The virus outbreak has substantially affected revenues, profitability and cash flows of the hospital sector and the same is likely to lead to a sharp drop in debt protection indicators in Q1 FY21,” Banga said.

The ratings agency explained that private sector is dominated by small doctor-run facilities in terms of number of facilities and number of beds. These marginal players with limited financial flexibility will be hit the hardest.
In the face of a sharp drop in revenues and high fixed costs inherent in the operating structure, smaller facilities may find it challenging to make ends meet as the extra cost of personal protective equipment (PPE) has also added to their financial woes. As evident from the recent developments, in case hospital staff contracts Covid-19 infection, it could lead to operations at the facility getting blocked completely.

“Nonetheless, to support the sector, part of the payments of long pending receivables from public sector agencies such as Central Government Healthcare Scheme (CGHS) and Employee Healthcare Scheme (EHS), have been released, thus enabling hospitals to meet some of the immediate pressing liquidity needs, though the relief is limited,” Icra said.

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