Slow growth for healthcare sector in 2012, says Fitch

Driven by a wide gap between the demand for, and supply of, healthcare services, India's healthcare sector will continue to witness investments in 2012 but at a slow pace, says ratings sgaency Firch Ratings.

Fitch attributes the expected growth to below-par healthcare infrastructure (especially in Tier II and Tier III cities), increasing lifestyle-related health problems, changing demographics, rising disposable income and insurance penetration, and increasing government support and medical tourism.

Fitch believes as more beds become operational in 2012, revenue will grow; however, profitability margins may remain subdued due to a rise in operational costs - such as manpower costs due to a shortage of doctors and medical staff.

High cost of funds 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.

High competition and expensive real estate in the big cities will drive the expansion plans of the healthcare companies in the Tier II and Tier III cities, where lack of healthcare services, cheaper real estate and lesser competition will be the main growth drivers. The hub and spoke model and private public partnerships will guide the investments in smaller towns.

The sector will continue to offer investment opportunities in increasing bed capacity, ancillary industries like medical technologies and diagnostics in Tier II and Tier III cities, while speciality services like cardiology, neurology, joint replacements etc. are likely to attract most of the investments in bigger cities.

Fitch's rated healthcare companies include Alchemist Hospitals Limited ('Fitch B+(ind)'/Stable), Eternal Heart Care Centre and Research Institute Private Limited ('Fitch B+(ind)'/Stable), Mittal Hospitals Limited ('Fitch BB(ind)'/Stable).