New Delhi, Apr 6 (IANS): Occupancy recovery, along with cost control measures, will drive corporate healthcare's FY22 profitability, an India Ratings and Research (Ind-Ra) report said.

It said the outlook for the hospital sub-sector is stable in view of robust demand drivers, moderation in capacity enhancement capex and improvement in profitability at new hospitals.

"Revenue recovery to FY20 level along with the focus of the management on cost control and significant moderation in capex is likely to improve with cash generation in FY22 with free cash flow generation turning to moderately positive," the Ind-Ra report said.

"However, continued international travel restrictions and intermittent local lockdowns owing to the resurgence of infections would continue to impact the hospitals located primarily in metros and Tier I cities which derive a considerable revenue share from the margin-accretive complex and elective surgeries as well as medical tourism."

Besides, the report cited that amid increased competition in metros and Tier I cities, majority of the beds added by large hospital players over the last five years are in less-crowded Tier II cities which have seen a strong demand during the pandemic.

"The outlook for the diagnostic companies' sub-sector is also stable for FY22, supported by a quick recovery in operations from the Covid impact, robust cash generation and strong credit profiles."

"While increasing competition and acquisition-led expansion could compress margin, the headroom available to absorb shock remains comfortable."

According to the ratings agency, vaccination drive across the world and easing restrictions would lead to a recovery in the margin-accretive international patient mix.

"International patients generally make 8-10 per cent of the revenue which is likely to continue to be impacted till the travel restrictions are eased out."

"The cost control measured taken by the sector companies for addressing the Covid impact during FY21 would enable them in addressing intermittent lock-downs and protecting the downside to EBITDA decline due to lower patient admissions."

As per Ind-Ra, liquidity of sector companies will remain adequate in FY22, driven by a net cash position and the longer tenure repayments structure of over eight to 10 years.

"The deleveraging trend of the sector companies is likely to gain traction from FY22 after recovering from the impact of Covid in FY21."

"Diagnostic sector companies have recorded a stronger recovery from 3QFY21 and also continue to have strong balance sheets to handle contingencies."

In addition, medical devices sector which has seen an increased interest from the Indian government would see investments growing.

However, the overall impact is likely to be seen over the long term, given the high complexity involved in manufacturing on account of quality requirements along with cost competitiveness.