Despite pandemic, hospital chains set for revenue, margin growth in FY22

Despite the third wave hitting elective surgeries and infecting a large number of medical personnel, hospitals are expected to close the current fiscal with robust revenue and margin growth

Despite the third wave of the COVID-19 pandemic hitting elective surgeries and infecting a large number of medical personnel, hospitals are expected to close the current fiscal with robust revenue and margin growth, as healthcare facilities are reporting around 62 per cent occupancy, leading to a 6 per cent rise in returns per average room, says a report.

Large hospital chains have reported a full 85 per cent growth in revenue leading to a 20 per cent growth in operating margin in the first half (H1)of the current fiscal, says an Icra report, adding the robust growth is expected in the third quarter as well, though the fourth quarter may see some blips.

With the number of the pandemic caseloads rising continuously, elective surgeries have taken a hit across the country. In addition to lower number of patient footfalls, large number of healthcare workers are testing positive for the infection, which is impacting services to a certain extent. But this is cushioned by relatively longer average length of stay, says the report.

Hospitals have reported strong performance in Q2 supported by healthy ramp up in elective procedures and strong room/bed occupancies, which rose by 6 per cent, notes the report based on seven listed hospital chains and attributes the same to pent-up demand for organised players in the high-end/complex surgery space.

Uptick in footfalls in metro hospitals in addition to higher amount of surgeries coupled with lower number of COVID admissions resulted in sizeable growth of 12.5 per cent in room occupancies on a sequential basis in Q2.

Overall, sample set revenue grew by 85 per cent while operating margins were slightly over 20 per cent in H1 (first half), says the report.

The report expects the overall revenue growth for the full fiscal to be robust as the demand for elective surgeries is likely to pick up in the fourth quarter. Benefits from improving scale and strong occupancy levels, cost-optimization efforts, and ancillary revenue from the rising pandemic admissions are expected to support margin improvement for the sample set to 18-20 per cent in FY22.

Given the strong demand and patients' continued preference for branded hospitals, revenue growth and margins are expected to remain healthy for the industry going forward as well.

The report expects hospitals to close the year with improved occupancy of 60-62 per cent in Q4 with an upside bias if there is higher hospitalisations due to the third wave as happened in the second wave.