Improving profitability: Improving ARPOB, focus on network profitability, asset-light model and cost control measures have helped chains enhance overall profitability. Fortis Healthcare has posted a 170-basis-point increase in hospital margins in FY24, aided by improving case and payer mix and cost rationalisation initiatives. It reduced net debt from ₹340 crore at the end of FY23 to ₹264 crore as of March 31, 2024. In the case of NHL, operational efficiencies and digital initiatives have improved profitability and driven revenues. Apollo Hospitals has guided margin expansion in the hospital segment to 25% in FY25, helped by cost optimisation and increased surgical volumes.Mixed performance of diagnostics business: For Fortis Healthcare, its rebranded diagnostic business (from SRL to Agilus) posted a 1% increase in revenue with Ebitda remaining flat. Apollo’s diagnostics and retail business posted improvement in revenue and margins for the quarter to March, while Max Healthcare’s non-captive pathology labs business posted strong performance for FY24.
Bullish on expansion: Hospital chains have been in an acquisitive mode and are pushing their capex plans through asset-light models. Bengaluru has emerged to be one of the commonly preferred markets for Apollo, NHL and Aster DM.
For Apollo Hospitals, expanding in Mumbai and Bengaluru is part of its long-term strategy to invest around ₹3,000 crore in three years to add 2,400 beds. Fortis has guided for a capex of ₹1,200-1,300 crore to add 2,200 beds in the next four years. Having demerged its Gulf business, Aster DM intends to add around 1,700 beds to bring the total capacity to over 6,500 beds in India by FY27. NHL’s expansion plan is largely focused on Bengaluru and Kolkata.
Low bed density, higher per capita income, higher ARPOB and rising insurance penetration make metros like Delhi, Mumbai and Bengaluru attractive markets for hospital chains to expand. Max Healthcare, the hospital chain with the highest ARPOB, has three-fourths of its beds in metro cities. It is going to add around 3,300 beds over the next four years.
Besides hospitals, diagnostic labs and pharmacies, companies are also focusing on growing adjacent businesses such as speciality care facilities, virtual care, digital healthcare platforms and home care services.
Street outlook: With post-Covid performance steadily improving, investors continue to favour corporate hospital chains on and off the Street. However, any regulatory proposal to rationalise rates can prove to be risky for the sector’s valuations.
