healthcare industry analysis

7/30/2019 HealthCare Industry Analysis

1/20

2012Section F

Group 4

[HEALTHCARESERVICES]Analysis of the Indian healthcare services industry


2/20

INDEX

1.Introduction

2. Industry Overview

3.Major Players and their profiles

4.Government Policies and Incentives

5.Key factors driving the growth of Healthcare Industry

6.Mergers and Acquisitions

7.Provisions for Healthcare in union budget 2012-13and its general impact:

8.Key financial performance indicators such as assets,

EBITDA, PAT of major players

9.Recent events related to industry

10. References


3/20

INDUSTRY ANALYSIS HEALTHCARE INDUSTRY

1. Introduction

An industry with a combination of medical technology and human touch, the healthcare industrydiagnoses, treats, and administers care around the clock, responding to the needs of millions ofpeoplefrom newborns to the terminally ill.

The healthcare industry consists of the following segments:

Hospitals One of the biggest service providers in the healthcare industry, hospitalsprovide complete medical facilities ranging from diagnostic services, to surgery, tocontinuous nursing care.

Nursing and residential care facilities It provides inpatient nursing, rehabilitation, and

health-related personal care providing a vast majority of direct care.

Home healthcare services This is the market segment providing skilled nursing andmedical care facilities directly at home, under a physician's supervision.

Ambulatory healthcare services It includes outpatient care center and medical anddiagnostic laboratories.

2. Industry Overview

2.1 Evolution of Healthcare Sector in India

Changes in the healthcare service demand as well as requirements over the period of time hasbeen shown below-

Years (Chronological

order)

Developments in Indian Market

Till early 1970s The healthcare services were largely government driven

and mainly government hospitals were the only source forpatients. It was considered as a charitable activity havingtedious process for even simple procedures.

From late 70s to early partof 90s

There was an introduction of corporate activity with theopening of nursing homes. India started to grow and westarted adopting technologies in providing services withhaving specialty and sub-specialty departments.

Late 90s to date There has been an emergence of specialty hospitals and


4/20

people require high standards of medical services. Thesector is highly growth driven and people opting for newchanges like health insurance etc.

2.2 Growth of Healthcare sector in India

In India the healthcare services market is expected to grow from US$35bn in 2008 to US$62bnby 2013. Reports show that market for healthcare service has compounded nearly 15% in thepast 5 years. This is mainly because of the increased level of awareness among people regardinghealth. A split of different areas of expenditure in healthcare shows that people are gettingincreasingly aware towards insurance and other facilities and three-fourths of the market iscaptured by the private service providers.

The projected growth of the market by 2022 and the increasing share of private service providers


5/20

As a result of the increased growth, India having a current capacity of around 1.22mm

beds, is estimated to require an additional 1.75mm beds by 2025, involving an estimatedinvestment of US$75bn.

In the private healthcare, around 61% of the expenditure is on outpatient care. Out of

which 57% is on acute infectious diseases.

The increasing competition in the industry has forced players to explore new and innovativebusiness models to tap into less-penetrated geographies as well as patient segments

Single specialty tertiary care hospitals, e.g. Healthcare Global

Hospital chains solely focused on primary/ secondary care in Tier II/ III towns, e.g.

Vaatsalya

Provision of Healthcare cities, e.g. DrTrehans Medicity

3. Major Players and their profiles

Major players in healthcare services can be divided into 2 categories

1. Hospital Players

2. Diagnostic Service Players

3.1 Among the hospital service providers, following is the list of major players


6/20

Company CEO &Headquart

ers

Sales(US

$mm)

Business Description KeyInvestors

Chairman:Prathap ReddyHeadquarters:

Chennai

458.6 Founded by Dr. Prathap C Reddy in 1983, as

a 150-bed hospital in Chennai Largest hospital chain in India, it also

operates neighbourhood diagnostic clinics, an

extensive chain of Apollo Pharmacies,

medical BPO and health insurance services

and clinical research divisions with 53

hospitals (spread all over India and also in

Mauritius and Bangladesh), over 8,500 beds,

1,050 pharmacies and 100 neighbourhood

clinics

Alliance with AIG, ALICO, Vanbreda, Seven

Corners, International SOS, GMC services,

Emergency assistance (Japan), Companion

Global Healthcare, International Claims

Service and Prestige International

Promoter group(34%),

FIIs(24%),

Foreigncorporate bodies(21%)

CEO: BhavdeepSingh

Headquarters:New Delhi

219.9 Formed in 1996, was started by the

promoters of Ranbaxy Laboratories

Second largest hospital chain in India with a

pan India presence managing more than 51

hospitals and ~8,000 beds under

management

Successfully completed acquisitions-

2005: Escorts chain of hospitals

2008: Malar Hospitals, Chennai

2009: Wockhardt hospitals

Alliance with international partners such as

Aetna, Bupa, Cigna, GMC Services, HTH

Worldwide, Vanbreda, World Access &

Surgical Tourism (Canada)

Fortis HealthcareHoldings Ltd.(81%)

CEO: JaideepGupta


97.2 Integrated healthcare company running a

multi super-specialty hospital; part of Apollo

group

Operates through Indraprastha Apollo

Hospitals located in Chennai, Hyderabad,

Kolkata, Ahmedabad, Bangalore, Bilaspur

and Madurai

As of March 31, 2009, had performed around

2,000 cardiac surgeries, 400 joint

replacements, 1,000 onco surgeries, 90 liver

transplants and 135 renal transplants


Corporate bodies(18%)

CEO: NallaPalaniswami

Headquarters:

Coimbatore

29.3 Integrated healthcare company running a

multi super-specialty hospital; part of Apollo

group

Operates through Indraprastha Apollo

Hospitals located in Chennai, Hyderabad,

Kolkata, Ahmedabad, Bangalore, Bilaspur

and Madurai

As of March 31, 2009, had performed around

2,000 cardiac surgeries, 400 joint

replacements, 1,000 onco surgeries, 90 liver

transplants and 135 renal transplants



CEO: SonjoyMohanty

7.6 Operates in two segments: Ayurveda Promoter group

(59%)


7/20

Headquarters:Alwaye

business & healthcare services and software

business

Introduced formulations such as Kashaya to

Kashayam Tablets, medicated oils to creams

and formulations for treating diabetes, namely

Trikantika Thailam, Kathakhadiradi Kashayam

Subsidiaries include Ayurvedagram Heritage

Wellness Centre Pvt. Ltd., Ayu Natural

Medicine Clinic, PS., Ayurvedic Academy,

Inc., Ayu, Inc, KatraSoft Europe GmbH and

CMS Katra Holdings, LLCMD: AmarAgarwal

Headquarters:Chennai

19.8 Engaged in operating eye care hospital

Services provided include intralase surgery,

zyoptix / lasik laser, cataract surgery and

phaco / zyoptix laser

In 2008, the company started 14 new

hospitals in Tamil Nadu and Andhra Pradesh



Chairman: DeviPrasad ShettyHeadquarters:

Bangalore

N/A Formed in 2001, was started by renowned

cardiac surgeon

Dr. Devi Shetty

One of the largest hospital chains in India witha pan India presence managing more than 35

hospitals and ~5,000 beds under

management

Services offered include cardiology,

paediatrics, neurology, gastroenterology,

general surgery, dental, nephrology, urology,

transplants, nuclear medicine, medical

imaging and radiology

In Feb 2008 J.P. Morgan Partners and AIG

Capital Partners made a combined INR4.0bn

($80mm) investment for a 25% stake in the

group

J.P. MorganCapital Partners

AIG Global Asset

Management

Chairman:Ramdas Madav

PaiHeadquarters:

Bangalore

~110.9 Formed in 1953, was started by Dr. T.M.A.

Pai as part of a university and healthcaretownship at Manipal

Provides tertiary, secondary and primary

healthcare delivery services with 15 hospitals,

9 primary care clinics and 55 community

health programs, 7 rural maternity and child

welfare homes including ~ 3,700 beds under

management

Provides services in cardiovascular,

neurology, nephrology, oncology, urology,

dental science, metabolic disorders,

andrology & various other diagnostic services

Kotak PrivateEquity Group,

ManipalEducation andMedical GroupInternationalIndia Pvt. Ltd

Chairman: P.Namperumalsamy

Headquarters:

Madurai

N/A Formed in 1976 by Dr. G. Venkataswamy with

an 11 bed hospital opened in Madurai

Comprises of 5 hospitals with ~3,600 bedsunder management,

3 managed eye hospitals

2.5mm outpatient visits and 300,000

operations performed in 200910 with two-

third of the outpatient visits and three-fourth

of the surgeries serviced to the poor, free of

cost

N/A

Chairman: B.Soma Raju

Headquarters:

N/A Formed in 1992, was started by Padmashri

Dr. B. Soma Raju

AshmoreInvestmentManagement


8/20

Hyderabad Comprises of 12 hospitals with ~1,400 beds

under management, ~200 doctors and ~5,000

support professionals and ~45,000 patients

treated in 200607

Services offered include cardiology,

nephrology, chest diseases , neurology,

emergency medicine and critical care,

digestive diseases, oncology andorthopaedics

In Jan 2008, Ashmore Investment

Management made a INR900.0mm ($23mm)

investment to purchase a 19% stake in CARE

Hospitals

Limited,N Prasad,

RakeshJhunjhunwala

CEO: PervezAhmed


112.2 Operates eight facilities (with 1,100 beds) in

Delhi & NCR (National Capital Region),

offering services in over 30 medical

disciplines

Collaboration with Singapore General

Hospital in the areas of medical practices,

nursing, paramedical, research and training

Four new facilities to become operational by

2011: Max Hospitals in Bhatinda, Dehradun,Delhi, Mohali

Max India Ltd.,Warburg Pincus,LLC InternationalFinanceCorporation

3.2 Some of the major diagnostic service players are

Company CEO &Headquarters

Sales(US

$mm)

Business Description KeyInvestors

CEO: SanjeevChaudhryHeadquarters:Delhi

N/A Founded in 1996, is the largest pathology

laboratory network in India, servicing

nearly 4,000 hospitals / path labs

comprising over 50,000 doctors

Performs over 34,000 tests/day and caters

to approximately 8 million patients in a

year offering a comprehensive range of

over 3,500 tests covering 95 technologies

Geographic footprint extends to Gulf

countries, UK and SAARC

In July 2010, acquired Piramal's dignostic

business for INR600mm (US$129mm),

combined entity to have 170 dignostic

centers serving more than 12 million

customers

FortisHealthcareLtd.,ReligareEnterprisesLtd.

Chairman: ArvindLalHeadquarters:

N/A Established in 1949, is one of the largest

diagnostic service provider in the country

SequoiaCapital India,


9/20

Gurgaon Offers more than 1,650 different types of

tests and has a pan India presence in all

important cities and towns of India, in the

form of laboratories and patient service

centres

Employee strength of over 1,000, serves

around 4 million customers every year

In August 2010, TA Associates bought a

16% for $35mm, also Sequoia capital

holds 16% stake in the firm

TA AssociatesInc.

Chairman: AjayPiramal (preacquisition)Headquarters:Mumbai

N/A Has 124 diagnostic centres over 85 cities

and over 00 collection centres visited by

more than 9900 patients per day

Offers a comprehensive range of tests in

radiology, spanning X-ray, ultra sound,

colour dooplers, mammography etc.

Super ReligareLaboratories

CEO: Sushil ShahHeadquarters:Mumbai

25.4 Founded in 1981 is one of the largest

laboratory chain

Service includes clinical laboratory

machine, radiology and image services,

hospital laboratory management and

central laboratory services for clinical trials

WarburgPincus LLC,Sushil Shah

GOVERNMENT POLICIES & INCENTIVES

Infrastructure status conferred on healthcare industry

Budgetary allocation to healthcare Rs 62 billion (USD 1.51 billion)

40 per cent depreciation limit on medical equipment imports

Income tax exemption for the first 5 years, to 100 bed hospitals set up in rural

areas

Reduced duties (between 58 per cent) on certain medical equipment and

devices

Customs duty exemption on specific personal medical aids like crutches, wheel-

chairs, walking frames, artificial limbs


10/20

Customs duty, excise duty and CVD exemption on specific medical devices

such as talking books, Braille computer terminals, etc.

Regulatory Authorities

Poor supervision of small scale manufacturers Weak penalties for making and selling fakes and sub-standards India does not have list of essential drugs No compulsion to make and sell quality generics No supervision of detailing practices Prices kept relatively low Need for market competition to keep prices down

IMA-refusal to recognize crucial role pf unregistered practitioner Who could be trained to deal with limited illnesses accounting for large percentage ofDisease

Government PHCs and hospitals quite unregulated for quality of service, presence ofdoctors, overcrowding, hygiene, etc

Government accounting does not permit differential pricing No oversight over commercial hospitals & Nursing Homes

No supervision of practices at retail and wholesale level No pursuit of criminals in Trade & Manufacturers Making & Selling fake and sub-

standard drugs Drug Regulatory authorities understaffed, under budgeted, poorly motivated Pricing decisions poorly framed; No framework of essential cheap drugs for masses Need for system to pursue goal of Affordable and Safe Health for ALL

Some Issues

Health Governance is scattered over Ministries

High Private expenditures on Health Care Poor efficiency of Government expenditures India must retain large and efficient Public sector for Health Care

Accept large number of unavoidable illegal medical practitioners: Co-opt them withtraining

Minimize number of pharmaceutical manufacturers and ensure their quality


11/20

Insist on Regular Re-training of all practitioners Make all offences non-cognizable Enforcement of Patent and Copyright Laws Severe Penalties for criminal acts of making and selling fake and substandard drugs, poorhygiene in hospitals and nursing homes, Make it easier to sue for poor quality health provision

Manufacturers Involvement in patent protection (eg, fmcg, movies, recordings, etc)

Expand and improve quality of Drug Regulatory personnel Accept WHO List of essential Drugs Impose proportion of Generics Patent Laws must guarantee quality, affordability and Availability of Medicines

KEY FACTORS DRIVING THE GROWTH OF HEALTHCARE

INDUSTRY

1. Domestic Demand

A. Treatment - The increase in the incidence of lifestyle-related diseases, including cardiac and

related disorders, among Indians has triggered a demand for specialised treatment. A higher

proportion of the Indian population is living in urban areas, where the propensity to seek

treatment for ailments is higher. This is primarily due to easy access to healthcare facilities and

higher disposable income, which make expensive treatment more affordable.

B. Tertiary and quaternary care- Lifestyle-related diseases are likely to assume a greater share of

the healthcare market. In-patient revenues of hospitals have increased since expenditure on

lifestyle-related diseases has risen substantially.

2. Increasing expenditure on Healthcare- Healthcare expenditure in India is expected to

increase by 15 per cent per annum.

This segment is expected to constitute 6.1 per cent of the countrys GDP and employ around 9

million people in 2012. Some section of society (urban) has a greater capability to spend money

on its healthcare needs due to its higher income levels and access to insurance.


12/20

3. Demand-Supply Gap- There is a growing demand for improved public health infrastructure

due to the countrys high population and increasing disease profile. This highlights the need for

better healthcare delivery, which addresses accessibility and affordability issues.

4. Preference for Private treatment- In India, private healthcare accounts for nearly 80 per cent

of the countrys total healthcare expenditure, although it is more expensive than public

healthcare services. The preference for private healthcare can be attributed to better perceived

quality and accessibility.

5. Policy

A. 19832000- Subsidies worth US$ 13.54 billion (INR 650 billion) have been provided to

stimulate private investments. This includes exemption in customs duty for the import of

equipment and subsidised input, including land.

B. 2000 onwards- The benefit of section 10(23 G) of the IT Act has been extended to financial

institutions that provide long-term capital to hospitals with 100 beds or more.

The benefit of section 80-IB has been extended to new hospitals with 100 beds or more that are

set up in rural areas; such hospitals are entitled to a 100 per cent deduction on profits for five

years. Custom duty on life-saving equipment has been reduced to 5 per cent from 25 per cent and

exempted from countervailing duty. Import duty on medical equipment has been reduced to 7.5

per cent.

Presence of International players in IndiaJohnson & Johnson

American multinational medical devices, pharmaceutical and consumer packaged

goods manufacturer


13/20

Employs more than 2000 people and the businesses span Consumer, Medical

Devices & Diagnostics, Pharmaceuticals and Vision Care

Pfizer

American multinational pharmaceutical corporation headquartered in New YorkCity

Pfizer Limited (India) has a turnover of US$ 184.96 million (March 2012)

Two of Pfizer India's brands -- Corex (Cough Formulation) and Becosules

(Multivitamin) -- continue to rank among the Top 15 pharmaceutical drug brands

Roche

F. Hoffmann-La Roche Ltd. is a Swiss global health-care company that operates

worldwide under two divisions:

Pharmaceuticals and Diagnostics

After a contractual relationship of 10 years with NPIL, it was decided by FHLR to end

the Frame Co-operation Agreement with NPIL in November 2003

GlaxoSmithKline

Originally from UK, established in the year 1924 in India GlaxoSmithKline

Pharmaceuticals Ltd. (GSK Rx India) is one of the oldest pharmaceuticals company

The GSK India product portfolio includes prescription medicines and vaccines

Mergers & Acquisitions- Recent highlights

In September 2011, Indias second largest hospital chain, Fortis Healthcare (India) Ltd,

announced that it will merge with Fortis Healthcare International Pte Ltd., the promotersprivately held company

Abbot acquired Piramal Healthcare solutions in 2010 at US $ 3.72 billion which was 9

times its sales

Fortis Healthcare one of the biggest healthcare chain of India acquired 23.9% stake in

parkway holdings of Singapore based for USD 685.3 million (INR 31.10 billion)


14/20

Medfort Hospitals to merge with eye care chain maxivision (September 2011 report)

Mergers & Acquisitions- Summary

Industry Life Cycle


15/20

Provisions for Healthcare in union budget 2012-13 and its general

impact:

Major Highlights

1. Healthcare spending to be increased from Rs.26,897 cr to Rs. 30,702 cr an increase of 14%.2. Proposed increase in allocation for National Rural Health Mission and launch of the National

Urban Health Mission to meet the needs of urban poor and slum dwellers.3. The Rashtriya Swasthya Bima Yojana (RSBY) , health insurance for the poor has beenextended to cover MGNREGA beneficiaries. This scheme will also include to cover people whowork in unorganized sectors in hazardous conditions mine workers.

Direct tax proposals1. Investment-linked incentives on specified business

Under section 35AD, weighted deduction of 150% of the capital expenditures are proposed to beallowed to hospitals (as against current availability of 100% deduction) subject to the followingkey conditions:

Hospitals with atleast one hundred beds for patients, anywhere in India

Hospitals commencing operations on or after 01 April 2012

Capital expenses not to include expenses on land, goodwill or financial instrument. Thisamendment will apply in relation to AY 2013-14 and subsequent AYs.

2. Expenditures on in-house scientific research and development


16/20

Under section 35(2AB), weighted deduction of 200% of expenditures (not being in the nature ofcost of any land or building) incurred on approved in-house research and development facilities,have been extended for a further period of 5 years i.e up to 31 March, 2017.This will apply in relation to AY 2013-14 and subsequent AYs (upto AY 2017-18)

3. Expenditures on preventive health check-up

Under section 80D, a deduction of Rs 5,000 is allowed for expenditure incurred during the yearby an assessee on account of preventive health check-up of self, spouse, dependent children orparents.

The above deduction to be within the overall limits of Rs 15,000 / Rs 20,000 prescribed underthe said section of the Act

Indirect tax proposals

1. Service tax Rate of Service tax is proposed to be increased from 10% to 12%

All healthcare services exempted from service tax. However hospitals with twenty five or

more beds and central air conditioning will not get this exemption. Govt hospitals shallbe exempted from this tax.

2. Central excise

Basic rate of duty increased from 10% to 12% and merit rate increased from 5% to 6%

Exemption from Excise Duty is proposed on specified life saving drugs

3. Customs duty

Reduction in Basic Customs Duty on the following items:

Item Current rate Proposed rate

Probiotics 10% 5%Life saving

drugs

10% 5%

Iodine 5% 2.5%Isolated soya

protein

15% 10%

Soya protein

concentrate

30% 10%


17/20

Key financial performance indicators such as assets, EBITDA, PAT of

major players

Apollo Hospitals

Particulars Mar12 Mar11 Mar10 Mar09

Net Worth 2506.82 1898.94 1653.47 1461.17

Return on Net

Worth(%)

8.88 10.04 8.31 7.01

Debt-EquityRatio

0.26 0.50 0.48 0.37

Revenue 2957.71 2463.66 1920.65 1531.07

EBITDA 539.03 425.95 323.07 228.43

Max Healthcare


Net Worth 3257.84 3285.37 1886.95 1070.63

Return on Net

Worth(%)

8.88 10.04 8.31 7.01

Debt-Equity

Ratio

0.24

0.98 0.81 0.45

Revenue 793.97 498.54 373.76 437.22

EBITDA 40.59 46.91 28.00 36.28

Fortis Healthcare


18/20


Net Worth 3257.84 3285.37 1886.95 1070.63

Return on Net

Worth(%)

2.22 4.25 4.81 3.04

Debt-Equity

Ratio

2.00 0.37 3.63 0.72

Revenue 2984.04 1497.56 945.18 632.11

EBITDA 586.97 499.46 189.91 89.18

Major /Key events related to the industry in the last two or three years

1. The All India Institute of Medical Sciences (Amendment) Bill, 2012, replaces an ordinance

which allowed the six AIIMS-like institutes to become operational from Sep 15. The bill also

gives the central government authority to establish more AIIMS-like institutes. The six institutes

were approved for Patna in Bihar, Raipur in Chhattisgarh, Bhopal in Madhya Pradesh,

Bhubaneswar in Odisha, Jodhpur in Rajasthan and Rishikesh in Uttarakhand.

2. Fortis Healthcare, the leading private healthcare chain promoted by the erstwhile owners of

Indias largest drug firm Ranbaxy, has acquired the cream of rival Wockhardt Hospital chains

assets eight running hospitals and two green field projects - for Rs 909 crore

3. In September 2011, Indias second largest hospital chain, Fortis Healthcare (India)

Ltd, announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters

privately held company. This will make Fortis Asias top healthcare provider with the

approximate total revenue pegged at Rs. 4,800 crore. Fortis India will buy the entire stake of the

Singapore based Fortis International

4. Private-Public Partnerships
http://www.livemint.com/2011/09/20005217/Fortis-India-to-consolidate-wi.htmlhttp://www.livemint.com/2011/09/20005217/Fortis-India-to-consolidate-wi.html


19/20

The Indian Government is focused on developing the PPP model to cover the demand-supply

gap prevalent in the healthcare sector. Private sector expertise coupled with efficiencies in

operation and maintenance would lead to improved healthcare services delivery to the masses.

REFERENCES


20/20

1. Indian Brand Equity Foundation

2. FactSet

3. Equity research

4. indiafoonline.coM

5. Moneycontrol.com

healthcare industry analysis

Documents