If you were to name one sector that witnessed heightened activity during Covid-19, the first one that comes to mind is the healthcare sector. Each healthcare unit had to suddenly get ready for an unknown and unexpected battle, shore up finances and bolster infrastructure for a full-fledged combat.

While hospitals had to make available additional beds and oxygen/ventilator supply besides ensuring the availability of front-line medical professionals to fight the spread, pharmaceutical companies were racing against time to meet the rising demand for medicines and also formulating an antidote for the virus and diagnostic players were struggling to meet the increasing demand for Covid tests.

All three segments of healthcare were hit by the lockdown in 2020-21, but activity picked up in 2021-22 with more patients coming to hospitals. Revenue growth was therefore very high in 2021-22, largely due to a low base. In the nine months of 2022-23, business growth has been ‘healthy’ as patients returned to hospitals for regular check-ups, surgeries, etc, pharma companies benefited from export and domestic demand. Only diagnostic companies have reported a dip in revenue as Covid tests reduced. .

Return to normalcy for hospitals

For this analysis, Apollo Hospitals, Fortis Hospitals, and Max Healthcare Institute were considered. Between FY19 and FY22, Fortis recorded compounded annual growth rate (CAGR) in revenue of 8.73 per cent, while Max witnessed 32.55 per cent growth between FY19 and FY22. Apollo Hospitals saw a CAGR growth in revenues of 14.86 per cent during this period. Interestingly, in FY21, Apollo and Fortis saw contraction in revenues.

But things have begun looking up for hospitals now. Describing the performance of Apollo Hospitals during Q1 of FY23, Managing Director Suneeta Reddy said in an analyst call: “After two financial years marked by disruption, the start of this financial year is characterised by a more stable environment leading to normalised economic activity.”

Hospital chains are, therefore, reporting an increase in revenue with patients returning and resumption of planned high-end surgeries. For instance, Apollo Hospitals reported 65 per cent occupancies in Q3-FY23. However, international patient revenues, which constitute about 10-15 per cent of the hospitals’ revenues, are yet to pick up speed, and are in the sub-10 per cent levels for major hospital chains.

Pharmaceuticals, now in ‘fine fettle’

Between FY19 and FY22, the three Indian pharmaceutical companies under review — Sun Pharmaceuticals, Dr Reddy’s Laboratories and Cipla — saw CAGR of 10-12 per cent.

This segment, which benefited by higher sales during Covid is continuing to show good growth. The first nine months of the current fiscal till December 2022, witnessed Sun Pharma and Dr Reddy’s registering strong year-on-year growth of 12.1 per cent and 13.82 per cent, respectively.

Besides a revenue growth in the domestic markets, these companies are enjoying the benefits of major launches in the US on the exports side, according to experts. However, the only pain point for these pharma companies are the increasing levels of US FDA inspections and related issues, after a brief pause during the peak Covid times.

In its February report titled ‘Indian Pharma and Healthcare – In Fine Fettle’, global investment advisory firm BNP Paribas says, “We think the India Pharma story remains intact with 10-11 per cent revenue growth potential, and high margin and premium valuations remaining sticky. We expect price erosion in the US market to abate to mid-single digits and prefer companies with commercialised specialty portfolios, a clear FDA status and lower product concentration risk.”

Diagnostics

Among the three healthcare segments, diagnostics saw the best and the worst business impact of the pandemic.

During FY19-22, the companies under review – Thyrocare, Dr Lal PathLabs and Metropolis Healthcare – have seen CAGR of 13-21 per cent in revenue. Rising cases and increased Covid testing levels in FY21 and FY22 – the peak pandemic years -- meant the best years of business for diagnostics companies. On the other hand, with Covid infections on the wane, business too became dull for these companies, which reflects in the drop in revenues during FY23.

Industry analysts say that revenue growth moderation may be due to intensifying competition from lower-priced providers. The wellness segment in the diagnostic industry has already been witnessing certain growth, thereby attracting newer tech players and digital aggregators leading to market disruption in the industry, Ameera Shah, Managing Director, Metropolis Healthcare, told businessline.

According to her, the focus on chronic and wellness business, digitisation, network expansion, penetration of health insurance and focus on research and innovation will be the growth drivers for diagnostics companies, going forward.

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