Covid-19 to slash operating profits of hospitals by 35-40% this fiscal: Crisil

The operating profits of private hospitals will fall by 35-40 per cent in this fiscal, impacted by a triple whammy of postponement in elective surgeries, revenue loss from medical tourism and rising costs.

Footfalls at private hospitals fell significantly in the first quarter of fiscal 2021, with the onset of the pandemic, as elective surgeries and preventive healthcare, which account for about 60 per cent of revenue, were largely postponed, according to a Crisil Ratings’ report.

Key reasons

Trauma and emergency treatments (about 28-30 per cent of revenue) continued, but at a lower level, given fewer accidents during the lockdown. Added to this, medical tourism, which accounts for 10-12 per cent of revenue, especially for large hospital chains, came to a complete standstill, due to travel restrictions imposed as part of the lockdowns, it said.

This is as per an analysis of 40 hospital-companies, including 36 rated by Crisil, which account for over ₹36,000 crore of the sector’s revenue.

Treatment of Covid-19 patients is expected to provide an additional revenue stream and contribute about 15-20 per cent to revenues this fiscal. However, it is not as profitable as other revenue streams. Additionally given the high fixed cost structure of hospitals, lower overall occupancy will result in lesser absorption of overheads. This coupled with increased cost of safety and sanitation will lead to 35-40 per cent decline in operating profits this fiscal.

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“With relaxation of lockdown and travel restrictions, footfalls have started improving from July, helping bed-occupancy levels. Crisil expects bed-occupancy levels to stabilise to previous years’ level of 65-70 per cent in the second half of this fiscal. This along with additional revenue stream from Covid-19 treatment will help limit overall decline in revenues to 16-18 per cent this fiscal compared with about 17 per cent annual growth logged in the two preceding fiscals,” Crisil Ratings’ Director Sameer Charania said.

Capex plan

Weakened operating performance accentuated cash-flow challenges, especially in the first half of the current fiscal. To manage the situation, hospital companies have deferred 35-40 per cent of planned capex for this fiscal and are resorting to short-term debt funding and focusing on collection of receivables.

About a-third of Crisil-rated hospitals also availed moratorium for loan repayments announced by the RBI in March, which supported their liquidity during first half of this year.

Better receivable collection efforts and ramp-up of bed occupancy levels will gradually help hospitals improve cash flows during the second half of this fiscal. Nonetheless, the credit outlook for the sector remains moderately negative, with credit metrics being impacted primarily by lower profits.

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