Hospitals occupancy to remain healthy at 60-63 per cent in near term: ICRA

New Delhi: 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. The occupancy for ICRA’s sample set of hospitals to remain healthy at 60-63 per cent in the near term, credit rating agency ICRA said.

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-19 hospitalisations due to milder infections, the occupancy for ICRA’s sample set contracted to 57.5 per cent in Q4 FY2022 from 62.1 per cent 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," the ICRA mentioned in the statement.

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 per cent in ARPOB in Q4 FY2022. Overall, ICRA’s sample set witnessed the occupancy of 61.6 per cent in FY2022, against 53.1 per cent in FY2021 and revenues witnessed YoY growth of 38 per cent in FY2022.

Mythri Macherla, Assistant Vice President, 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 per cent, the highest over the last few years. While the OPM in FY2023 is expected to slightly moderate to ~18-20 per cent 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 Macherla.