Documente Academic
Documente Profesional
Documente Cultură
May 2012
CONFIDENTIAL
The information contained within this document is proprietary to MEGStrat Consulting and it reserves the right to all information
provided. The recipient would treat this material as Confidential Information.
www.megstrat.com
Executive Highlights
Industry Overview
Introduction
Industry Composition
Current Scenario
Conducive Demographics
Rising Affordability
Increase in Lifestyle Diseases
Health Insurance and Medical Tourism
Regulatory factors Boost Reach and Quality
Market Trends
Deal Activity
Private Equity
M&A
Operating Models
20
22
27
29
32
2
The Indian healthcare industry, valued at USD 40.0 billion in 2011, is highly fragmented and
dominated by private players. The sector is expected to grow at 24.1% p.a. till 2020, fueled
by large investments from existing corporate hospital chains and new entrants backed by
India only spends 4.2% of GDP on healthcare, compared to an average of 8.3% globally, and
lower than other emerging countries like Brazil (8.4%) and China (4.3%). As such, Indias
current healthcare infrastructure would not be adequate to meet the exponential demand
expectations.
Government-run facilities have inadequate equipment and poor quality. As a result, private
players can capitalize on the opportunity. The private sector is expected to contribute
80.0% - 85.0% of the USD 86.0 billion investment required in healthcare till 2025.
The sector has attracted private equity players, who have been playing a significant role in
various strategies of Indian hospitals, including organic & inorganic growth, and to make
hospitals asset-light enterprises.
Most hospital chains have aggressive expansion plans to scale up their operations and
establish a national presence. Increasing entry barriers like high Capex intensity and
reserve crunch will favor existing players to pursue accelerated growth.
Indian hospitals are exploring various innovative models to improve their performance and
profitability, viz. introducing telemedicine, focusing on specialty centers and day care
centers.
There is increased penetration into tier II & III cities that have lower Capex & costs and
higher IRR, using models such as hub & spoke and operating & maintenance contracts to
expand reach.
The Indian Healthcare sector is at a vital juncture, perched for assured growth till 2020. Healthcare expenditure in
India being among the lowest globally, offers tremendous scope and opportunity to the industry stakeholders,
especially in the private sector.
Industry Revenues
300
280
(USD Billion)
250
200
150
100
50
79
23
34
38
41
46
50
2006
2007
2008
2009
2010
0
2005
Robust Demand
2012E
2020E
A Galore of Opportunities
Regulatory Support
Healthcare
Hospitals
Government
Hospitals
Include
healthcare
centers,
dispensaries,
district hospitals
and general
hospitals
Private Hospitals
Include nursing
homes, mid-tier,
and top-tier
private hospitals
Pharmaceutical
Manufacture,
extraction,
processing,
purification, and
packaging of
chemical
materials to be
used as
medications for
humans or
animals
Diagnostics
Medical
Equipment and
Supplies
Medical
Insurance
Businesses and
laboratories that
offer analytic or
diagnostic
services including
body fluid
analysis
Establishments
primarily engaged
in manufacturing
medical
equipment and
supplies, such as
surgical, dental,
orthopedic,
ophthalmologic,
and laboratory
instruments
Health insurance
that cover an
individuals
hospitalization
expenses and
medical
reimbursement
facility incurred
due to sickness
13%
4%
Pharmaceuticals
3%
Medical Equipments and
Supplies
Hospitals
9%
Medical Insurance
71%
Diagnostics
the sector.
The Indian healthcare industry, valued to be worth USD 40.0 Billion in 2011, is highly fragmented and dominated by
private players. The industry is rapidly developing and is being fueled by large investments from existing corporate
hospital chains and new entrants backed by private equity investors. A growing old age population with rising
incidence of lifestyle diseases, combined with rising incomes & affordability and increased penetration of health
insurance are fuelling growth of the industry.
32%
Private
Public
68%
emerging economies.
In 2008, the healthcare spend in India was close to half
the global average in percentage terms, when
evaluated on a percentage of GDP basis.
15.2%
14%
12%
% of GDP
16%
10%
8.4%
8.3%
8%
6%
4.3%
4.2%
4%
2%
0%
USA
8.7%
Brazil
UK
China
India Global
90%
83%
80%
68%
70%
61%
60%
48%
50%
56%
53%
52%
47%
44%
40%
39%
32%
30%
17%
20%
10%
0%
UK
USA
China
Brazil
India
Global
The Indian healthcare spend, on a per capita basis, both in terms of USD (at average exchange rate conversion) and in
terms of Purchasing Power Parity (PPP), is amongst the lowest globally. When compared to the global average, the per
capita Indian healthcare spend is ~95% lower on an average exchange rate basis and ~86% lower on a PPP basis.
Per Capita Spending (USD)
8000
7164
7000
7000
6000
6000
5000
5000
3771
4000
USD
USD
8000
7164
4000
3222
3000
3000
2000
2000
854
721
1000
146
45
899
875
1000
265
122
0
USA
UK
USA
UK
Population Growth
Indias population has grown from 1,024
million
Indias
average
life
expectancy
has
2.0%
1272
1.5%
1191
1024
1000
1.0%
0.5%
500
0.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
10
spending
Healthcare expenditure per capita in India has increased from USD 27 in 2004 to USD 45 in 2009
Rising affordability and the resultant quality consciousness along with increasing healthcare spending is a major
factor driving the demand for the healthcare industry
GDP Per Capita (USD)
2500
2226
2000
1389
1500
1000
729
500
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
45
40
35
30
45
45
34
Rising affordability
and attention on
quality of life to
increase
healthcare
expenditure
30
27
25
20
15
10
5
0
2004
2005
2006
2007
2008
2009
11
diseases
Percentage of population suffering from
4.9%
Percentage of Population
of
2008,
lifestyle
related
diseases
3.7%
4.0%
3.1%
3.0%
2.0%
2.7%
1.3%
specialty hospitals
0.3%0.3%
Cardiac
Diabeties
2005
Obesity
Cancer
2015
Cardiac
Oncology
Diabetic
Orthopedic
Gynecology
Neurology
Urology
Gastro intestinal
Accidents
Fever
2%
5%
43%
3%
4%
12%
8%
Source: MEGStrat Analysis, Edelweiss Research
10%
Others
12
2095.3
USD Million
2000
1215.3
1500
1000
1533.2
1320.5
733.9
500
0
2006-07 2007-08 2008-09 2009-10 2010-11
0.14%
% of Nominal GDP
2500
0.12%
0.10%
0.10%
0.11%
0.12%
0.12%
0.08%
0.08%
0.06%
0.04%
0.02%
0.00%
2006-07
2007-08
2008-09
2009-10
2010-11
2000
USD Million
1600
1200
350
800
400
0
2010
India
4,800
4,800
30,000
69,000
5,000
5,200
USA
100,000
160,000
250,000
300,000
48,000
38,000
Sources: MEGStrat Analysis, IRDA, WHO, Morgan Stanley Research, PUG Research
Singapore
15,312
13,000
150,000
140,000
25,000
12,000
2015
13
Tax incentives
Custom duty on life-saving equipment has been reduced from 25% to 5% and exempted from countervailing
duty
Import duty on medical equipment has been reduced to 7.5%
Foreign Ownership
FDI in hospitals is permitted up to 100% under the automatic route
14
The healthcare market in tier II & III cities is expected to grow at a CAGR of 17.9% till 2023,
~5.0% higher than a CAGR of 13.2% for healthcare market in metropolitans
Hospitals in tier III cities require Capex of USD 113,600 per bed, as compared to the Capex
requirement of USD 454,500 per bed in metropolitans
Operating costs in tier II & III cities are ~30.0% lower than metropolitans & tier I cities
The IRR in hospitals in tier III cities is double of that of the ones in tier I cities
A tier II & III city hospital attains operating profitability in the 1st or 2nd year of operations,
as compared to a tier I city hospital that reaches this stage around the 5th year
500
454.5
IRR in Hospitals
26%
30%
400
21%
340.9
20%
300
13%
204.5
200
113.6
10%
100
0
Metros
Tier I
Cities
Tier II
Cities
Tier III
Cities
0%
Tier-I
Tier-II
Tier-III
10%
0%
Year1
Year2
Year3
Year4
Year5
-10%
-20%
-30%
Metros
Sources: MEGStrat Analysis, PUG Research
Tier I Cities
Tier II Cities
15
Management Contracts
Many healthcare players such as Fortis and Manipal Group are signing management contracts
to provide an additional revenue stream to hospitals
Evolution of telemedicine
Telemedicine is evolving fast in India, supported by the ICT sector
Several major private hospitals such as Apollo, AIIMS, Narayana Hrudayalaya have adopted
telemedicine services and some have developed PPPs
Currently, about 650 telemedicine centers exist throughout India
Expat Doctors
Medical professionals of Indian origin practicing abroad are willing to return and settle in
India
This trend is being supported by Improved healthcare infrastructure in India, increase in
medical tourism, improved compensation structures and growing restrictions on licensing and
practicing in UK and Europe
Holistic Well-Being
Holistic well-being is a combination of modern and traditional medicine
Various hospitals have tied-up with holistic health centers to combine traditional healthcare
knowledge and practices with conventional systems
Various services offered in wellness centers are diet & nutrition, yoga, herbal medicine,
humor therapy and biofeedback
16
Date
Target
Acquirer
Deal value
(USD Million)
Jun-11
NA
Jun-11
10
May-11
Jeevanti Healthcare
Seedfund
2.2
May-11
Sabre Partners
11.2
Apr-11
22.5
Mar-11
88.4
Jan-11
3.3
Jan-11
Global Healthcare
Integrated Health and Healthcare
Services
44.4
Dec-10
Aureos Capital
Nov-10
Medfort Hospitals
13.1
Aug-10
Dr Lal PathLabs
TA Associates
34.8
Jun-10
Warburg Pincus
84.9
May-10
5.3
Apr-10
Kotak PE
33.5
Feb-10
10
Nov-09
12.9
Mar-09
3.7
Feb-09
17.8
Jun-08
CARE Hospitals
Ashmore Group
Sep-07
Apax Partners
104.3
Mar-07
Trinity Capital
19.7
10
23
3
Source: MEGStrat Analysis
17
16
Domestic
14
12
10
8
6
4
2
0
2006
2007
2008
2009
2010
2011
Target
Jul-11
Indian Health
Organization Pvt
Ltd
Acquiror
Deal Value
(USD Million)
Deal Synopsis
Supported Aetna in gaining entry into the Indian market
Aetna Inc
N.A.
Jun-11
Max Healthcare
MAX India
31.2
Apr-11
Super Religare
Laboratories
Fortis
Healthcare
India
Jan-11
Dr Agarwal's Eye
Hospital
Dr Agarwal's
Health Care
2.0
Aug-09
10 Wockhardt
Hospitals
Fortis
Healthcare
India
185.2
18
19
Other businesses
Corporate tie-ups
Result in long-term contracts,
however, increase receivable days
Revenue
Drivers
Inpatient share
Typically, inpatients generate
~75.0% of hospital revenues
Operating beds
Number of beds based on Capex
and project execution
Occupancy
Number of beds occupied; 80% is
considered to be full capacity
Outpatient to inpatient
conversion
Higher revenues come from
inpatients than outpatients
20
Spoke
Spoke
Hub
Spoke
Spoke
Corporate hospital
(such as Fortis or
Apollo)
Target Hospital
21
22
Year
India
USA
UK
Brazil
China
2000-2009
12
31
39
24
30
2000-2009
27
21
17
14
2000-2009
47
99
NA
97
98
No of doctors
2009
6,43,520
7,93,648
1,26,126
3,20,013
18,62,630
No. of Nurses
2009
13,72,059
29,27,000
37,200
5,49,423
12,259,240
No. of Dentists
2009
55,344
4,63,663
25,914
2,17,217
1,36,520
2009
0.6
0.81
0.53
0.69
0.46
2009
1.27
0.16
1.18
3.02
2009
0.6
2.7
2.1
1.7
1.4
2009
1.3
9.8
0.6
2.9
The Requirement
Parameter
Additional Beds
Required
Bed/1000
population ratio
2008
2018
2028
Parameter
2 million
Physicians
0.7 to 1.7
Nurses
30,558
993,500
114,218
2,510,250
Infrastructure / services
of
total
% of villages
73.9%
95.3%
37.5%
74.5%
43.5%
30.5%
25.0%
23
India has a competitive advantage in healthcare over peers, owing to its large skilled manpower, low
cost of surgeries, vast opportunity in Research & Development and medical tourism.
Opportunities for investments in Healthcare
Diagnostic & Pathology Services
High cost differential in India allows for outsourcing of Pathology and Laboratory tests by International
hospital chains
Telemedicine
Provides rural areas access to better quality healthcare
Healthcare infrastructure
An additional 2 million beds and 993,500 physicians are required for India to bridge the gap and prepare
for demand estimations in 2025
To achieve these targets an investment of USD 86 billion will be required
Contract Research
Contract research is a rapidly growing segment in the Indian health care industry
Foreign players are entering into contract research to reduce their operational and clinical cost
About 60% of the global clinical trials is outsourced to developing countries
Medical tourism
The Indian medical tourism industry is poised to grow at a CAGR of 58.3% into a USD 2.2 billion industry
by 2015
Health Insurance
Less than 15% of the Indian population is covered through health insurance
Increasing healthcare cost and burden of new diseases along with low government funding is raising
demand for health insurance coverage
Many companies are offering health insurance coverage to employees, driving market penetration of
insurance players
With increasing demand for affordable quality healthcare, the penetration of health insurance is poised
to grow exponentially in the coming years
The health insurance premiums are expected to grow at a CAGR of over 28% for the period spanning
from 2008-09 to 2012-13
24
Greenfield projects
Organic growth
Reduction in average
length of stay
Growth strategies
Inorganic expansion
Acquisition of existing
hospitals
Diversification across
the value chain
Build/ acquire
businesses such as
pharmacies, &
diagnostics labs
Asset-light model
is the preferred
growth strategy
for Private Equity
investors
25
Accreditation results in continuous improvement of the overall services of the hospital in order
to provide high quality care with least possible risks. Accreditation provides an objective
system of empanelment by insurance and other third parties. It provides access to reliable and
certified information on facilities, infrastructure and level of care with education on good
practices to improve business operations.
26
27
Risk Factors
Long gestation periods
Hospitals require significant upfront investments and have a
long payback period. This makes investments in the sector
less attractive
Mitigation
Increasing number of hospital acquisitions are happening
through operating & maintenance contracts which have
short gestation periods and faster revenue ramp up.
Lack of capital
Huge capital will be required to meet the growing demand of
healthcare. However, long gestation periods make the sector
unattractive
28
29
High investments
in a growing
market, along with
openness to
innovate endorse
well for the sector
30
2. Central government to set up the first specialised device centre National Centre for
Medical Devices in Gujarat to promote indigenous R&D efforts.
3. Medical Devices Regulation Bill has been tabled and is under consideration.
4. Enabling IT driven healthcare to improve the reach and costs. Tele-medicine, as a
31
MEGStrat Consulting is a Research based Consulting firm based in Gurgaon, India. Privately held since 2011,
MEGStrat participates with its clients to address their most important and challenging business issues
through integrated research based consulting services comprising of market research, business research,
strategy consulting and corporate advisory.
The firm is on a growth track with fresh industry knowledge and ideas, which are continuously tested and
applied in terms of client impact, clients' customers, employees and revenues.
For more information on MEGStrat Consulting, please visit www.megstrat.com
32
33