Elara Capital forecasts prolonged downturn in hospital sector amid plateauing profitability

About this update from Jupiter Life Line Hospitals Ltd.

The recent Q4 earnings by four hospital sector firms -- Krishna Institute of Medical Science Ltd (KIMS), Rainbow Children's Midicare, Global Health Ltd (Medanta) and Jupiter Life Line Hospital (JLHL)-- showed a trend of plateauing profitability and growth, according to Elara Capital. Elara predicts a prolonged downturn, debunking investor beliefs in perpetual growth, average revenue per occupied bed increases, occupancy gains, and rapid bed profitability.Elara report stated that of the four companies that reported Q4FY24 earnings, KIMS and Medanta missed revenue and EBITDA expectations by 4%-6% and 11%-21% respectively, signaling the end of the sector's earnings upgrade cycle. Rainbow slightly surpassed expectations by 2%, but its modest 6% growth outlook was unexpected given its high valuation. Expectations for JLHL were unavailable.In KIMS, revenue growth in mature clusters like Telangana and Andhra Pradesh was low at 3% and 11% YoY, with EBITDA margins declining. Despite new assets, KIMS' overall revenue only grew by 10% YoY.Rainbow and Medanta saw modest 8% YoY growth in both revenue and EBITDA, but Medanta's EBITDA margin dropped significantly. Conversely, JLHL showed strong 20% and 31% YoY revenue and EBITDA growth, likely due to increased occupancy in newer assets like Indore. Notably, margin weakness occurred without significant additional capacity affecting operating leverage, the report added.Elara noted that hospital companies failed to explain weak growth in Q4, with a less optimistic outlook than before. KIMS projected 10% growth in mature facilities, deemed exaggerated by Elara. It also doubted Medanta's sustainability of recent margin growth.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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