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Healthcare does not promise good returns

November 16, 2007 09:19 IST

Even as more international and national players like Columbia Asia, a Malaysia-based hospital group, and the Havells Group are spreading their presence in the Indian healthcare business, the ability of the sector to provide quick returns on investment remains bleak.

A quarter-to-quarter comparison of net profits of public listed healthcare entities shows an overall decline in the profits of these hospitals during the quarter ended September 30.

The poor performance of these companies may dampen the investor spirit towards future initial public offers -- Wockhardt Hospitals being the latest entrant -- in the healthcare space, analysts fear.

Continuous investment in capacity expansion, slow pick-up of medical tourism, increasing competition among corporate healthcare entities and lack of health insurance are thus driving away small players and attracting deep-pocketed corporate entities that can afford to sustain on a long-term basis.

"In terms of fundamentals, everything remains strong. The Indian healthcare sector is growing at 12 per cent per annum. On the consumer side, people can afford corporate healthcare and a lot of companies are providing insurance cover for their employees. The increasing incidence of lifestyle diseases is also bringing in more business for the healthcare service providers. Despite all this, almost all players in the corporate hospital segment, perhaps Apollo being an exception, are making losses. So, how does one demonstrate the business potential?" asks Monika Sood, vice-president, Feedback Ventures.

"Operational efficiencies in healthcare can come only with huge capacities. With the real estate prices shooting up, greenfield projects have become very expensive. Acquisitions are also becoming costlier due to the scarcity of suitable targets. For a corporate entity, the minimum number of beds for a hospital should be 150-200. Only then will they be able to offer an entire range of back-end support services in a sustainable manner. They cannot expect profits in their growth phase where continuous addition of capacities, either organically or inorganically, is a necessity," Sood explains.

Daljit Singh, president (strategy), Fortis Healthcare, agrees that the operational efficiency and capacity expansion are central to his company's profit making ability.

"We have been investing heavily in capacity expansion. Our hospitals in Jaipur (Escorts Hospital) and Chennai (Malar Hospital) became operational recently. The revenue from the 300 beds added through these hospitals is beginning to trickle in. The revenue flow should be very strong during the next year," Singh says.

Fortis has recently attempted a major exercise to customise its entire operations for optimal output. "Capacity management, utilisation of operations, bed management are all part of this. We are also fine tuning our purchase-supply management systems across the group to reduce cost and improve our buying power across organisation. F&B, house keeping, security... it is applicable across all segments," Singh adds.

B Anantharaman, joint managing director, Max India, says, "Two of our hospitals are already reporting net profits. As a group, we are yet to make profits due to capacity expansion. We are investing around Rs 300 crore in expansion of three hospitals. In addition to this, we are also looking at adding another three facilities through either management control or greenfield projects. Our focus is on expansion and consolidating the foot print. It can only bring in economies of scale".

The corporates are however, optimistic. Says Vishal Bali, CEO, Workhardt Hospitals Ltd, "We are going in for a public issue with a definite business plan. Our 17 years of experience in running hospitals helped us in chalking out Wockhardt Hospital's growth plans very well. We are confident of spreading our presence across the country and expand our service like the 40-bed ICCU (Intensive Coronary Care Unit) in the coming days".

Joe C Mathew in New Delhi