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Hospitals: Assessing impact of COVID-19
We expect the hospitals sector to witness a temporary impact in outpatient volumes with OPDs working at low capacity and patients avoiding movement out of their homes unless necessary, due to COVID-19. Additionally, in-patient occupancy and medical tourism (minimal foreign patients) would be affected with the delay in elective procedures unless its an emergency. Our channel checks suggest that currently, there is a significant decline in foreign patients across hospitals but marginal impact on inpatients as occupancy is steady. However, we expect the occupancy to decline with rise in COVID-19 cases in the ensuing weeks. We remain positive on the healthcare sector from a long term perspective with no structural impact on its business, although near term would remain muted.
COVID-19 positive cases rising rapidly in India:
The number of positive COVID-19 cases are rising faster since past few days with total tally of infected people increasing to 415 including eight deaths. It is believed that the spread has moved to stage III in India as local citizens without any travel history have also tested positive which might indicate community transmission. In total ~17,500 patients have been tested till now, however, only asymptomatic people are being tested at the moment. Several private labs, with NABL accreditation (with ability of molecular diagnostics), have also been authorized to conduct COVID-19 tests although monitored and controlled by government authorities. This would help in processing significantly large number of samples.
Occupancy likely to be impacted in near term:
With the continuous increase in COVID-19 positive cases, lock-down in several cities in India and people refraining from moving out of their home except when necessary, the occupancy of hospitals would likely reduce over next 1-2 quarters. Only emergency and critical patients such as those with cancer ailments, part of an accident, cardiac cases, etc. would be request admittance into hospitals. Our discussion with hospital companies indicates that the hospital business would be impacted on various counts (listed below) in the near term but expect a meaningful part of the loss to be recovered post stabilisation of the situation.
* Reduction in number of outpatient volumes and also OPDs being running at lower capacity.
* Deferment of elective treatments that are not critical or time sensitive.
* Significant decline in international patients which contribute ~10-15% of hospitals revenue for large healthcare chains.
Our view: We believe the hospitals and clinics business would see an impact on volumes until COVID-19 is contained. However, a reasonable part of the lost volumes could be recovered in the ensuing quarters since its deferred. We don’t expect any material impact on pharmacy and diagnostic businesses. We rationalise our occupancy level estimates by ~10% considering the disruption in H1FY21. However, we don’t see COVID-19 to structurally impact the hospital business in India from a long term perspective. We upgrade Apollo Hospitals to BUY from Add and maintain BUY on Fortis, Aster DM and HCG. Top Pick:
* Apollo Hospitals: Well diversified business model, potential for operating leverage as capex phase already over and balance sheet deleveraging.
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