ICRA Predicts Healthy Financial Outlook For Indian Hospital Sector In FY2025

ICRA expects the Indian hospital industry to maintain a strong financial profile in FY2025, despite anticipated increases in debt for expanding bed capacity. According to the rating agency, the sector’s sample set companies are projected to add over 4,000 beds in FY2025 and 3,400 beds in FY2026, representing approximately 23 per cent of the existing capacity as of March 31, 2024.

In a press statement on  Thursday, ICRA informed that the aggregate occupancy rate is forecasted to remain solid at 61-63 per cent in FY2025, slightly down from 64.7 per cent in FY2024. The average revenue per occupied bed (ARPOB) is anticipated to grow moderately by 4-6 per cent in FY2025, following an 11 per cent rise in FY2024. This growth is attributed to improved speciality and payor mixes, as well as annual price adjustments to counteract cost inflation.

ICRA projects the operating profit margin (OPM) to remain robust at approximately 22-23 per cent in FY2025, supported by strong occupancy rates, ARPOB growth, and continued cost optimisation measures. The overall revenue growth for the sample set companies is expected to be between 12-14 per cent in FY2025.

Despite the increase in debt needed for significant bed expansions, ICRA maintains a Stable outlook for the industry. This positive outlook is underpinned by factors such as rising non-communicable diseases, growing per capita healthcare expenditure, increasing health insurance coverage, and a rise in medical tourism.

Mythri Macherla, Vice President & Sector Head of corporate Ratings at ICRA, commented, “We project the addition of over 4,000 beds in FY2025 and 3,400 beds in FY2026. Although this expansion will involve some debt financing, the debt metrics are expected to remain strong, with total debt/OPBDITA projected at 1.0-1.2 times by March 31, 2025. The return on capital employed (RoCE) is expected to stay steady at around 14 per cent in FY2025, supported by strong earnings. Many hospital companies are also pursuing inorganic growth opportunities, with rising private equity investments.”

The in-patient footfalls for ICRA’s sample set companies remained strong in FY2024, despite a dip in Q3 due to deferrals of elective procedures. Medical tourism saw a notable year-on-year increase of around 33 per cent in CY2023 and is expected to exceed pre-pandemic levels in CY2024. Government initiatives, including the extension of e-medical visa facilities to 167 countries, are anticipated to further boost medical tourism.

ICRA’s report highlights the ongoing vitality and growth potential of the Indian hospital industry, demonstrating its resilience and capacity for expansion in the upcoming years.