Healthcare sector to see 15 pence revenue growth in FY17: Ind-Ra

Mumbai: India Ratings and Research (Ind-Ra) has maintained a stable outlook on the corporate healthcare sector for 2016-17 on expectation of revenue growth of around 15 per cent following significant capacity expansions and better utilisation of facilities.

While expansion plans will continue to impact profit margins, the ability of companies to turn around and achieve break-even at the new facilities will be key to improve profitability, the rating agency said in a report here.

The debt-funded capex will result in deterioration in credit metrics.

However, the rating outlook has been maintained at 'Stable' as the expected deterioration is already built-in to the rating levels of companies, it added.

The corporate healthcare sector will continue to report high revenue growth rates of about 15 per cent during 2016-17 as facilities are completed and patient inflow increases at the new as well as existing facilities.

This will be supported by the country's huge population, which is increasingly gaining access to health insurance as the public healthcare system is not adequate and perceived to be of lower standard, it said.

Ind-Ra believes that established brands will continue to benefit from their ability to attract reputed doctors as well as patients that will help increase the occupancy levels of hospital beds.

Cash flow from operations margins of companies in the sector will continue to be under pressure due to the initial losses at the new facilities or lower profitability during their ramp-up phase.

This is due to the high operating leverage in the sector, it said.

Also, any improvement in profitability would require a quick scaling-up in patient numbers and capacity utilisations.

Free cash flow will continue to be negative due to the continued capital expenditure of the healthcare companies.

Ind-Ra expects large corporate hospital chains' ability to withstand the strain created by the expansion plans to be better than standalone hospitals or smaller chains.

This is because the established profitable hospitals of such chains provide a cushion to absorb the negative cash flows of the new facilities, it said.