India Ratings & Research (Ind-Ra) has maintained a stable outlook on the corporate healthcare sector for FY16 on sufficient rating headroom, despite likely deterioration in credit profiles.

The agency believes that investments will significantly increase in new hospitals over the next three years to meet surging demand for healthcare. The demographic factors such as large population, increasing urbanisation and lifestyle related health problems, increasing disposable incomes, improving health insurance penetration and increasing awareness will drive demand.

Large corporate hospital chains will continue to aggressively expand bed capacity through organic and inorganic routes. This will lead to top-line growing 10%-15% and profit margins lowering due to increased fixed costs on new bed additions. Although increased debt levels to fund capacity expansion and stress on profitability will hurt credit profiles in FY16, such stresses have already been factored into the current ratings.

The industry has seen consolidation over the last few years with corporate hospital chains acquiring standalone hospitals. Consolidation and debt-funded greenfield and brownfield expansion could result in further stress for large corporate hospital chains. Ind-Ra however expects continued financial investor interest in the healthcare sector, which will partly fund capacity expansion.