ISI Analytics

HEALTHCARE INDUSTRY
ISSUE 1H 2010

India Industry Research

ISI Analytics – the Business research arm of ISI Emerging Markets

A Euromoney Institutional Investor Company
www.securities.com
Healthcare
1. Industry Profile 1

1.1 Healthcare in Asia Pacific

1.2 India Healthcare Industry
1.3 Development of Healthcare in India
1.4 National Rural Health Mission 2005-2012
1.4.1 Strategies of National Rural Health Mission
2005-2012
1.4.2 Outcomes of National Rural Health Mission
2005-2012
1.5 Other Segments in Healthcare Industry
1.6 Regulatory Issues

2. Market Trends and Outlook 9

2.1 Healthcare Insurance

2.2 Demographic and Population
2.3 Healthcare Investments and Shortage of Medical
Practitioner
2.4 Increasing Demand of Private Healthcare
2.5 Foreign Players
2.6 Medical Tourism in India
2.7 Franchising Solution

3. Leading Players and Comparative Matrix 17

3.1 Leading Players

3.1.1 Apollo Hospitals Enterprises Ltd. (AHEL)
3.1.2 Fortis Healthcare Ltd. (Fortis Healthcare )
3.1.3 Max Healthcare (MHC)
3.2 Comparative Matrix
3.3 SWOT Analysis

Notes:
1 USD = 44.9630 INR
1 INR = 0.02224 USD

1. Industry Profile
1.1 Healthcare in Asia Pacific
Healthcare sector comprises of many
segments, which include hospitals, medical
infrastructure, medical devices, clinical trials,
outsourcing, telemedicine, and health
insurance. The global economic slowdown
has affected many segments of the
economy. However, as comparison, the
healthcare sector has outperformed the
broader market.
Such phenomena is more significant in Asia
Pacific as the meltdown of the economy has
not hit the Asia Pacific region as severely as
in the developed countries such as the US
and Europe. Moreover, amidst the crisis,
Asia Pacific was the gainer as healthcare
companies in developed countries are under
remarkable cost pressures. The recovery of
the markets, especially the strong growth in
Asia has been identified as the main driver of
healthcare industry.
Alongside with the recovery of various
markets since the end of 2009, Asia has
become an important market for healthcare
besides serving as an outsourcing hub.
Mergers and acquisitions are falling apart in
the West but Asia is expecting restructuring
of its markets. In January 2010, Frost &
Sullivan had forecasted that the region's
healthcare market is set to reach new
heights of USD 276 billion this year, from
USD 246 billion in 2009, up by 12.2%. Asia
Pacific's current contribution of 24% of global
Chart 1: Global Pharmaceuticals Market Size in 2009
17%
25%
13%
Source: WHO
ISI Analytics
healthcare revenue is also expected to grow
to 40% by the end of 2015. Strong economic
recovery in Asian countries like India and
China, rising investment in hospital
infrastructure and healthcare facilities by
global companies are among the positive
factors.
According to the World Health Organization
(WHO), private per capita expenditures on
health increased by more than 15% in the
last 5 years in emerging markets such as
Malaysia, Vietnam, Indonesia and India.
Moreover, based on medical claims analysis,
premium costs in Asia will double in the next
five years. Healthcare spending in Asia
Pacific have been encouraging. In 2009,
majority of healthcare spending was
attributed by spending on treatment, which
was as high as 85% of the total healthcare
spending in Asia Pacific.
The rising number of aging population and
the growth of chronic diseases in Asia had
changed the trend and growth of healthcare
industry. Such trend is more significant in
Japan as the aging population (over 60 years
old) is expected to mark about 42% of the
country population by the end of this year.
Japan’s population also tops the list with
over 40% of its population having 1 or more
chronic diseases in Asia.
US
45% Japan
EU
Emerging Markets
healthcare india 1
 ISI Analytics

Chart 2: Asia Pacific Healthcare Market Revenue

2010 Estimated

2009

2008

220 230 240 250 260 270 280

Source: WHO USD Billion

Chart 3: Healthcare Spending in Asia Pacific 2009

3 5
5
100% 8
14
90%
80%
70%
60% 85 77 65
50%
40%
30%
20%
10 12 16
10%
0%
2009
Monitor Treat 2015 Diagnose 2020
Predict

Source: WHO

Chart 4: Aging Population and Growth of Chronic Diseases in Asia

Source: World Bank

healthcare india 2

1.2 India Healthcare Industry
India ranks 171 out of the 175 countries in
the world for public healthcare spending.
India only spends 5.2% of the GDP on
healthcare where 4.3% is contributed by the
private sector while the government
continues to spend only 0.9% on public
healthcare. There has been growth in GDP
but there exists no increase in healthcare
spending. While the economic growth index
of the country is moving forward, the
wellness index is dipping. The inadequate
public healthcare spending has forced public
to depend on private sector.
Private sector healthcare valued at USD 22
billion in 2009 and is anticipated to reach
USD 45 billion by 2012 at 27% CAGR.
Hospital industry has also been estimated to
reach USD 54.7 billion by 2012, representing
more than 70% of healthcare sector
revenues. The low insurance penetration
rate in India would mean people have to fork
out of their resources for healthcare services.
Over the years, there has been marginal
increase in public health spending with
National Rural Health Mission. However, it is
important for the government to play a bigger
role to increase health budget and use the
allocated budget efficiently in public health
while simultaneously building the healthcare
capacity of the state.
The inadequacy of healthcare facilities has
caused nearly one million Indians die every
Table 1: Types of Hospital Available in India
Government
Nursing Homes
Healthcare centres, district Primarily nursing homes
hospitals and general and recovery rooms with
hospitals adequate infrastructure
Variable: Based on type <30 beds
Source: Ministry of Health and Family Welfare
ISI Analytics
year and 700 million people have no access
to specialist care as 80% of specialists are
located in urban areas. According to the
Economic Survey 2009-10, only 13% of the
rural population has access to a primary
healthcare centre with 33% having access to
a sub-centre, 9.6% to a hospital and 28.3%
to a dispensary or clinic. The World Bank
has estimated that 21% of communicable
diseases in India are water-related which is
in line with the World Health Organization’s
estimates that overall disease burden would
fall by 15% with improved access to clean
water and sanitation facilities.
In recent times, India has eradicated mass
famines however the country still suffers
from high levels of malnutrition and disease
especially in rural areas. However, at the
same time, India's health care system also
includes entities that meet or exceed
international quality standards. The medical
tourism business in India has been growing
in recent years and as such India is a
popular destination for medical tourists who
receive effective medical treatment at lower
costs than in developed countries. Health
provision is challenging due to the costs
required as well as various social, cultural,
political and economic conditions.
Private
Mid-tier Top-tier
Corporate hospitals with Major corporate
inhouse staff and hospital chains and
consulting physicians specialty hospitals
30-100 beds >100 beds
healthcare india 3
 ISI Analytics

Chart 5: Public and Private Share of Hospitals

Nursing Homes

30 11 40 19
2015 Mid-tier

Top-tier
26 14 26 34
2005
Government
Hospitals
0 20 40 60 80 100
%

Source: Ministry of Health and Family Welfare

Chart 6: India Healthcare Funding Pattern 2009

Out of Pocket Local

80% State 11%
Government
71%
17%
Social Insurance
6%

Centre
Insurance 12%
3%
Source: CEIC

Chart 7: India’s Global Healthcare Ranking 2009

Physicians (per ’000) India has 6 doctors for every 10,000 people 141
141

Nurses (per ’000) India has 8 nurses for every 10,000 people 132
132

Health Exp. As % of GDP Total Healthcare Expenditure is 4.8% of GDP 132

132

Govt. Share of Heath Exp. 17% of Total Healthcare Expenditure is by Governm ent 190
190

Health as % of Govt. Exp. 3.9% of Government Expenditure is on Healthcare 190

3.9% of Government Expenditure is on Healthcare 190

0 20 40 60 80 100 120 140 160 180 200

Source: WHO
healthcare india 4

1.3 Development of Healthcare in India
In mid 80’s most of the hospitals in India
were owned by the government and
treatment was free of cost. The
implementation of the health policy in 1983
had encouraged private sector to participate
in healthcare delivery. Therefore, with private
sector participation, various private entities
have blossomed in India of which 97% are in
the unorganized sector and some are still not
registered. Such establishment has called for
the provisions for regulations, standards and
accreditation. Through 1986–1996, growth in
the private sector surpassed that in the
public sector by a wide margin as the private
sector is a preferred choice compared to
public healthcare due to greater perception
of ‘assurance’ in minds of the Indian
consumer.
The Indian healthcare industry is seen to be
growing at a rapid pace and is expected to
become a USD 280 billion industry by 2020.
According to the Investment Commission of
India, the healthcare sector has experienced
phenomenal growth of 12% per annum in the
last 4 years. Rising income levels and a
growing elderly population are the driving
factors of such growth. In addition, changing
demographics, disease profiles and the shift
from chronic to lifestyle diseases in the
country has led to the increased spending on
healthcare delivery. Despite having centers
of excellence in healthcare delivery, these
facilities are limited and are inadequate.
In order to meet manpower shortages and be
on par with the world standards, India would
require up to USD 20 billion investments
over the next 5 years. It has been estimated
that 40% of the primary health centers in
India are understaffed. According to WHO’s
statistics, there are over 250 medical
colleges in the modern system of medicine
and over 400 in the Indian system of
medicine and homeopathy (ISM&H) and
India produces over 250,000 doctors
annually in the modern system of medicine
and a similar number of ISM&H practitioners,
ISI Analytics
nurses and para professionals. The
existence of policy regulations and the
establishment of public private partnerships
are solutions to the problem of manpower
shortage to propel the growing healthcare
industry. India is now looking at establishing
academic medical centers (AMCs) for the
delivery of higher quality care with leading
examples such as The Manipal Group & All
India Institute of Medical Sciences (AIIMS)
which have been set up.
1.4 National Rural Health Mission
(NRHM) 2005-2012
The National Rural Health Mission 2005-
2012 aims to provide effective healthcare to
rural population throughout the country,
especially in the 18 special focused states,
which have weak public health indicators or
weak infrastructure. The Mission is a
commitment of the India government to
increase public spending on healthcare from
the current 0.9% of GDP to 2-3% of GDP in
the near future. The government seeks to
undertake positive correction of the health
system to enable it to effectively handle
increased allocations as promised under the
National Common Minimum Programme and
promote policies to strengthen public health
management and service delivery in the
country.
Moreover, the Mission also emphasizes on
provision of a female health activist in each
village, strengthening of the rural hospital for
effective curative care and made measurable
and accountable to the community through
Indian Public Health Standards (IPHS); and
integration of vertical Health & Family
Welfare Programmes and Funds for optimal
utilization of funds and infrastructure and
strengthening delivery of primary healthcare.
It also targets to improve access of rural
people, especially poor women and children,
to equitable, affordable, accountable and
effective primary healthcare.
healthcare india 5

1.4.1 Strategies of National Rural Health
Mission 2005-2012
a) Core Strategies
• Train and enhance capacity of
Panchayati Raj Institutions (PRIs) to
own, control and manage public
health services.
• Promote access to improved
healthcare at household level through
the female health activist (ASHA).
• Health Plan for each village through
Village Health Committee of the
Panchayat.
• Strengthening sub-centre through an
untied fund to enable local planning
and action and more Multi Purpose
Workers (MPWs).
• Strengthening existing PHCs and
CHCs, and provision of 30-50 bedded
CHC per lakh population for improved
curative care to a normative standard.
• Preparation and Implementation of an
inter-sectoral District Health Plan
prepared by the District Health
Mission, including drinking water,
sanitation and hygiene and nutrition.
• Integrating vertical Health and Family
Welfare programmes at National,
State, Block, and District levels.
• Technical Support to National, State
and District Health Missions, for
Public Health Management.
• Strengthening capacities for data
collection, assessment and review for
evidence based planning, monitoring
and supervision.
• Formulation of transparent policies for
deployment and career development
of Human Resources for health.
• Developing capacities for preventive
health care at all levels for promoting
healthy life styles, reduction in
consumption of tobacco and alcohol
etc.
• Pr om ot ing non- pr o f it sect or
particularly in under served areas.
ISI Analytics
b) Supplementary Strategies
• Regulation of Private Sector including
the informal rural practitioners to
ensure availability of quality service to
citizens at reasonable cost.
• Promotion of Public Private
Partnerships for achieving public
health goals.
• Mainstreaming AYUSH – revitalizing
local health traditions.
• Reorienting medical education to
support rural health issues including
regulation of Medical care and
Medical Ethics.
• Effective and viable risk pooling and
social health insurance to provide
health security to the poor by
ensuring accessible, affordable,
accountable and good quality hospital
care.
The outlay of the NRHM for 2005-06 is in the
range of INR 67 billion. The mission
envisages an addition of 30% over existing
annual budgetary outlays. The outlay for
NRHM shall be determined accordingly in
the annual budgetary exercise. The States
are expected to raise their contributions to
public health budget by minimum 10% p.a. to
support the Mission activities. Funds shall be
released to States through SCOVA, with
weightage to 18 high focus States.
healthcare india 6

1.4.2 Outcomes of National Rural Health
Mission 2005-2012
a) National level
• Infant Mortality Rate reduced to
30/1000 live births
• Maternal Mortality Ratio reduced to
100/100,000
• Total Fertility Rate reduced to 2.1
• Malaria mortality reduction rate –50%
upto 2010, additional 10% by 2012
• Kala Azar mortality reduction rate:
100% by 2010 and sustaining
elimination until 2012
• Filaria/Microfilaria reduction rate: 70%
by 2010, 80% by 2012 and
elimination by 2015
• Dengue mortality reduction rate: 50%
by 2010 and sustaining at that level
until 2012
• Japanese Encephalitis mortality
reduction rate: 50% by 2010 and
sustaining at that level until 2012
• Upgrading Community Health
Centers to Indian Public Health
Standards
• Increase utilization of First Referral
Units from less than 20% to 75%
• Engaging 250,000 female Accredited
Social Health Activists (ASHAs) in 10
States
b) Community Level
• Availability of trained community level
worker at village level, with a drug kit
for generic ailments
• Availability of generic drugs for
common ailments at Sub-centre and
hospital level
• Good hospital care through assured
availability of doctors, drugs and
quality services at PHC/CHC level
• Improved access to Universal
Immunization through induction of
Auto Disabled Syringes, alternate
vaccine delivery and improved
mobilization services under the
programme
ISI Analytics
• Improved facilities for institutional
delivery through provision of referral,
transport, escort and improved
hospital care subsidized under the
Janani Suraksha Yojana (JSY) for the
Below Poverty Line families
• Availability of assured healthcare at
reduced financial risk through pilots
of Community Health Insurance
under the Mission
• Provision of household toilets
• Improved Outreach services through
mobile medical unit at district level
1.5 Other Segments in Healthcare
Industry
• Clinical research and manufacturing
Clinical research and manufacturing
segment is growing at a compound
annual growth rate (CAGR) of 33% and
is expected to be USD 6.6 billion by
2013. The Indian biotechnology market
was worth USD 1 billion in 2006.
• Medical tourism
Medical tourism reached USD 350 million
in 2008 and is expected to grow to a
USD 2 billion business by 2012 banking
onto its quality health services for less
than half the price compared to other
countries. Tele-radiology which has been
outsourced to India, is expected to be a
USD 350 million market by 2010.
• Health IT
The use of health IT in US hospitals was
about 20% in 2009 while the use of
health IT in Indian hospitals had reached
a whopping 60%. ICT spending by the
healthcare market in India is estimated to
be USD 300 million in 2010, representing
a growth of 12% year-over-year (YoY)
over the 2009 record of USD 267.8
million.
healthcare india 7

1.6 Regulatory Issues
Ministry of Health and Family Welfare is
responsible for the health policy in India. It is
also in charge of all government
programmes relating to family planning in
India. The ministry is composed of three
departments:
• Department of Health
• Department of Family Welfare
• Department of Ayurveda, Yoga and
Naturopathy, Unani, Siddha and
Homoeopathy (AYUSH).
The Department of Health deals with health
care issues such as awareness campaigns,
immunization campaigns, preventive
medicine, and public health. The Department
of Family Welfare (FW) however, is
responsible for aspects relating to family
welfare, especially in reproductive health,
maternal health, pediatrics, information,
education and communications; cooperation
with NGOs and international aid groups; and
rural health services. Another component of
the ministry, the Department of Ayurveda,
Yoga and Naturopathy, Unani, Siddha and
Homoeopathy (AYUSH) is responsible for
ayurveda (Indian traditional medicine), yoga,
nat ur opat hy, unani, siddha, and
homoeopathy, and other alternative medicine
systems.
The Department of Ayurveda, Yoga and
Nat uropat hy, Unani, Siddha and
Homoeopathy (AYUSH) was established in
March 1995 as the Department of Indian
Systems of Medicines and Homoeopathy
(ISM&H). The department is in charge of
ISI Analytics
upholding educational standards in the
Indian Systems of Medicines and
Homoeopathy colleges, strengthening
research, promoting the cultivation of
medicinal plants used, and working on
Pharmacopoeia standards.
The ministry has set up various schemes to
improve the oversall health and healthcare
facilities in India, such as the Central
Government Health Scheme, which provides
comprehensive health care facilities for the
central government employees, pensioners
and their dependents, National Rural Health
Mission which aims to improve the
availability of and access to quality health
care by people, especially for those residing
in rural areas, the poor, women and children.
The government of India is also committed to
provide comprehensive primary health care
services through comprehensive approach
towards the future development of medical
education, research and health services
requires to be established to serve the actual
health needs and priorities of the country
with the implementation of its National Health
Policy.
healthcare india 8

2. Market Trends and Outlook
2.1 Healthcare Insurance
In mid 80’s healthcare services in India was
free of charge as it was state owned.
However, with the establishment of private
medical centre and increasing cost for
medical treatment, the need for health
insurance has gained to be more significant
and important in India.
The Indian healthcare insurance industry
was worth INR 51.25 billion in 2008 with a
compounded annual growth rate of about
37% spanning 2002-2008. Based on the
initial statistics for the year 2009-10 (year
ending 31st March 2010), Health insurance
industry has touched INR 81 billion, up by
23% from the previous year. Overall general
insurance industry has shown growth of 10%
for the year and health portfolio has
contributed to the overall growth of the
general insurance industry.
Penetration rate of health insurance in India
was merely around 2% of the total
population, and the number of people being
insured is expected to surge with 20% of the
population is estimated to be insured with
health insurance by 2015. The number of
people covered under health insurance plans
has steadily increased from 4-5 million in
2001 to over 17 million in 2006, making
health insurance industry the fastest growing
segment in non life insurance.
The trend arose as more families in the
middle class, who have higher purchasing
power, are now buying health insurance. The
Chambers of Commerce has confirmed the
estimates of health sector having the
potential to become an INR 300 billion
industry by 2015.
ISI Analytics
The existence of healthcare insurance has
made healthcare more affordable for people
and reduces out of pocket (OOP) expenses.
Around 70% of India’s healthcare
expenditure is financed out of pocket. This
limits the propensity of Indians to spend on
healthcare particularly in lower and middle
income group which comprises around 95%
of population. Since expenditure is mainly
out of individual’s pocket, incremental
spending on healthcare is determined largely
by incremental changes in income level.
Therefore, with better penetration of health
insurance, access to higher cost health
intervention becomes affordable at smaller
costs.
Besides, the tie-up of hospitals with
insurance to provide cashless and
convenient services has encouraged Indians
to opt for health insurance for affordable and
improved services in time of contingency.
Employers are also increasingly subsidizing
their employees’ health costs through direct
arrangements with medical providers.
Increasing penetration medical insurance
would result in higher demand for premium
healthcare services in India.
healthcare india 9
 ISI Analytics

Chart 8: Healthcare Insurance Industry

90,000
80,000

70,000
INR Million

60,000

50,000

40,000 CAGR: 37%

30,000
20,000

10,000

0
2002 2003 2004 2005 2006 2007 2008 2009

Source: General Insurance Council of India

Chart 9: No. of People Covered by Health Insurance

70

60

50
Million Person

CAGR: 15%
40

30

20

10

0
2006 2015
Insured as %
~ 2% ~ 5%
of Population

Source: General Insurance Council of India

2.2 Demographic and Population

Demographic and population growth will the near future. The Institute of Economic
support the performance of health insurance Growth has expected the age group ranging
in India. India is home to one-sixth of the from15-64 to grow by 11%, which will also
world’s population occupying less than 3% of support health insurance growth in tandem.
the world’s area. The population in India
stood at 1.17 billion in 2009 and according to As income rises and the number of available
the projection by the US Bureau, India’s financing options in terms of health
population is estimated to reach 1.33 billion insurance policies increase, consumers
in 10 years time. There is ample potential in become more engaged in making informed
health insurance as population increases in decisions about their health and are well
healthcare india 10
 ISI Analytics

aware of the costs associated with those need to be far sighted to map out a
decisions. In order to remain competitive, comprehensive healthcare plan to cater for
healthcare providers are now improving their the growing population in the near future.
operational efficiency and enhancing patients Moreover, the rising fraction of the aging
experience overall. population would also increase the demand
for healthcare. As projected, the number of
The increase number of population would citizen between 15-64 years old will increase
also translate into higher demand of by 10.9% in 2010 compared to year 2005.
healthcare services and facilities to meet the
needs of its citizens. The government would

Chart 10: Population Projection

1,350
1,326.1
1,296.8
1,300
1,266.9 1,311.6
Million Person

1,281.9
1,250 1,236.3
1,251.7
1,205.1
1,220.8
1,200

1,189.2
1,150

1,100
2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

Source: CEIC 2019/20

Table 2: Population by Age

Under 15 years old 15-64 years old 65+ years old Total
Year
(million person) (million person) (million person) (million person)
2000 361 604 45 1,010

2005 368 673 51 1,080

2010
370 747 58 1,175
(Projection)
Source: CEIC

healthcare india 11

2.3 Healthcare Investments and
Shortage of Medical Practitioner
The rewarding healthcare sector has been
attracting huge investments from domestic
players as well as financial investors and
private equity (PE) firms. PE funds are
estimated to invest at least USD 1 billion in
the healthcare sector over the next five
years.
Health care facilities and personnel
increased substantially between the early
1950s and early 1980s. The number of
population has always outpaced the number
of licensed medical practitioners with 3
medical practitioner per 10,000 individuals
compared to 1.4 doctors per 1000 people in
China. In 1991 there were approximately ten
hospital beds per 10,000 individuals.
Realizing the huge need gap in terms of
availability of number of hospital beds per
1000 population and the need of medical
practitioners, the government has embarked
on improving the sector.
In India, the current ratio of beds per
thousand persons is a mere 1.03 (well below
the WHO norms) compared to an average
ratio of 4.3 for developing countries like
China, Korea, and Thailand, and in the best
circumstances, it is projected to reach 1.85
per thousand persons by 2012. It is
estimated that over a million beds have to be
added to attain this 1.85 ratio, which
translates into a total investment of USD 78
billion in health infrastructure. India will
require an estimated investment of USD 74
Table 3: Supply and Demand of Medical Personnel
Statistics as of 2007-08
Category
Physicians
Dental Surgeons
Nurses
Source: Ministry of Health
ISI Analytics
billion for additional 1.75 million beds by
2025, compared to its present capacity of
about 1.22 million beds to meet the projected
demand and maintain the ratio of bed-to-
population at 1.9:1,000.
In line with the concern of insufficient
manpower, India is now looking at
establishing academic medical centers
(AMCs) for the delivery of higher quality care
with leading examples of The Manipal Group
& All India Institute of Medical Sciences
(AIIMS) which had been established to laud
the government effort.
The density of doctors per 10,000 population
in India is 6 while the world average is 13.
There could be a shortfall of over 450,000
doctors in the year 2012. While the shortfall
of physician is great, the shortfall for nurses
is even more remarkable. Density of nurses
per 10,000 population is 13 in India while
world average is 28 and it has been
projected that at least 350,000 nurses are
required for primary and secondary care by
the year of 2015.
Benefits and lucrative monetary returns
offered in developed countries have led to
emigration of such healthcare professionals.
This phenomenon is one of the main reasons
for domestic shortage. According to official
statistics, 60,000 Indian physicians have
been estimated to be working in developed
countries such as USA, UK and Australia.
Required
(Person) (Person)
660,801 1,200,000
73,000 300,000
1,371,121 2,100,000
healthcare india 12

2.4 Increasing Demand of Private Healthcare
The significant and growing role of the
private sector in healthcare delivery and total
healthcare expenditures are the current
trends of the healthcare industry. In 2007-08,
public health expenditure in India accounted
for less than 1% of the country’s GDP
compared to 3% of GDP for developing
countries and 5% for high income countries.
Private healthcare sector in India had
accounted for over 75% of the total
healthcare expenditure in India and is one of
the largest in the world. In the Indian’s land,
it has been estimated that 60% of hospitals,
75% of dispensaries, and 80% of all qualified
doctors are in the private sector. However,
private healthcare delivery is highly
fragmented with over 90% of private
healthcare being serviced by the
unorganized sector. Of all the private
hospitals, 2 to 3% of hospitals are 200-bed
plus, 6-7% are 100-200 bed size hospitals,
and the majority of 80% of private sector
hospitals are very small, less than 30 beds.
According to the Studies by the Central
Bureau of Health Intelligence, majority of
Indians trust and visit private healthcare
despite a higher average cost of USD 4.3
compared to USD 2.7 in government owned
healthcare centres. Only a small portion of
23.5% of urban residents and 30.6% of rural
residents choose government facilities. The
low percentage of public healthcare demand
is a reflection of the common lack of
confidence and bureaucracy in the public
healthcare system. The setback of public
healthcare has stimulated growth for private
healthcare.
According to the Studies, it was estimated
that out of the 1 million beds to be added into
the industry by 2012, the private sector will
contribute to the addition of 896,000 beds
while the remainder will be provided by the
government arms, which had implied that
government spending on healthcare
ISI Analytics
infrastructure (excluding land) is projected to
rise only marginally, by 0.12% of GDP.
Government investments is expected to
meet only 12% of the huge investment
required in the healthcare sector, with the
remaining balance of the investment
requirements to be provided by private
entities to conclude the significant role of
private sector for future growth of India’s
healthcare sector.
As India advances and improves its socio
economy, the overall income of its population
rises. The rise of personal disposable
income at large among the Indians has also
served as an influencing factor to stimulate
healthcare spending as it become more
affordable. Personal disposable income of
2008/09 had increased drastically by about
71% from the figure in 2004-05.
Moreover, with the increasing number of
financing options such as health insurance
policies available, consumers become more
engaged and are well aware of the costs
associated in healthcare. The increasing
demand for high quality and efficient
healthcare system has urged the players in
the market, being the public or private sector
to improve operational and management
efficiency to provide patients with overall
better and enhanced services and
experience to remain competitive in the
market.
healthcare india 13

Chart 11: Personal Disposable Income
50
45
Personal Disposable Income
40
35
( INR Trillion)
30
25
20
15
10
5 5
0 0
2004/05
Source: CEIC
2.5 Foreign Players
The growing demand and the huge
investment needs in the healthcare sector
have garnered increasing interest among
foreign players and non resident Indians to
venture into the Indian healthcare market.
The development of healthcare industry had
also led to growing interest among domestic
and international financial institutions, private
equity funds, venture capitalists, and banks
to explore investment opportunities across a
wide range of segments of healthcare such
as drugs and pharmaceuticals, medical
devices, hospitals and etc. In the hospitals
and medical devices segment alone, at least
20 international players have been
highlighted to compete to have a share on
the Indian healthcare market.
Foreign players usually enter the market
through joint ventures with Indian companies
and also through technology and training
collaborations to get a fair share of the
market.
Over the years, corporate hospital chains like
Fortis Healthcare, Wockhardt Hospitals and
Apollo Hospitals have done remarkable
expansion in India. After more than 25 years
since Apollo Hospitals established its 1st
ISI Analytics
45
Personal Disposable Income at Facto
40
35
30
Cost per Capita
(INR Thousand)
25
20
15
10
2005/06 2006/07 2007/08 2008/09
hospital in Chennai, corporate hospital
chains are now present in every metropolitan
area. Besides India, corporate hospitals have
also been expanded in USA, Australia,
Europe and also in a few emerging countries
such as China and South Africa.
The rising presence of corporate players and
foreign investors in India’s healthcare sector
may bring about implications for the
healthcare system at large. The emergence
of corporate hospitals or foreign funding and
tie ups in the hospital segment can have are
expected to improve physical infrastructure,
standards, quality of healthcare, technology,
and delivery systems and processes along
with spill over benefits in areas such as
medical devices, pharmaceuticals,
outsourcing, and research and development.
The existence of foreign players may
translate into higher costs of healthcare and
greater segmentation between the public and
private health sectors. Therefore, the
governed body needs to examine the extent
of the presence of foreign players in selected
segments of India’s healthcare sector to
ensure the benefits of the Indians are taken
care of.
healthcare india 14

2.6 Medical Tourism in India
Health tourism happens when a patient
travels to another country for medical
treatment in order to save costs, or get
treatment faster or even to avail of better
medical facilities.
Medical tourism is a growing sector and India
is becoming a hub for medical tourists
seeking quality healthcare at an affordable
cost and the sector is expected to
experience an annual growth rate of 30%,
making it an INR 95 billion industry by 2015,
according to The Associated Chambers of
Commerce and Industry of India
(ASSOCHAM).
In 2008, the size of the industry stood at INR
15 billion and about 4,500,000 foreigners
had sought medical treatment in India in
2008 with Singapore not too far behind. The
chamber had also mentioned that the cost of
surgery in India is one-tenth of what it is in
the US and Western Europe or even less.
India has long been a favored medical
destination for foreign patients, particularly
from the US. For instance, the cost of a knee
replacement procedure is nearly INR 1.5
million in the US while it would only cost
around INR 0.25 million even in the most
upscale hospital in India. Taking
transportation costs into account, it is
estimated that India’s healthcare costs would
still be up to 60% less than in the US.
Competitive factor such as common
communication language also drives the
growth rate of the medical tourism.
The most popular treatments sought in India
by medical tourists are alternative medicine,
bone-marrow transplant, cardiac bypass, eye
surgery and hip replacement. India is known
in particular for heart surgery, hip resurfacing
and other areas of advanced medicine.
About 18 thousands foreigners visited India
for treatment in the first eight and half
ISI Analytics
months of 2009 and the number would
increase by 22% to 25% in the coming years.
With growing number of hospitals are
compliant with international quality
standards- Joint Commission International
JCI accreditations, outside the US, concerns
on safety and quality of care are becoming
less of an issue for those choosing to travel
for medical treatment at an affordable cost.
In the past, the growth potential of medical
travel industry in India has been hindered by
capacity and infrastructure constraints but
that situation is now changing with strong
economic progress in India. Currently, India
provides world-class medical facilities with
hospitals and specialized multi-specialty
health centres which range from cosmetic
surgery, dental care, heart surgeries and
coronary bypass.
As medical tourism grows, hospitals groups
like The Global Hospitals Group, MIOT
Hospitals, Fortis Healthcare, Apollo
Hospitals, Max Hospitals, Dharamshila
Cancer Hospital and Research Centre have
since increased their presence in
international market.
A good chunk of Apollo’s nearly 4,000
patients, including corporate executives,
were from the US while nearly half of Fortis’
international patients arrived from the US.
Besides the tie-ups, the ballooning costs of
health insurance and consequent shrinking
executive insurance coverage levels in the
US, particularly after the recession have
definitely helped to enhanced India’s medical
tourism sector. The south Indian city of
Chennai has also been declared as India's
Health Capital, by reaping in 45% of health
tourists overseas and 30-40% of domestic
health tourists while cities such as Mumbai
and Delhi are in stages to transform into
world-class medical hub.
healthcare india 15
 ISI Analytics

2.7 Franchising Solution

The franchise system is one of the most By purchasing government subsidized

successful private sector business models as
the breakaway from centralization enables
rapid scaling and replication besides being
particularly suitable to penetrate healthcare
services and facilities to rural and
underserved areas.
Franchising is also a good tool as its large
distribution network can be leveraged for
cost savings besides achieving greater
government and private sector support. The
franchise measure has been demonstrating
its effectiveness in providing healthcare to
low income communities through several
initiatives.
healthcare commodities in bulk for its
franchisees, the NGO reduces prices and
increases the earnings of its providers. As
the volume of patients utilizing its franchised
services increases, Janini can further reduce
costs. The network is heavily advertised
through local and mass media, as well as
through direct outreach activities in slum
areas. Although the reduced prices are still
not affordable to the poorest of the poor,
Janini is leveraging its strong linkages with
the government to offer further subsidies to
the most vulnerable. Added value is provided
through additional training and support of its
franchisees.

In Bihar and Jharkhand, India’s two most

impoverished states, the NGO Janini is
leveraging partnerships with the private
sector to supplement the government’s
efforts and make healthcare and family
planning services more affordable. The
program has reduced health costs to half of
the market prices through an intermediary
role between the government and three
interlinking franchised healthcare delivery
networks:, which are the doctors who deliver
clinical services; rural centers that sell over-
the-counter products and services, and
counsel and refer clients to doctors; and
shops that sell products to urban clients and
replenish supplies to doctors and rural
centers.

healthcare india 16

3. Leading Players and
Comparative Matrix
3.1 Leading Players
3.1.1 Apollo Hospitals Enterprises Ltd.
(AHEL)
Apollo Hospitals was founded by Dr. Prathap
C Reddy in 1983 - a 150 bed hospital in
Chennai. The establishment of Apollo
Hospitals in the early 80's was not easy as
private healthcare institutions were unknown.
As present, the group hospitals include over
8,500 beds across 50 hospitals in India and
overseas.
Apollo Hospitals also has presence across
the healthcare delivery value chain including
tertiary healthcare services, health & lifestyle
clinics, education, telemedicine, hospital info
systems, strategy and implementation
consulting, an extensive chain of Apollo
Pharmacies, third party insurance
administration and clinical research divisions
that are working on the cutting edge of
medical science.
Apollo Hospitals Group has stepped into the
arena of providing exclusive quality
pediatrics through its Apollo Children’s
Hospital in July, 2009 with 80-bed capacity
spread over 40,000 square feet, which aims
to provide care to children and adolescents
up to 16 years. The company has planned to
invest INR 8.14 billion to set-up 5 pediatric
hospitals, 4 in India and 1 in Nigeria by 2011.
The estimated cost for four 100-bed
hospitals to be set-up in India is INR 1.62
billion each.
International Finance Corp of World Bank
had granted a loan of INR 2.32 billion to
AHEL for the expansion of its network of
ISI Analytics
Apollo Reach Clinics. Moreover, APHEL is
also setting up a 290-bed super specialist
hospital in Bhubaneswar; spread over 7.5
acres of land with a built-up area of about
206,158 square feet.
In 2009, The Government of India had
honored Apollo Hospitals with the Apollo
Commemorative Stamp for the group's
pioneering spirit, commitment to healthcare
and service to the nation. One of Apollo’s
highlights for the year was the triple
abdominal bypass performed on an 8-year-
old girl from Oman at Apollo Hospitals,
Chennai. This rare innovative procedure has
never been done in India before and
probably twice before elsewhere in the world.
Big bill surgical procedures from face-lifts to
liver transplants have been the mainstay of
the medical tourism business. Treatments
cost in India is merely a fraction of what they
would in the west. Apollo offers cardiac
surgery for about USD 4,000, compared with
at least USD 30,000 in the US. Apollo's
orthopedic surgeries cost USD 4,500, less
than one-fourth the US price while hip
replacement would cost USD 4,500, a
quarter of what it would cost in the west. The
competitive medical fees have boosted
medical tourism business of Apollo.
healthcare india 17

The company reported gross revenue of
INR14.8 billion for the year ended 31 March
2009, compared to INR 11.52 billion in the
previous year, which was an impressive
Chart 12: Revenue vs Profit after Tax
2009
2008
2007
2006
0 2,000 4,000 6,000
Revenue
Source: Company Annual Report
3.1.2 Fortis Healthcare Ltd. (Fortis Healthcare )
Incorporated in 1996, Fortis Healthcare’s first
hospital was operational in 2001 in Mohali,
Punjab and today it is one of the leading
private healthcare providers in India. As
present, Fortis has a network of 28 hospitals,
satellite centers and heart command centers
that has nearly 3,300 bed capacity and is the
biggest player in the Northern Capital
Region. The Company intends growing in an
aggressive manner to have a pan India
presence with bed strength of 6000 through
40 hospitals by the year 2012. Fortis is also
the 2nd largest private healthcare provider in
the country to be listed on a recognized
stock exchange in India.
Most of Fortis Healthcare’s hospitals are
multi-specialty hospitals, which provide
secondary and tertiary healthcare to the
patients in the field of Cardiac Sciences,
Orthopedics, Neuro Sciences, Oncology,
ISI Analytics
growth of 29%. Profit after tax for the year
had also increased by 16% to INR 1.18
billion compared to INR 1.02 billion in the
previous year.
8,000 10,000 12,000 14,000 16,000
INR Million
Profit after Tax
Renal Care, Gastroenterology, Nephrology,
Metabolic diseases and Mother & Child care.
Besides offering healthcare services, Fortis
Healthcare also involves in tele-medicine,
education and research.
In 2008, Fortis Healthcare has set its feet in
southern India by acquiring stake in Malar
Hospital, Chennai. In order to strengthen its
presence in the Southern India, it has
acquired majority stake in RM Hospital,
Bangalore which is a multi specialty hospital
situated in the well located Seshadripuram
area of Central Bangalore having “Center of
Excellence” in Advanced Urology,
Nephrology and related specialties.
Meanwhile, the progress on the new
Greenfield hospital in Shalimar Bagh in
northwest Delhi is on schedule and it is
expected to be launched during 3rd Quarter
healthcare india 18
 ISI Analytics

of the current fiscal. The hospital spreads
over an area of approximately 7.34 acres of
land and will have about 258 beds in 1st
phase and offers super-specialty healthcare
services in Cardiac Sciences, Orthopedics,
Neuro-Sciences, Renal care, Mother and
Child care and Gastroenterology.
For the financial year ended on 31 March
2009, Fortis Healthcare has registered total
income of INR 6.59 billion, which was 20%
higher than the previous year’s total income
of INR 5.48 billion. The EBITDA as a
percentage to total income rose to 17.34% of
the total income as compared to 11.27% in
the previous fiscal. Improvement was mainly
attributable improved cost management and
optimization initiatives. The Company also
turned profitable for the first time since its
inception by returning a net profit of INR
208.2 million compared to a loss of INR
554.8 million in the previous fiscal, which
was a remarkable improvement.

Chart 13: Operating Profit vs Net Profit

1,400
1,200
Operating Profit Net Profit
1,000
800
INR Million

600
400
200
0
-200 2008 2009

-400
-600
-800

Source: Company Annual Report

3.1.3 Max Healthcare Ltd. (MHC)

Incorporated in 1985, Max Healthcare Ltd.
currently has six super-speciality and multi-
speciality hospitals and two speciality
medical centres located in the National
Capital Region (NCR). Max Healthcare’s
commitment of medical and service
excellence, patient care, scientific
knowledge, research and medical education,
has enabled Max Healthcare to emerge as
one of the country's leading healthcare
service providers. Moreover, Max Healthcare
also has collaboration with Singapore
General Hospital in the areas of medical
practices, nursing, paramedical, research
and training.
MHC hospitals had performed over 450 open
heart surgeries, 2,000 angioplasties and
4,130 angiographies in 2008-2009 in addition
to the over 2,150 ortho-surgeries, 870 neuro-
surgeries and 15,390 other surgeries and
procedures. Moreover, the average number
of operational beds had increased from 662
in the financial year of 2007-08 to 712 in
2008-09. The average occupancy rate was
65% and average length of stay maintained
at 3.3 days. The number of patient episodes
had also risen by almost 19% to over 1.9
million in 2008-09.
healthcare india 19
 ISI Analytics

Max Healthcare is expanding and upgrading
its existing facilities as well as extending its
footprint to other cities in North India. It is
also panning to increase its capacity to
around 1,800 beds by 2011. MHC is not only
expanding further in the NCR region but also
widen its operations to other parts of India.
The 100 bed Max Hospital at Dehradun will
become operational by first quarter of 2011.
Max Healthcare has also been allotted land
by Government of Punjab under a public-
private partnership arrangement to set up
200 bed super-specialty hospitals at
Bhatinda and Mohali.
history. Revenue had grown by nearly 13%
to INR 4.23 billion in 2008- 09. During the
year ended 31 March 2009, profit before tax
(PBT) of MHC had increased over nine times
over 2007-08 to INR 0.32 billion in its
account. Profit after tax (PAT) made a
remarkable comeback and stood at INR 0.48
billion in 2008-09, against a net loss of INR
40 million in 2007-08. MHC is striving to
meet its expansions on time, meeting its
growth targets, offering greater patient care
and facilities, and generating superior
shareholder returns in the future.

In the fiscal year 2008-09 MHC has turned

cash positive for the first time in its short

Table 4: Operation Highlights

March - Dec 2009 March - Dec 2008
Average Operational Bed (Unit) 729 709

Average Occupancy (%) 74.30 65.80

Average Length of Stay (Days) 3.3 3.3
Average Revenue per Occupied
19,886 19,119
Bed Day (INR)
Source: Company Annual Report

Chart 14: Distributions of Revenue

2008 2009

Outpatient Outpatient
22% 23% Inpatient
Inpatient
78% 77%

Source: Company Annual Report

healthcare india 20
 ISI Analytics
3.2 Comparative Matrix

Table 5: Financial Highlights

Apollo Hospitals Enterprise Ltd. Max Healthcare Fortis Healthcare

Mar '08 Mar '09 Mar '08 Mar '09 Mar '08 Mar '09

Operating Profit (INR Crs) 176.57 221.76 70.98 43.52 11.44 10.62

Net Profit (INR Crs) 101.8 118.07 61.9 21.83 2.68 (6.98)

Gross Profit Margin (%) 12.44 12.19 16.92 7.87 0.49 (0.52)

Net Profit Margin (%) 8.9 7.98 16.67 5.25 1.41 (3.57)

EPS (INR) 17.34 19.6 2.79 0.98 0.12 (0.31)

Return On Capital Employed

10.17 10.9 3.36 2.2 2.88 1.64
(%)

Return on Assets (%) 5.4 0.88 2.52 0.17 0.24 0.17

Debt Equity Ratio (Times) 0.25 0.33 0.15 0.05 0.27 0.38

Current Ratio (Times) 1.71 1.76 1.23 2.41 2.66 1.48

Interest Cover (Times) 9.12 12.22 5.65 3.11 1.14 0.84

Source: Company Annual Report

healthcare india 21

3.3 SWOT Analysis
Apollo Hospitals Enterprises Ltd. (AHEL)
Strengths
Good track record of its ability to generate strong
financial performance and appropriate returns to
investors through its comprehensive business
Integrated healthcare organization with a
comprehensive span of healthcare capabilities,
which is able to provide end-to-end services to
patients
Being the largest purchaser and consumer of
medical consumables in the private sector, Apollo is
able to leverage on cost and benefit from the group
bargaining position
World class medical success rate has been the
company branding
Opportunities
India’s huge population of a billion people
represents a big opportunity and the rapid increase
of healthcare insurance penetration leads to the
affordability of private healthcare
Rise in incidence of lifestyle related health problems
and the trend would trigger a need for more number
of tertiary care hospitals to cater to the demand
Better healthcare awareness is expected as both
disposable incomes and expenditure on healthcare
increase
ISI Analytics
Weaknesses
Since most of the pharmacies are in the incubation
stage, the existence of a large number of 297 stand-
alone pharmacies during the year depressed the
margins
Western countries higher salaries and perks
necessitates higher investment or cost in training of
Apollo Hospitals to ensure that the clinical staff is
equipped with the right skills competencies and
expertise needed to deliver quality healthcare
The rising costs of healthcare delivery makes
majority of the private hospitals expensive for a
normal middle-class family
Threats
Competition from other acute care hospitals,
including tertiary hospitals located in larger markets
Foreign competitors are also expanding presence
by acquiring/ partnering with existing smaller
hospitals to establish more competitive market
Shortage of staff and competition for medical staff
could intensify the pricing which may have an
adverse effect on operations
Medical equipment accounts for 40-45% of the total
expenditure in hospitals. Change in technology will
make existing medical equipments obsolete and
upgrade of equipments are needed
healthcare india 22
 ISI Analytics

3.3 SWOT Analysis (Cont’)

Fortis Healthcare

Strengths Weaknesses

The company Evolved Business Model efficient

management team leads to superior operating
margins
INR 150 million which was incurred on replacing or
The group’s hospitals are modern and are well adding new equipments had depressed margins
equipped with patient-centric hospital facilities have
attracted various patients and its Escorts Hospital -
Delhi was rated the “best super-specialty hospital in
Delhi”

Ability of attract and retain prominent clinicians

through attractive packages to avoid the issue of
shortage of manpower
The rising costs of healthcare delivery makes
majority of the private hospitals expensive for a
Strong Integration Capabilities- Well planned and normal middle-class family
managed integration after acquisitions have resulted
in substantial improvement in productivities and
efficiencies throughout the network of the group

Opportunities Threats

India’s huge population of a billion people

Foreign competitors are also expanding presence
represents a big opportunity and the rapid increase
by acquiring/ partnering with existing smaller
of healthcare insurance penetration leads to the
hospitals to establish more competitive market
affordability of private healthcare

Rise in incidence of lifestyle related health problems Shortage of skilled and trained manpower and
and the trend would trigger a need for more number integration of new facilities and teams into existing
of tertiary care hospitals to cater to the demand network

Demand leads supply and there exist considerably

Lack of accreditation or certification
shortage of quality healthcare services

healthcare india 23
 ISI Analytics

3.3 SWOT Analysis (Cont’)

Max Healthcare

Strengths Weaknesses

Increased scale of operations such as doubling its

Expansion plan and upgrade of its existing facilities
bed capacities and improving utilization rates had
allow Max Healthcare to reach out to more patients
cost the group a handsome amount and depressed
and increase market share
its margins

Expansion plan beyond Delhi widen its operations

Capital intensive expansion plans will require
opportunities and diversify the company source of
significant capital expenditure
income

Opportunities Threats

Rise in incidence of lifestyle related health problems

and the trend would trigger a need for more number
of tertiary care hospitals to cater to the demand Shortage of skilled and trained manpower and
integration of new facilities and teams into existing
network
Rise in income levels leading to greater ability to
afford better healthcare services

Demand leads supply and there exist considerably Competition from other Indian and foreign players
shortage of quality healthcare services including new entrants in the healthcare sector

Funding new facilities was difficult due to limited

Greater access to medical insurance
access to capital

The research report is based on material compiled from data considered to be reliable at the time of
writing. However, information and opinions expressed will be subject to change without notice. We do
not accept any liability directly or indirectly that may arise from investment decision-making based on
this report.

healthcare india 24