ICRA: Healthy growth in medical tourism offers significant opportunities to hospital sector

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India CSR News Network

NEW DELHI: India has seen an increase in inflow of international patients, primarily from developing countries in South Asia, Africa and the Middle East. The primary drivers of the medical tourism industry in India are low cost of treatment, availability of the latest medical technologies, presence of a large pool of skilled medical professionals and the short waiting period.

Most commonly availed treatments by foreign patients visiting India are complex and high value procedures, such as bone marrow transplant, heart transplant, bypass surgery, spinal fusion, hip replacement, and knee replacement. For the large hospital chains analysed by ICRA, the revenue from international patients has grown at the rate of more than 20% over the last three years.

According to K. Ravichandran, Senior Vice-President and Group-Head, Corporate Ratings, ICRA, “India has significant cost advantages in medical tourism as treatments here can be done at 60-90% of the cost of such procedures in the USA. The medical tourism sector has been growing at the rate of more than 20% and is expected to continue to grow at the same rate thus doubling in size by 2021. The recently approved liberalised medical visa regulations by the Government of India allowing a 60-day stay (against 30 days earlier) and triple entry (against single entry earlier) will further provide impetus to the industry. This would present significant opportunities to hospital chains in India, particularly to large players in metros and Tier-I cities”.

The key factor which deters patients from developed economies in America and Europe from visiting India is availability of affordable options closer to home, primarily in Mexico, Turkey, and Portugal. On the contrary, India’s cost advantage is more appealing for developing nations, where healthcare facilities are inadequate. These trends are also reflected in the profile of source countries, which are mostly from the developing nations in South Asia, Africa and the Middle East.

Due to inadequate healthcare infrastructure and/or long waiting periods, few developing countries also support overseas travel for medical treatment. India is a beneficiary of the supportive policies of these countries, because treatment costs here are one of the lowest. Further, Indian hospital chains, through direct marketing campaigns in source countries, forge tie-ups with local partners for travel and treatment services, enabling increased patient flow.

Aggregate number of operational beds for ICRA’s sample set[1] increased from ~14900 in FY2013 to ~19600 in 9MFY2017. Despite 30% increase in bed capacity, the aggregate occupancy has marginally improved, from 64.1% in FY2013 to 64.7% in 9MFY2017. The aggregate occupancy level is modest for ICRA’s sample due to the premium pricing of most of the entities in the sample as well as the significant ramp-up in their bed capacity over the last four years. As the additional supply of beds gets absorbed gradually, the occupancy levels are likely to rise. Average revenue per occupied bed (ARPOB) of the sample set has increased by a healthy 37%, from Rs. 22227 in FY2013 to Rs. 30504 in 9MFY2017. Consequent to the increase in bed capacity and ARPOB, the aggregate revenues has recorded compounded annual growth rate of 14% during this period.

The improvement in performance is primarily driven by strong demand for quality healthcare services in the country, which is also aided by the increased penetration of health insurance. With the pickup in performance, the credit metrics of ICRA’s sample (as measured by interest coverage, Total Debt/EBITDA and Net Cash Accrual[2]/Total Debt ratios) has also improved during this period.

Outlook: Stable

According to Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA, “On the supply side, India currently faces a significant shortage of beds and limited Government investments.  This provides private sector players with an opportunity to step in to fill the gap. On the demand and affordability side, rising healthcare awareness, a large population, increase in the number of lifestyle diseases, higher medical insurance penetration and better affordability are likely to push the demand for the healthcare services. ICRA expects annual revenue growth of 12-14% over the next five years, in line with the trend in the last three years. That, coupled with the stabilization of multiple facilities and higher portion of beds in maturity phase, is likely to lead to further improvement in credit metrics of the companies operating in the sector”.

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