India’s hospital sector is set to expand at a 12 percent compounded annual growth rate until FY26 on the back of robust operating margins, attributed to increased average revenue per occupied bed, higher surgical volumes, and sustained advantages derived from cost-optimisation strategies implemented during the pandemic, CareEdge Ratings said.
The recovery after COVID-19 ignited an increase in capital expenditure by hospitals as they sought to secure larger market shares.
“Post-COVID, there's a surge in capital expenditure for capacity expansion and geographic diversification,” noted Ravleen Sethi, associate director at CareEdge Ratings.
Simultaneously, larger hospital companies explored inorganic growth opportunities, bolstering investor interest.
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CareEdge said in a report that wider healthcare awareness, a rise in lifestyle diseases, a growing elderly population, expanded health insurance coverage, improved disposable income, augmented public expenditure on healthcare, and the rise in medical tourism are expected to drive growth.
Average revenue per occupied bed registered healthy growth, particularly after the pandemic, with a 15 percent increase in FY22 and 9 percent growth in FY23. Growth in this category is expected at 4-5 percent over the next two years.
Occupancy levels, which dropped to about 55 percent in FY21 due to the pandemic, rebounded to 64 percent in FY23, exceeding pre-COVID levels.
From FY14 to FY20, the sector reported a CAGR of about 10 percent. However, during COVID, growth was impacted as hospitals were forced to postpone elective surgeries. With the pandemic ebbing, sectoral growth was a CAGR of about 11 percent during FY20 to FY23.
“The Indian healthcare industry stands on the cusp of a profound transformation, driven by key factors that underpin its fundamental growth. The industry is witnessing structural shifts, particularly in the wake of the COVID-19 pandemic, manifesting in a surge in communicable diseases and a notable uptick in medical tourism,” said D Naveen Kumar, associate director at CareEdge Ratings.
Operating margins, enhanced by cost optimisation measures during the pandemic, are expected to stabilise in the 22-23 percent range over the next two years, the report added. There has also been substantial deleveraging, with improved debt coverage and interest metrics.
“Despite rising leverage from capex, industry players remain financially robust, having significantly reduced leverage over the past two years through strong cash accruals,” said Sethi.
Health insurance premiums, including government-sponsored schemes, group insurance, individual family floaters, and individual policies, have posted a CAGR of about 18 percent from FY14 to FY21. During the pandemic, insurance premiums rose significantly, with a CAGR of about 25 percent.
CareEdge Ratings forecasts a CAGR of about 22 percent in health insurance premiums over the next three years, reflecting the growing recognition of the imperative nature of medical cover.
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