Elara Capital has projected a prolonged downturn in the hospital sector, citing a plateauing of profitability among four major firms in the industry. The recent Q4 earnings reports from Krishna Institute of Medical Science Ltd (KIMS), Rainbow Children’s Midicare, Global Health Ltd (Medanta), and Jupiter Life Line Hospital (JLHL) indicated a stagnant growth in profitability and raised concerns about the sector’s future performance. Elara’s analysis challenges the belief among investors that the hospital sector will experience perpetual growth, increased revenue per occupied bed, higher occupancy rates, and rapid profit gains. The report highlighted that KIMS and Medanta fell short of revenue and EBITDA expectations by 4%-6% and 11%-21% respectively, suggesting an end to the sector’s earnings upgrade cycle. Although Rainbow slightly exceeded expectations by 2%, its projected growth of only 6% was unexpectedly low considering its high valuation. No specific expectations were available for JLHL.
In the KIMS healthcare organization, the revenue growth in established areas such as Telangana and Andhra Pradesh was relatively low, increasing only by 3% and 11% respectively compared to the previous year. Additionally, the EBITDA margins in these regions experienced a decline. Despite the addition of new assets, KIMS’ overall revenue growth was only 10% year-on-year.
In contrast, both Rainbow and Medanta witnessed modest growth of 8% year-on-year in both revenue and EBITDA. However, Medanta faced a significant drop in its EBITDA margin. On the other hand, JLHL demonstrated robust growth with a 20% and 31% year-on-year increase in revenue and EBITDA respectively. This growth was likely driven by higher occupancy rates in newer assets like Indore. Notably, the report highlighted that the margin weakness observed did not arise from a significant increase in capacity that would affect operating leverage.
Elara, in its analysis, pointed out that hospital companies failed to provide a satisfactory explanation for the weak growth in the fourth quarter and displayed a less optimistic outlook compared to previous periods. Elara considered KIMS’ projection of 10% growth in mature facilities to be exaggerated. Additionally, it expressed doubts about the sustainability of Medanta’s recent margin growth.