Pvt hospitals expected to add 30,000 beds in the next five years: ICRA

Rating agency ICRA predicted a stable outlook for the Indian hospital sector in its report on industry trends and outlook for the financial year 2024. The projection indicated an increase in capacity building and occupancy rates, which translated into year-on-year revenue (YoY ). growth of 12 to 14 percent in FY24 for the sample of companies, up from 17 percent in FY23.

Speaking about the rising trend of capacity building by private hospitals, Mythri Macherla, Assistant Vice President and Sector Head, ICRA, said the broader industry has announced significant bed expansions. Overall, most private players (including ICRA’s model companies) are expected to add more than 30,000 beds in the next four to five years at an investment of around Rs 32,500 crore.

Note: P: Projections
OPM: operating profit margin
* Aggregate of the ICRA sample set consisting of the hospital operations of nine listed companies
Source: ICRA Research, company data

The agency expects overall occupancy for its sample of companies to remain healthy at 64 to 65 percent in FY24, similar to 65 percent in FY23 and 66 percent in H1FY24. However, the report expects occupancy to moderate slightly to 61 to 63 percent in FY25, due to the significant expansion in the number of beds.

The report said that given the strong operating metrics and demand prospects in India, industry players have announced major investment plans over the next four to five years. Cumulatively, the sampled ICRA companies are expected to add approximately 3,900 beds over the course of FY24 and FY25, representing 15 percent of their existing bed capacity. According to the study, the healthy occupancy rate is supported by continued healthy demand for healthcare services, continued market share gains for organized players and a revival in medical tourism post-pandemic.

Average revenue per occupied bed (ARPOB) is expected to show healthy growth of 8 to 10 percent in FY24, helped by a better mix of specialties and cases, a better mix of payers (with a higher contribution from cash and insurance patients ) and annual price revisions by companies to offset cost inflation. Given the high base for FY2024 and the commencement of operations in several new hospitals, ICRA expects ARPOB growth to moderate to 4 to 6 percent in FY25.

The report states that improving operating leverage combined with cost optimization and digitalization measures is expected to support a healthy operating profit margin (OPM) of approximately 22 to 23 percent for these companies in FY 2024, similar to the 23 percent OPM expected in FY 2023 was recorded.