COVID-19 Implication: CRISIL Says Hospitals May Lose 35-40% of Profits for Fiscal 2020-21
CRISIL, on Tuesday, said that the hospitals are likely to suffer a loss of 35-40 percent in their operating profits because of the current COVID-19 pandemic. Postponement of elective surgeries, revenue loss from the highly profitable medical tourism segment, and increasing safety and sanitisation costs amid COVID-19 are likely to affect the revenues for 2020-21 fiscal year.
Mumbai, October 20: 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 percent 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 year 2021, with the onset of the pandemic, as elective surgeries and preventive healthcare, which account for approximately 60 percent of revenue, were largely postponed.
Trauma and emergency treatments - approximately 28-30 percent of revenue - continued, but at a lower level, given fewer accidents during the lockdown.
Added to this, medical tourism, which accounts for 10-12 percent 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. COVID-19 Implication: Survey Shows 78% of MSMEs and Start-Ups Reduced Workforce; 25% Were Shut Down.
Treatment of COVID-19 patients is expected to provide an additional revenue stream and contribute approximately 15-20 percent 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 percent 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 percent 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 percent this fiscal compared with approximately 17 percent annual growth logged in the two preceding fiscals." COVID-19 Patients Play 'Garba' at Coronavirus Facilities in Mumbai, Videos Go Viral.
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 percent of planned capital expenditure 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.
(The above story first appeared on LatestLY on Oct 20, 2020 05:50 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).