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Revenue growth of ICRA’s sample set of hospitals to moderate in FY2023, given the high base; profitability and debt coverage metrics to remain strong: ICRA

·       Aggregate occupancy for the sample set[1] to be ~60-62% in FY2023; on a YoY basis, given the high base of FY2022, this translates to revenue growth of over 12%

·       Operating profit margin for the sample set to remain healthy at 18-20% in FY2023

Strong demand for non-Covid treatments, increase in international patient hospitalisations and continued market share gains for organised players are expected to support occupancy levels going forward, despite supply additions. ICRA expects the occupancy for ICRA’s sample set of hospitals to remain healthy at 60-63% in the near term. Further, the price increases taken by the hospitals during Q4 FY2022 and Q1 FY2023, relatively higher elective surgeries and focussed reduction on average length of stay (ALOS) will support average revenues per occupied bed (ARPOB) in the near term.

With moderation in non-Covid margin-accretive surgeries due to the Omicron threat and minimal Covid hospitalisations due to milder infections, the occupancy for ICRA’s sample set contracted to 57.5% in Q4 FY2022 from 62.1% in Q3 FY2022, before recovering in March 2022. The deferral in elective procedures and disruption in international patient travel on account of Covid 3.0 led to sequential decline in footfalls during Q4 FY2022. While international patient footfalls were subdued during H1 FY2022, recovery was witnessed in H2 FY2022 (except for January and February 2022) to a certain extent.


While occupancy was relatively lower, optimisation of the payor mix towards cash and insurance patients, low ALOS and uptick in footfalls at centres of excellence resulted in a sequential growth of 4.1% in ARPOB in Q4 FY2022. Overall, ICRA’s sample set witnessed the occupancy of 61.6%% in FY2022, against 53.1% in FY2021 and revenues witnessed YoY growth of 38% in FY2022.


Ms. Mythri Macherla, Assistant Vice President, and Sector Head, ICRA, said: “During FY2022, operating leverage benefits in addition to incremental revenues and margins from Covid treatments along with cost optimisation efforts resulted in the ICRA sample set reporting OPM of 20.3%, the highest over the last few years. While the OPM in FY2023 is expected to slightly moderate to ~18-20% given the inflationary pressures, it will remain healthy supported by high operating leverage benefits, steady demand for high-margin elective procedures and revival in international patient footfalls.

“With healthy accruals and strong liquidity, the net debt for ICRA sample set reduced to ~Rs. 4,410 crore as on March 31, 2022 from ~Rs. 5,220 crore as on March 31, 2021, thereby witnessing a sharp improvement in interest coverage and net debt/OPDBITA. Several players in the ICRA sample set have announced sizeable expansion plans, with the addition of ~6,500-7,000 beds over the next three-four years and continue to scout for inorganic growth opportunities. With robust performance expected in FY2023 and FY2024, the debt metrics will remain strong going forward, despite incremental debt funding for the expansion plans,” added Ms. Macherla.

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