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Last Updated : Mar 25, 2020 04:06 PM IST | Source: Moneycontrol.com

Lockdown, social distancing, visa cancellations to hit hospital earnings

As the situation remains uncertain, the sector is likely to remain under pressure over short to medium term, says Edelweiss.

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The 21-day lockdown, cancellation of visas and social distancing will hit all sections of the Indian economy, including hospitals.

The roping in of private labs and hospitals for testing and treating COVID-19 patients was a clear indication that there could be a rise in infections, Edelweiss said, referring to the disease caused by the novel coronavirus.

In India, infections have risen to 562 from 280 cases four days ago and nine people have died.


The situation points to twin near-term impact for private hospitals, said Edelweiss. One, social distancing and localised curfews have delayed elective surgeries (60-70 percent of volumes). Two, visa cancellations have led to a hiatus in medical tourism (10-12 percent of revenue), it said.

Medical tourists, who choose India as an affordable destination for elective surgeries, contribute almost 10-12 percent to private hospitals' revenue. Visa restrictions had dried up this channel, Edelweiss said.

As more people resort to social distancing, healthy individuals are likely to avoid visiting hospitals for routine check-ups and postpone elective surgeries by a couple of months, if possible, it added.

If lockdowns extend through a large part of Q1FY21, the research said, private hospitals' EBITDA would be impacted at around 10 percent for the quarter and 3-4 percent for FY21.

According to the brokerage, the disruption will last till India’s brings infections under control. "There is no accurate way to guess timelines on that, but suffice to say that business as usual for hospitals may be a distant scenario," it said.

Edelweiss expects this to dent Q4FY20/Q1FY21 earnings of companies and said revival may be slow as surgery pipelines dry up due to lower out-patient (OP) to in-patient (IP) conversion amid challenged OP occupancy.

OP occupancies, particularly for elective surgeries, are now at an all-time low. Hence, it believes, procedure pipelines are likely to remain dry through H1FY21 and earnings will remain subdued through FY21.

With the uncertainty, the sector is likely to remain under pressure over short to medium term.

It feels onco-specialist Healthcare Global Enterprises has a lower component of elective surgeries and only 5 percent exposure to medical tourism, making it the least likely to be impacted. Hence, it has a “buy” call on the stock.

Apollo Hospitals is likely to get impacted by social distancing, visa cancellations and curfew. The stock, however, remains a top pick, led by earnings resilience and structural growth in diverse businesses, the brokerage said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Mar 25, 2020 04:06 pm