Private healthcare sector may witness short term losses: EY-FICCI study

May 9, 2020 0 By FM

The private healthcare sector is expected to witness short term operating losses to the tune of Rs 14,000 to Rs 24,000 crore for a quarter due to the outbreak of COVID-19 and the subsequent lockdown in India.

Already constrained on liquidity, the onset of such losses will cause cash balances to be completely depleted within a month in the sector, says an EY-FICCI study titled: “COVID-19 impact Assessment for Private Healthcare Sector and Key Financial Measures Recommendations for the Sector.”

Given the capital-intensive nature of the sector, interest coverage ratio (which is already low at 2) will get further constrained to negative 6 to 9. The revenue for the sector in FY 21 is also expected to be lower by 20-35% compared to FY 20, resulting in early, single-digit or negative EBITDA for the full year with annual ROCEs estimated at -5 to -15%.

“The private healthcare sector in India has stood beside the government firmly to contain the virus and is deeply committed to the war against COVID-19,” said Dr Sangita Reddy, president, FICCI and joint managing director, Apollo Hospitals Enterprises, in a statement.

However, there is an urgent need to consider the healthcare industry’s triple burden viz. low financial performance in the pre-COVID state; a sharp drop in out-patient footfalls, diagnostic testing, elective surgeries and international patients impacting cash flow; and increased investments due to COVID-19. These have impacted the hospitals and laboratories like never before, she added.

The private healthcare sector has witnessed an 80% fall in patient visits and test volumes and a revenue drop of 50-70% at the end of March. Occupancy levels have fallen to a mere 30-40% by late-March vis-à-vis pre-COVID occupancy levels of ~65-70%, which is expected to further exacerbate with the lockdown in April.

Another complicating factor is the no-to-very-limited latitude to reduce fixed cost and perhaps accommodate an increase in costs in the context of infection control and the need for Personal Protection Equipment (PPEs).

While bed utilization is low, private hospitals are expected to be proactive and prepared to manage any eventuality emerging from this epidemic situation. Hence, the opportunity to rationalise fixed costs is very limited, unlike other industry sectors. An increase in costs owing to infection control and PPE also needs to be accommodated, the report said.