SOME of India’s privately-held hospital chains are growing much faster than the listed Apollo Hospitals, the second-largest player in the space, signalling a growing fragmentation in the upper strata of the $46-billion industry. Fortis Healthcare, however, appears well-ensconced at the top slot for now.
According to filings with the Registrar of Companies, among the unlisted firms that have increased their market share between FY11 and FY13 are two Bangalore-headquartered firms — Narayana Hrudayalaya and Manipal Health Enterprises (see chart).
Delhi-based Fortis Healthcare has entrenched its top slot in the hospital industry with revenue of R4,243 crore in FY13, up 42.1% over the previous year, which in turn saw a jump of about 100% in revenue. In comparison, Chennai-based Apollo’s revenue grew 18.42% to R3,349 crore in FY13 and 20.36% in the year before.
With listed entities such as Apollo and Fortis maintaining their focus on metros and Tier-I cities, unlisted private hospital chains spent their energies to try and capture markets in Tier-II and III towns, drawn by the relatively cheaper real estate and lower levels of competition. According to a JPMorgan report, investment per bed in Tier-II/III cities is nearly 50% lower than in metros and Tier-I cities.
Fortis posted the highest post-tax profit among Indian hospital chains of nearly R500 crore in FY13, up 592% over the previous year, which, incidentally, saw a 42% decline in profits as the company took a one-time cost of acquiring an 86% stake in India’s largest diagnostics player, Super Religare Laboratories for about R930 crore in May 2011.
Hospitals contribute to nearly 71% of the $80-billion Indian healthcare industry with the private sector dominating the landscape with an approximate 82% market share. “Given the fairly limited government spending (restricted mostly to rural areas), we believe the growing demand-supply gap will continue to pull private investments. In our view, over the next 10-15 years, investment of about $70 billion is required to meet the additional demand of the healthcare services in the country,” the JPMorgan report dated December 10 said.
Hospital chain Manipal, which mostly functions in southern India, operates 15 hospitals and about 5,000 beds.
In its filing with the RoC, it said that it plans to build additional capacity and extend the reach of entering new locations in the coming years. “Further, in the next one year, the existing bed capacity would be enhanced by about 200 beds and several other projects (would commence) to increase the capacity in the years to come,” the filing said.
“Manipal plans to add 1,200 beds in international locations to leverage on the Manipal brand name. The targeted countries initially are Malaysia, Middle East and South Africa. Post expansion, approximately 20% of revenue would be from international markets as per the company,” the JPMorgan report said.
The key focus markets for growth will be Pune, Indore, Bhubaneswar and also Rajasthan and the national capital region. The company also plans to upgrade some of its existing facilities into multi-speciality hospitals. The company plans to fund the expansion through a mix of equity, debt and internal accruals. According to JPMorgan, it plans to invest Rs 30 crore to open another 10 IVF clinics over next two to three years.
Narayana Hrudayalaya (NH), which like Fortis and Apollo Hospitals has a pan-India presence and operates 17 hospitals with 6,380 beds, has six subsidiaries with hospitals in Malaysia and the Cayman Islands. The company plans to become a 30,000-bed chain through 17 new hospitals in the next five to seven years, which would require a capital investment of Rs 1,000 crore, funded by a mix of equity, debt and internal accruals, according to JPMorgan.
The group is looking to expand to Tier-II and III towns in Maharashtra, Gujarat and Uttar Pradesh. “Plans to ramp up NH’s presence in East Africa countries such as Kenya, Tanzania and Zambia are also in the works,” said the JPMorgan analysts. The company usually constructs a 300-bed hospital in Tier-II/III cities and average capex per bed is Rs 25 lakh as opposed to the industry average of Rs 35-60 lakh — savings which later translates to lower prices for patients.
“In NH Mysore, heart surgery can be performed for $800 vs $1,000 in NH Bangalore and the company is trying to bring it down further to $500,” the report added.