Analysts alarmed over Indian hospitals' looming debt crisis

Liquidity is stretched due to rising capital costs.

Some of India’s largest hospitals may soon face a credit crunch if economic conditions do not improve, a new report revealed.

Kapil Khandelwal, co-founder of healthcare-focussed private equity firm Toro Finserve LLP, warned that leverage to hospitals has rapidly increased and is currently at an all-time high of 4.5 times the EBITDA (earnings before interest, tax, depreciation and amortisation).

“The credit rating by some of the leading credit rating agencies to the hospitals, over the last year, has deteriorated from stable to negative,” he said.

The leverage crisis is worsened by rising interest rates and rupee depreciation, as well as a decline in cash payments due to demonetisation.

There are also fewer opportunities to raise equity fund as investors have become discreet on platforms given after market corrections valuation are at all-time high.

“Unlike past, the current healthcare asset bubble is about to burst due to unprecedented leverage pile up and needs correction. Many operators facing the liquidity desperately need capital infusion, to tide over the current situation, created due to the leverage-backed EBITDA expansion strategies of the past,” he noted.

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