The sector saw its first phase of consolidation with Fortis buying out Escort Hospitals in 2005. Then a fast-growing, young and hungry group, Fortis next bought out Wockhardt hospitals in 2009. After a short run in Southeast Asia, Fortis is now on the block. After being in the market for over a year, it might now merge with Manipal Hospital. And, if the merger bid succeeds, the TPG-Manipal group might create the largest hospital chain in the country, with over 11,000 beds, including 3,000 at teaching hospitals. All the advantages of scale would benefit the group, but there could be many slips between the cup and the lip, and prickly issues related to minority shareholders would need to be ironed out before the deal is considered done.
Apollo Hospitals, started by Dr Pratap C Reddy seems to be the steady behemoth with a presence in every aspect of the business of healthcare. Already under its ambit are pharmacies, clinics, educational institutes and research. With almost 10,000 beds, and a chain of clinics, pharmacies and educational institutes, Apollo straddles almost every business that a healthcare company can play in, including manufacturing well-being products.
Medanta Medicity, Dr Naresh Trehan's dream project, is not focused on scale and adding beds. His plan was to set up a unique facility on the lines of Mayo Clinic, or John Hopkins. The hospital had to be the Mecca of treatment. After establishing Medanta in Gurgaon, where the 1,250-bed facility runs to full capacity, Dr Trehan has also chosen other locations in North India. The Ranchi and Indore facilities are already functional, and Patna, Lucknow and NOIDA ones are on track to becoming operational in the next two years. The group is sitting tight with an astute doctor-entrepreneur leading it. “We are not looking to sell.” says Trehan about the recent speculation about Malaysia's IHH Healthcare Berhad taking a stake in the group. Though Trehan is tight-lipped, investment and funding are a different matter.
Max Healthcare, started by Analjit Singh, was to be the first to use a hub-and-spoke model in the health care sector. Much, however, has been changed and tweaked since to meet market demands. With over 2,400 beds, the group has 11 facilities, including secondary, tertiary and a superspeciality cancer care centres, in the NCR. Other hospitals are located in Dehradun, Mohali and Bathinda. Growth is measured, but the emphasis on outcomes is much more.
The dark horses
Paras and Regency are the other two hospital groups led by doctor-entrepreneurs, Paras Gurgain being the first. Paras HMRI Patna and Paras Darbhanga have been established using the group’s astute strategy of setting up hospitals in Tier-II and –III towns. “We consider a potential location if it has a reputed medical school,” says Shankar Narang, COO, Paras Hospitals. Darbhanga has one of the oldest medical colleges in the country and that is seen as a way to attract doctors who might want to serve in the town they studied.
Regency Healthcare staked its claim on Kanpur and has a footprint across the city with five hospitals. It is following a similar approach towards its favoured geography. “We are clear that we want to cover all of Uttar Pradesh and Uttarakhand,” says Abhishek Kapoor, senior vice-president (strategy), Regency Healthcare.
Medica, another hospital group led by doctor-entrepreneur Alok Roy, has focused on the east, starting from Kolkata, Assam and Odisha. While the strategy is to be in underserved locations, it also helps that Teir-II and -III towns are considerably cheaper. Per-bed cost at a multispecialty hospital is around Rs 8 million, compared with Rs 12 million in a metro. The downside, however, is that recovery of cost is slower in these locations as the pricing cannot be similar to a metro.
Also, attracting talent that is willing to move to the next frontier of smaller cities sometimes proves challenging. Healthcare corporates employ different strategies to get doctors and support staff to move. Offering jobs to spouses, schooling for children and accommodation are some of the lures offered, along with the promise of an exciting career path.
Funding of organised players
For health care, pockets runs deep. There is money to be made in health care and venture capitalists (VCs) are circling the proved and pedigreed providers driven by doctors and entrepreneurs. Quadria, Creador, COIS, IFC are some of the funds that have invested in Paras and Regency. Similarly, TPG is a lead investor in Fortis.
Columbia Asia Hospital, with a presence in India and Southeast Asia, is funded by 150 investors. A similar model has been adopted by Abhay Soi, Narayan K Seshadri and Mahendra Lodha who came together to start Radiant Life Care, the hospital management company behind Delhi’s BL Kapoor Hospital (650 beds) and Mumbai’s legendary Nanavati hospital (350 beds). KKR recently took a 49 per cent stake in Radiant Life Care for an investment of approximately $200 million.
Regency's Kapoor is confident of a faster rollout. “If your growth story is robust, money is not an issue,” he says. His company has funding of Rs 1 billion from IFC, Quadria and COIS to set up and grow. Kapoor expects to double the capacity in 10 years from now.
IHH Healthcare Berhad is another group focused on India. Previously, it had exited from Apollo Hospitals and is one of the suitors for Fortis Hospitals.
Scale of operations
Given the importance of the sector, in all, the chains that form the organised private multispecialty hospitals in more than three locations do not add up to more than 50,000 beds as of now – a small drop in the ocean.
With a hunger for quality, organised health care is growing with hospitals like Nayati, promoted by Niira Radia, and Jaypee hospitals by the Jaypee group setting up shops at locations like Agra and Bulandshahr.
There also are niche players in women and child care, such as Cloud Nine, CK Birla Women's hospital and Eye Q. The disease burden is growing with lifestyle diseases, communicable diseases and geriatric diseases. Therefore, the opportunity for business in the segment, however ghoulish, is huge.
The setting up of hospitals under a single chain brings in huge savings in terms of bulk buying. Corporate branding also promises seamless service and a certain standard of quality. Moving from metros to smaller towns, patients deserve to get best health care. That is also natural progression for business. The first fifteen years from 2000, when hospitals like Max, Fortis started services, were for the metros, the low hanging fruit. The next wave is that of penetration into Tier-II and –III towns.
All activity, consolidation included, is welcome and shows a sector with great promise, despite providers constantly moaning about price control.