Indian hospital sector records decade-high FY23 capex amidst post-Covid-19 recovery: Report

Amid a strong post-Covid recovery, India’s hospital sector is witnessing a surge in capital expenditure (capex) as major entities expand capacities and diversify regionally, said India Ratings and Research (Ind-Ra), a credit rating agency. Ind-Ra further said this sector has witnessed the highest capex in the past decade during FY23, and this trend is expected to continue through FY24.

The stability in operating profitability, rising surgical volumes, a diversified payer mix, and increasing occupancy levels are predicted to keep leverage at manageable levels, in line with credit ratings, over the next couple of years, the firm said, adding that, as a result, the rating outlook remains stable.

In FY23, Ind-Ra-rated sector entities achieved remarkable 16% year-on-year growth in their top line, the report said. This growth was supported by improvements in the average revenue per occupied bed (ARPOB), increased occupancy levels, a higher number of operational beds, and a reduction in the average length of stay (ALOS), the report said. This growth was achieved despite a high base in FY22, which saw a 36% year-on-year increase, it said.

Operating profit surged approximately 13% year-on-year despite the elevated base, while the operating margin remained stable at around 18% due to the base effect and increased marketing and advertising costs. EBITDA margins remained robust compared to pre-pandemic levels, driven by factors such as increased ARPOB, cost-saving initiatives during the pandemic, an improved case mix (including more oncology cases), higher surgical volumes, and a diversified payer mix, said the report.

The average revenue per occupied bed (ARPOB) per day in FY23 increased to Rs 44,992 (compared to Rs 40,758 in FY22), remaining above pre-pandemic levels. This was attributed to increased occupancy rates, favourable changes in the payer mix (including more insured patients), shifts in the case mix (with more complex procedures), reduced ALOS, and enhanced operational efficiency.

The average length of stay (ALOS) further improved to 3.7 days in FY23 (compared to 4.0 days in FY22) due to an increase in elective surgeries and higher in-patient volumes driven by the essential nature of healthcare demand. Ind-Ra expects a marginal improvement in average ARPOB in FY24, supported by a higher share of higher-margin elective surgeries. Additionally, average occupancy levels are anticipated to remain above pre-COVID levels (65–70%) due to the capabilities of large hospitals in handling complex surgeries and the recovery of medical tourism.

The private healthcare sector has also seen robust demand driven by heightened healthcare awareness following the COVID-19 pandemic, a growing ageing population, rising lifestyle diseases, and increased health insurance penetration. These factors have boosted investor confidence, attracting investments in Indian private healthcare. Private equity firms have shown interest in acquiring significant stakes in established hospital groups, and this trend is expected to continue.

Indian hospitals have been actively investing in organic growth, with major capex initiatives underway. For instance, Apollo Hospitals Enterprise Limited is investing around Rs 30 billion to add 2,000 beds over the next two to three years; Krishna Institute of Medical Sciences plans to double beds to 8,000 over the same period; and Fortis Healthcare Limited intends to add 1,400 beds in the next three years. Although projected debt levels may slightly exceed those of FY23 primarily due to incremental capex, net leverage in FY24 is expected to remain stable and comfortable, supported by healthy profitability, the agency said.

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