Fitch Ratings has come out with its report on Indian healthcare sector. In a recent report, the agency has classified the outlook for the sector for 2012 as stable. According to the rating agency some level of consolidation in the highly fragmented healthcare industry along with improved occupancy rates and average revenues per operating bed could be positive for the sector in 2012.

Fitch Ratings expects growth in Indian health care sector in 2012 to be driven by the gap between demand and supply in health care services in the country due to increasing lifestyle-related health problems, changing demographics, increasing disposable income and insurance penetration, below par healthcare infrastructure (especially in Tier II and Tier III cities, or smaller cities), government support and increasing medical tourism.

The sector has been experiencing capacity additions over the past few years funded by both debt and equity. Fitch believes as more beds become operational in 2012 revenue will grow, but the rise in operational costs – such as manpower costs due to a shortage of doctors and medical staff – could tame profitability margins, therefore affecting the credit profiles of some players.
The rise in interest rates may lead to a slowdown in investments in 2012 and also affect the credit profiles of small players, especially the ones which have carried out debt-led expansion in the past one or two years and are yet to reach meaningful occupancy levels. Small players looking for capacity additions may have to increasingly rely on private equity investments.

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