New Delhi, Wednesday, February 24, 2010: Credit rating agency, Fitch Ratings has today said that the outlook for India`s healthcare sector in 2010 is stable. The agency expects the industry to expand by 10%-15% with improved profitability. However, Fitch notes that the dependence on debt-funded capex and acquisition plans will continue to affect the credit profiles of healthcare providers.

Fitch notes that newly commissioned hospitals and improved occupancy rates at existing ones will drive revenue growth. Better capacity utilisation and increased focus on higher-margin tertiary and quaternary healthcare services are expected to boost profitability, and improve cash flow from operations (CFO).

Demand for healthcare facilities is expected to go up due to a number of factors, including increasing instances of lifestyle related diseases, rising income levels and an improvement in the health insurance business. The agency expects that the favourable demand-supply gap coupled with the promising potential of the Indian healthcare industry will attract substantial investments.

Fitch estimates the private sector to contribute a significant 80%-85% of the total annual spend in 2010. The agency believes the expansions to focus on specialty treatments like cardiac, oncology and radiology, and niche segments such as exclusive women and maternity care. In addition, more big-scale `medi-city` projects are expected to be forthcoming in 2010.

As bigger healthcare players pace up to make the most out of the existing opportunities, Fitch expects more consolidation in the sector in 2010. This is propelled by potential advantages such as limited or no gestation period, the availability of existing medical teams and standing reputations of the hospitals to build on. The increasing concentration of established players in metro areas will also lead them to look for expansion opportunities into tier 1 & tier 2 cities.

However, Fitch expects financial leverage levels to remain high as players embark on new debt-funded capex plans and continue with ongoing projects. These capex/consolidation plans may also lead to negative free cash flow for some players in 2010. Furthermore, Fitch notes that rising real estate costs, and the limited availability of doctors and trained medical staff, will continue to be the strongest constraints to industry growth.

Ref: myiris