Corporate healthcare revenue to grow 15% FY 2017-18, says report

The corporate healthcare sector is expected to clock a stable revenue growth of about 15 per cent this financial year on account of rise in health insurance coverage and completion of new facilities, a report said.

"We expect stable outlook on the corporate healthcare sector for FY 2017-18, based on the expectation of continued stable revenue growth," India Ratings and Research (Ind-Ra) said in its report.

The sector will continue to report stable revenue growth rate of around 15 per cent during the financial year, driven by the completion of new facilities and the increase in health insurance coverage, it said.

The sector's revenue growth in the first half of 2016-17 was in line with Ind-Ra's earlier estimates of around 15 per cent for that financial year. Though the revenue in the third quarter of the FY impacted by about 10 per cent on Q-o-Q due to demonetisation, it is likely to revert to earlier growth rates in the fourth quarter, the report said.

Health insurance coverage increased at a CAGR of 28.9 per cent over 2013-14 to 2015-16, driven by government-sponsored schemes. This bodes well for the sector as it increases the addressable market size and would aid in an increased utilisation of facilities.

However, the tilt towards the government schemes is a concern due to lower profitability on the procedures covered by such schemes and the longer collection periods involved.

The report said the large corporate hospital chains would benefit in attracting patients to their old and new facilities by virtue of their established brands and their ability to attract reputed doctors.

They would also be better placed to absorb initial negative cash flows in the new facilities due to the stable cash flows from their established operations, it said.

The sector has seen significant interest from private equity or strategic foreign investors over the last three years, looking at leveraging the established brands of regional or sub-regional players to create strong national or regional chains to extend reach to customers in tier-2 and tier-3 centres and derive benefits of scale.

While investments in greenfield and brownfield expansion continue, companies are increasingly looking at acquisitions as means to enter new cities. It provides them with an existing doctor and patient base and ready infrastructure, using which they can build their operations, the report said.

Ind-Ra said that significant portion of the capex is likely to be in the private sector. Among the leading healthcare chains, Apollo Hospitals Enterprises is looking at adding 1,045 beds by 2018-19, Narayana Hrudayalaya by 647 beds by 2019-20, Manipal Health Enterprises by 1,000 beds by 2018- 19 and Quality Care India by 620 beds by 2019-20, it said.

Acquisitions are sometimes the only viable option given the scarcity of land within city centres and the long-time frame involved in setting up a greenfield hospital.

Profit margins will continue to be impacted by the sector's expansion plans owing to the long break-even periods for new facilities, it said.