The healthcare technology industry is expected to become mature and stable by the end of Financial Year (FY) 2013, with an expanding net margin and steady Selling and General Administrative (SG&A) expenses. The increasing cash reserves in the industry highlight the possibilities of mergers and acquisitions.
New analysis from Frost & Sullivan
Financial Assessment of the Global Healthcare Technology Industry, reveals that there is increase in gross margin of 3 percent between FY 2009 and FY 2012 which is paralleled by the increase in net margin of 3 percent in the same period. However, the net margin is very low in this industry as compared to other industries in the healthcare space, such as pharmaceuticals, which has gross margin of 66.0 percent and a net income margin of 14.0 percent for FY 2012.
Though intense pricing pressures and high SG&A expenses have contributed to the currently low net margins in the young healthcare technology industry, the escalating adoption of technology solutions and the ensuing reduction in SG&A expenses will boost net margins gradually in the near future.
"After FY 2010, profitability ratios, except return on capital employed, has decreased owing to the fall in total asset turnover," said the analyst, Frost & Sullivan. "However, the return on capital employed has risen owing to the reduction in debt capital, which has shrunk interest expenses. The trend is expected to continue as long-term debts decline."
This decline in healthcare technology firms' debts can be primarily attributed to low net margins and short product lifecycles due to rapid technological advances. As a result, the debt-equity ratio has gone down nearly 38 percent during the period FY 2009-2012, implying that organizations are looking to enhance the equity stake in their capital.
The increasing cash reserve in the healthcare technology industry, which has grown as a percentage of total assets between FY 2009 and FY 2012 except for a slight dip in FY 2011, highlights the comfortable liquidity maintained by firms in the global healthcare industry.
"Growing cash reserves, particularly in larger businesses, indicate the possibilities of mergers and acquisitions, with major pharmaceutical and medical device companies likely acquire healthcare technology companies," noted the analyst. "Companies will also look to diminish their long-term debt and further strengthen their equity stake."
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