Hospital sector performance on the growth path after 2-years of subdued performance

The Hospital sector has come out of troubled times after more than two years of subdued performance on account of several regulatory measures. As per ICRA analysis, during Q2FY20 the aggregate revenues of companies in its sample set grew by a healthy ~14% on a yoy basis, from Rs4,206cr in Q2FY19 to Rs4,807cr in Q2FY20. The EBITDA grew by a robust ~38%, from Rs547cr to Rs757cr, and the EBITDA margin improved substantially from 13% to 15.7% during the same period on account of better revenues and; the positive impact of implementation of IndAS 116.

Kapil Banga, Assistant Vice President, ICRA, said, “In line with our expectations, the performance of the players in the sector has improved, after struggling for more than two years. Factors that have worked in favour of the sector are the waning impact of the regulatory restrictions, improvement in occupancies of the hospitals, increase in the ARPOB and the effect of the multiple efficiency improvement initiatives undertaken by the players. Nonetheless, regulatory risks remain for the sector.”

The cap on prices of stents by the National Pharmaceutical Pricing Authority (NPPA), cap on prices of knee implants by the NPPA and the negative impact of the rollout of Goods and Services Tax (GST) on profitability are several regulatory measures which have adversely impacted the industry’s performance. In addition strict regulatory action taken by multiple states, including putting restrictions on procedure rates, levying penalties and placing operational limitations on erring hospitals also had a bearing on the performance. The performance was also impacted due to the start-up cost of new hospitals, owing to significant capex done by the entities in the sector and the long gestation period required for the new facilities.

The revenue growth in Q2FY20 was driven by an increase in both the occupancy as well as the average revenue per occupied bed (ARPOB) while the aggregate number of operational beds  increased by a modest 2%, from 24,187 beds as on September 30, 2018 to 24,669 as on September 30, 2019. The occupancy of the sample set improved from 61.7% in Q2FY2019 to 62.7% in Q2FY2020, reflecting better asset utilisation. The ARPOB of the sample set grew by a healthy 8% in Q2FY2020 on a Y-o-Y basis, much higher than the six-year compounded annual growth rate (CAGR) of ~6%.




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