Revenues of private hospitals are set to grow 10-11 per cent in fiscals 2023 and 2024 on the back of healthy bed occupancy and sustenance of high average revenue per occupied bed (ARPOB), supported by increasing domestic demand and pick-up in medical tourism, market intelligence and data analytics firm CRISIL said in a report on Thursday.

The report stated that the operating margin of private hospitals will continue to remain healthy at 16-17 per cent until fiscal 2024, although moderating by 200-250 basis points on-year due to an increase in employee expenses and pre-operative costs given sizeable bed addition, and rising competition.

As per CRISIL's analysis in fiscal 2022, private hospitals reported an all-time high operating profitability of 19 per cent due to a surge in treatment during the second wave of the Covid-19 pandemic, which also pushed up occupancy levels, and, later, pent-up demand for elective surgeries.

"Healthy cash generation, leading to limited reliance on external borrowing to fund higher capex (both greenfield and brownfield) will in turn help private hospitals maintain adequate debt protection metrics and keep credit risk profiles stable," the report said.

Anuj Sethi, Senior Director, CRISIL Ratings, stated that the growing health awareness, especially after Covid-19 is leading to an increase in domestic demand together with the recovery in medical tourism and it will ensure bed occupancy being maintained at almost similar levels of 60 per cent (past five fiscals average) even as bed addition continues. "

"Occupancy dipped only once during this period to 53 per cent due to lockdown enforced during first the phase of the pandemic. Further, rising insurance coverage will make quality treatment more accessible, and support demand as well. In addition, average revenue per occupied bed (ARPOB) which grew 20 per cent in fiscal 2022, will continue to register modest growth, supporting revenues,” Sethi said.

The report also predicts that lower costs of treatments, modern facilities with well-trained personnel, and increasing air connectivity are expected to restore revenue from medical tourism to pre-pandemic levels.

Poonam Upadhyay, Director, CRISIL Ratings, “Given healthy growth prospects, players rated by CRISIL Ratings have intensified bed expansion, including brownfield, since fiscal 2023, that had slowed during the pandemic years. These players are adding 12 per cent of existing capacity i.e. 6000 beds over two fiscals (fiscal 2023 and 2024) at a cost of Rs.13,000 crore; an almost similar number of beds were added over the prior four fiscals ending 2022 at a cost of Rs.11,500 crore. We expect credit risk profiles to remain stable on the back of healthy operating margin and cash generation, thereby limiting material debt addition for capex.”

Though interest coverage and debt/Ebitda (earnings before interest, taxes, depreciation, and amortisation) ratios of these rated players are likely to moderate marginally till fiscal 2024, these will remain comfortable at 5.2-5.5 times (6.6 times in fiscal 2022) and 1.8-1.9 times (1.5 times) respectively, the report said.