Better operational matrix to reflect in numbers - Hospitals Preview

What's Buzzing? 

The hospitals universe under I-direct coverage is expected to reflect normalised quarter as pandemic driven positive/negative gyrations, festive impact are behind us. I-direct hospitals universe is expected to report sequential revenue growth of 1.6% in Q4FY23 to Rs 9,666 crore. 

Context:

We expect performances to reflect optimum structural tailwinds of better case and payer mix, improved occupancies, better ARPOB and lower length of stay (ALOS). Similarly, international patient mix is expected to improve sequentially and is expected to touch/surpass pre-Covid levels. The sector, barring seasonality aspect in Q4, remains in good shape with focus on remunerative payer mix and case mix, higher emphasis on telemedicine, digital app based drives for treating patients at remote locations and incremental home-care treatments. Hospitals are expected to maintain capacity expansion drive via brownfield expansions and are expected to divulge more details about new greenfield capex cycle.

 Our Perspective:

We are structurally positive on the hospitals space based on changes in payer mix with shift towards private insurance from government schemes, supported by changes in case mix with more complex procedures such as targeted oncology, transplants, cardiovascular and neurological procedures to have higher contribution. We note that substantial bed addition in FY15-19 took place in Tier II/III cities and as these beds attain break-even level, the same would have positive implications on financials. Medical tourism has bounced back to ~95% of pre Covid levels. Medical tourists account for 8-10% of the overall payer mix on a normalised basis. The average occupancy for I-direct Hospitals universe has improved on a continuous basis followed by improvement in blended ARPOB for our universe. Overall, we expect EBITDA of the I-direct hospital universe to increase 2.6% QoQ to Rs 1,461 crore whereas EBITDA margins are likely to grow 15 bps QoQ to 15.1%. Adjusted PAT of the I-direct hospital universe is expected to grow 9.1% QoQ to Rs 575 crore. Our top picks include: Narayana Hrudayalaya and Apollo Hospitals.