Hospital sector may witness M&A

With high fixed costs prompted by the worst ever economic crisis the country has faced, certain private sector hospitals are up for mergers and acquisitions (M&A), analysts say.

All private sector hospitals are facing this issue, they said noting that the high fixed costs with the interest rate hikes etc are making things difficult for them.

While hospitals say that things are not as smooth, it is business as usual for them.

“Our businesses are running. The turnover is fine. Some hospitals are facing a slight drop here and there, but it’s nothing to be too concerned about,” a CEO of a private hospital told the Business Times on Wednesday. He acknowledged that they are getting hit on the fixed costs such as salaries, electricity and interest, which have all gone up in price.

Stockbrokers said that a large private hospital is gathering interest from some buyers and there may be a merger/acquisition in that entity next year. The industry is trading close to its 1.3 times in 3-year average price-to-sales (P/S) ratio which shows how much investors are willing to pay per rupee of sales for a stock.

The industry is trading at a priceto-earnings (P/E) ratio of 8.0x which is lower than its 3-year average PE of 18.0x. However, health sector industry analysts said that three years ago it was an exceptional situation, with COVID-19 hitting the entire country.

During this time, some hospitals made Rs.1 billion a quarter, an analyst pointed out. “It is understandable that they cannot make the same amount of profits now. But it is true that their profitability is coming down or slowing down. This is true for any other industry,” another industry analyst said. He said the price growth makes up for the loss in revenue in certain areas.

Stockbrokers pointed out that the healthcare sector revenue situation is not bad given the current economic condition in the country.