Covid to reduce profits of hospitals by 35-40 pc this fiscal: Crisil

Postponement of elective surgeries, revenue loss from the highly profitable medical tourism segment, and increasing safety and sanitisation costs amid Covid-19 will lead to a 35-40 per cent reduction in the operating profits of private hospitals this fiscal, domestic rating agency Crisil said on Tuesday.

The findings are based on an analysis of 40 hospital-companies, including 36 rated by Crisil, which account for over Rs 36,000 crore of the sector's revenue.

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 approximately 60 per cent of revenue, were largely postponed.

Trauma and emergency treatments - approximately 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, said the report.

Treatment of Covid-19 patients is expected to provide an additional revenue stream and contribute approximately 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 the increased cost of safety and sanitation will lead to a 35-40 per cent decline in operating profits this fiscal, said the report.

"With relaxation of lockdown and travel restrictions, footfalls have started improving from July, helping bed-occupancy levels," Sameer Charania, Director, Crisil Ratings, said in a statement.

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 approximately 17 per cent annual growth logged in the two preceding fiscals."

Weakened operating performance accentuated cash-flow challenges, especially in the first half of the current fiscal, said the report

To manage the situation, hospital companies have deferred 35-40 per cent of planned capex for this fiscal, 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 Reserve Bank of India in March 2020 which supported their liquidity during the 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 this fiscal.

Nonetheless, the credit outlook for the sector remains moderately negative, with credit metrics being impacted primarily by lower profits, Crisil said.