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2012

Section F

Group 4

[HEALTHCARE SERVICES]
Analysis of the Indian healthcare services industry

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 2012-13 and its general impact: 8. Key financial performance indicators such as assets, EBITDA, PAT of major players 9. Recent events related to industry 10. References

INDUSTRY ANALYSIS HEALTHCARE INDUSTRY


1. Introduction
An industry with a combination of medical technology and human touch, the healthcare industry diagnoses, treats, and administers care around the clock, responding to the needs of millions of peoplefrom newborns to the terminally ill. The healthcare industry consists of the following segments: Hospitals One of the biggest service providers in the healthcare industry, hospitals provide complete medical facilities ranging from diagnostic services, to surgery, to continuous 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 and medical care facilities directly at home, under a physician's supervision. Ambulatory healthcare services It includes outpatient care center and medical and diagnostic 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 has been shown below-

Years (Chronological order) Till early 1970s

Developments in Indian Market

The healthcare services were largely government driven and mainly government hospitals were the only source for patients. It was considered as a charitable activity having tedious process for even simple procedures. From late 70s to early part There was an introduction of corporate activity with the of 90s opening of nursing homes. India started to grow and we started adopting technologies in providing services with having specialty and sub-specialty departments. Late 90s to date There has been an emergence of specialty hospitals and

people require high standards of medical services. The sector is highly growth driven and people opting for new changes 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$62bn by 2013. Reports show that market for healthcare service has compounded nearly 15% in the past 5 years. This is mainly because of the increased level of awareness among people regarding health. A split of different areas of expenditure in healthcare shows that people are getting increasingly aware towards insurance and other facilities and three-fourths of the market is captured by the private service providers.

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

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 estimated investment 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 innovative business 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. Dr Trehans 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

Company

CEO & Headquart ers


Chairman: Prathap Reddy Headquarters: Chennai

Sales (US $mm)


458.6

Business Description

Key Investors
Promoter (34%), FIIs(24%), Foreign corporate bodies (21%) group

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

CEO: Bhavdeep Singh 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 acquisitions2005: 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 Healthcare Holdings Ltd. (81%)

CEO: Jaideep Gupta Headquarters: New Delhi

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

Promoter (51%),

group

Corporate bodies (18%)

CEO: Nalla Palaniswami 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

Promoter (51%),

group

Corporate bodies (18%)

CEO: Sonjoy Mohanty

7.6

Operates in two segments: Ayurveda

Promoter (59%)

group

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, LLC

MD: Amar Agarwal 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

Promoter (53%),

group

Corporate bodies (9%)

Chairman: Devi Prasad Shetty Headquarters: Bangalore

N/A

Formed in 2001, was started by renowned cardiac surgeon Dr. Devi Shetty One of the largest hospital chains in India with a 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. Morgan Capital Partners AIG Global Asset Management

Chairman: Ramdas Madav Pai Headquarters: Bangalore

~110.9

Formed in 1953, was started by Dr. T.M.A. Pai as part of a university and healthcare township 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 Private Equity Group, Manipal Education and Medical Group International India 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 beds under management, 3 managed eye hospitals 2.5mm outpatient visits and 300,000 operations performed in 200910 with twothird 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

Ashmore Investment Management

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 and orthopaedics In Jan 2008, Ashmore Investment Management made a INR900.0mm ($23mm) investment to purchase a 19% stake in CARE Hospitals

Limited, N Prasad, Rakesh Jhunjhunwala

CEO: Pervez Ahmed Headquarters: New Delhi

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 International Finance Corporation

3.2 Some of the major diagnostic service players are

Company

CEO & Headquart ers


CEO: Sanjeev Chaudhry Headquarters: Delhi

Sales (US $mm)


N/A

Business Description

Key Investors
Fortis Healthcare Ltd., Religare Enterprises Ltd.

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

Chairman: Arvind Lal Headquarters:

N/A

Established in 1949, is one of the largest diagnostic service provider in the country

Sequoia Capital India,

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 Associates Inc.

Chairman: Ajay Piramal (pre acquisition) 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 Religare Laboratories

CEO: Sushil Shah Headquarters: 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

Warburg Pincus 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, wheelchairs, walking frames, artificial limbs

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 of Disease Government PHCs and hospitals quite unregulated for quality of service, presence of doctors, 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 substandard 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 with training Minimize number of pharmaceutical manufacturers and ensure their quality

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, poor hygiene 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.

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 India


Johnson & Johnson American multinational medical devices, pharmaceutical and consumer packaged goods manufacturer

Pfizer Roche

Employs more than 2000 people and the businesses span Consumer, Medical Devices & Diagnostics, Pharmaceuticals and Vision Care

American multinational pharmaceutical corporation headquartered in New York City 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

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 promoters privately 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)

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

Mergers & Acquisitions- Summary

Industry Life Cycle

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 been extended to cover MGNREGA beneficiaries. This scheme will also include to cover people who work in unorganized sectors in hazardous conditions mine workers.

Direct tax proposals


1. Investment-linked incentives on specified business Under section 35AD, weighted deduction of 150% of the capital expenditures are proposed to be allowed to hospitals (as against current availability of 100% deduction) subject to the following key 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. This amendment will apply in relation to AY 2013-14 and subsequent AYs. 2. Expenditures on in-house scientific research and development

Under section 35(2AB), weighted deduction of 200% of expenditures (not being in the nature of cost 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 year by an assessee on account of preventive health check-up of self, spouse, dependent children or parents. The above deduction to be within the overall limits of Rs 15,000 / Rs 20,000 prescribed under the 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 shall be 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 10% 5% drugs Iodine 5% 2.5% Isolated soya 15% 10% protein Soya protein 30% 10% concentrate

Key financial performance indicators such as assets, EBITDA, PAT of major players
Apollo Hospitals
Particulars Mar12 Mar11 Mar10 Mar09

Net Worth Return on Net Worth(%) Debt-Equity Ratio Revenue EBITDA

2506.82 8.88 0.26 2957.71 539.03

1898.94 10.04 0.50 2463.66 425.95

1653.47 8.31 0.48 1920.65 323.07

1461.17 7.01 0.37 1531.07 228.43

Max Healthcare
Particulars Mar12 Mar11 Mar10 Mar09

Net Worth Return on Net Worth(%) Debt-Equity Ratio Revenue EBITDA

3257.84 8.88 0.24

3285.37 10.04 0.98

1886.95 8.31 0.81

1070.63 7.01 0.45

793.97 40.59

498.54 46.91

373.76 28.00

437.22 36.28

Fortis Healthcare

Particulars

Mar12

Mar11

Mar10

Mar09

Net Worth Return on Net Worth(%) Debt-Equity Ratio Revenue EBITDA

3257.84 2.22 2.00 2984.04 586.97

3285.37 4.25 0.37 1497.56 499.46

1886.95 4.81 3.63 945.18 189.91

1070.63 3.04 0.72 632.11 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

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

1. Indian Brand Equity Foundation 2. FactSet 3. Equity research 4. indiafoonline.coM 5. Moneycontrol.com