Indian hospital industry to add over 7,400 beds by FY2026: ICRA

New Delhi: ICRA projects a robust financial outlook for the Indian hospital industry in FY2025. According to ICRA, its sample set companies are set to add over 4,000 beds in FY2025 and an additional 3,400 beds in FY2026, indicating a significant capacity expansion.

 The industry’s operating profit margin (OPM) is expected to remain healthy, exceeding 22% in FY2025, bolstered by strong occupancy rates and a 4-6% increase in average revenue per occupied bed (ARPOB). This growth follows an 11% ARPOB expansion in FY2024, reflecting the sector’s resilience and adaptability. Key factors supporting ARPOB growth include an improved specialty mix, a focus on cash and insurance patients, and annual price adjustments to counter cost inflation.

ICRA’s forecast anticipates aggregate occupancy for its sample companies to stabilize at 61-63% in FY2025, a slight dip from 64.7% in FY2024, as the sector capitalizes on growing demand for organized healthcare services. The agency predicts a revenue growth of 12-14% for these companies, supported by enhanced operating leverage, cost optimization, and digital transformation initiatives.

Mythri Macherla, Vice President & Sector Head of corporate Ratings at ICRA, highlighted, “ICRA expects its sample set companies to add over 4,000 beds and 3,400 beds in FY2025 and FY2026, respectively. This cumulatively translates to ~23% of the existing capacity as of March 31, 2024. While the capex will be partly debt-funded, the debt metrics are expected to remain strong, with total debt/OPBDITA for ICRA’s sample set companies at 1.0-1.2 times as of March 31, 2025.”

“Further, even the return on capital employed (RoCE) is expected to remain stable at ~14% in FY2025 supported by strong earnings. Many hospital companies also continue to scout for inorganic opportunities to expand their network. ICRA notes that private equity investments have also increased in the recent past.”

In-patient footfalls for ICRA’s sample set companies showed resilience in FY2024, except for a dip in Q3 due to elective procedure deferrals during the festive season. The sector benefitted from a resurgence in medical tourism and a shift in patient preferences toward larger hospitals, supported by increased insurance coverage. The average length of stay (ALOS) was 3.4 days in FY2024 and is expected to remain low, facilitated by technological advancements and efficient patient throughput.

Medical tourism in India experienced robust growth in CY2023, with a 33% year-on-year increase in footfalls due to affordable treatment costs, high-quality medical services, and shorter wait times. This trend is projected to continue, potentially surpassing pre-pandemic levels of 0.7 million visitors in CY2024. Government initiatives, such as extending e-medical visa facilities to nationals of 167 countries, are expected to further boost medical tourism in the coming years.

Despite the need for additional debt to finance capacity expansions, ICRA maintains a Stable outlook on the hospital industry, underscoring expectations of solid revenue growth and robust OPM. The rise in non-communicable lifestyle diseases, increased healthcare spending, broader health insurance coverage, and higher medical tourism volumes are anticipated to sustain the industry’s growth trajectory.