Reducing ALOS partly masking IP volume benefit in Healthcare sector: IIFL Capital Services

20 Nov 2023 , 10:26 AM

In this report, analysts of IIFL Capital Services present their Hospital industry dashboard comparing the operating and financial metrics of 11 listed hospital players from FY17-H1FY24. While investors remain concerned about the high ARPOB-led growth for some players (Rainbow, Apollo, Max, Narayana), analysts of IIFL Capital Services note that reducing ALOS (down 4-7% in H1FY24) is partly masking the benefit of the IP volume growth for these players and is overstating the contribution of ARPOB to the overall revenue growth. Sector aggregate revenue grew 16% YoY in H1FY24, driven by ARPOB/IP volume growth of 10/5% resp., with mid-cap players such as Medanta, KIMS, Narayana, Jupiter and Shalby significantly outperforming the industry volume growth on the back of improving occupancies on higher bed capacities. With the industry set to add ~40% incremental bed capacities over the next 4yr period, analysts of IIFL Capital Services believe volume growth will start improving even for the larger hospital players from H2FY25. They remain positive on the Hospital sector given the improving occupancies in existing hospitals, capacity expansions, and consistent ARPOB growth of 5-7% should drive 18% Ebitda Cagr for the industry over FY23-26. Apollo and KIMS are analysts of IIFL Capital Services top-picks and they recommend adding Max and Rainbow on corrections. 

Reducing ALOS is masking IP volume growth of 4-8% YoY in H1FY24 for Apollo, Max, Narayana and Rainbow:

Aggregate hospital revenue for the 11 listed hospital players grew 16% YoY in H1FY24, driven by IP volume growth of 5% and ARPOB growth of 10%. Although ARPOB growth has accounted for 60% of the industry’s growth in H1FY24, the skew towards ARPOB-led growth appears even higher for Rainbow, Apollo, Max and Narayana at 65-100%. This is because ALOS for these players has declined 4-7% YoY in H1FY24 (led by improving efficiencies and faster patient turnaround), which is partly masking the benefit of IP volume growth and is overstating ARPOB contribution to the overall revenue growth for these players. Max’s revenue grew 17% in H1FY24 driven by ARPOB/IP/ALOS growth of +13/+7/-4% while Apollo’s hospital revenue grew 13% driven by ARPOB/IP/ALOS growth of +14/+5/-5% respectively. Hence, despite the noise around ARPOB-led growth for the sector, analysts of IIFL Capital Services note that IP volume growth even for Apollo, Max, Narayana and Rainbow has been robust at 4-8% in H1FY24.