With the working capital cycle stretched, financially weaker hospitals may have to resort to short-term loans to stay afloat.
Logically, a pandemic should set off a causal sequence of increased patient loads and higher revenues for hospitals. In reality, not so. When the lockdown was first imposed, footfall at private hospitals started to plunge, with Covid-19 cases mostly treated at government facilities. Elective procedures were deferred and many small, doctor-run facilities were forced shut. The impact reverberated across the sector in the first quarter of this fiscal.
But from May-end, when private facilities were roped in to handle the burgeoning crisis, occupancies improved, but slowly. However, the effect of high revenue loss and hefty operating leverage, in addition to the cost of meeting stringent hygiene requirements, led to operating losses in the first quarter — despite cost-control measures.
With the working capital cycle stretched, financially weaker hospitals may have to resort to short-term loans to stay afloat. While revenue from Covid-19 treatment did help, price caps meant it did not accrue to profit margins proportionately.
However, some smaller hospitals that reserved bed capacity for Covid-19 patients after state diktats found the rising pandemic caseload improving occupancy in the second quarter. With the unlocking phase continuing, occupancy and footfall from non-pandemic cases are expected to improve significantly, especially pent-up cases.
The drivers of the sector are intact, but the trajectory of the pandemic is key in the near term.