Indian Institute of Management Indore

Managerial Accounting and Control - 1

Annual Report Analysis Fortis Healthcare (India) Ltd.

Submitted By:
Kashyap Suruchi Brhamprakash PGP2011686 Section C

Table of Contents
1. Executive Summary 2. Introduction 3. Overview and Trends 4. The Road Ahead - 2012 5. About Fortis Healthcare Ltd. 6. Britannia Industries 7. Consolidated Balance Sheet 8. Consolidated Income Statement 9. Consolidated Cash flow statements 10. Key Ratios 11. DuPont analysis 12. Market Value added 13. Economic Value added 14. Accounting Policies 15. Intercompany analysis 16. References 3 4 5 6 7 5 6 7 8 9 16 17 18 18 20 20

Executive Summary

Introduction
The Indian healthcare industry is a US$ 36 billion industry and is anticipated to reach US$ 75 billion by 2012. This sector thus provides a lot of potential as Indians are becoming more health conscious and vying for better amenities. To address the increasing demands of this sector, India needs about US$ 50 billion annually. The healthcare system is practically non-existent in rural India. With a rise in India's economy and rural infrastructure, the healthcare industry is stated to grow exponentially in this area. Thus, there is a need for investment in infrastructure, equipment, and technological areas. The public healthcare system is overburdened and also lacks technological support. The entry of private equity has enhanced the healthcare industry of India further. In addition, healthcare majors have released IPOs (initial public offerings) trying to tap the potential of this field further. With growing consciousness about the health hazards and illnesses that can befall them, Indians are recognizing the benefits of health insurance. Thus, this sector shows lots of promise. The health insurance industry is going to reach US$ 7 billion by 2012. Also, with the stress- and lifestyle-related illnesses on the rise, this sector is gaining more popularity. More people are going for insurance to help secure their healthcare needs so it is a major investment arena. The pharmaceutical industry is also gaining in prominence. With skilled labor available and low research costs this is a nice investment option. Also the rise of biotechnology and bioinformatics offers tremendous growth prospects. The production costs and technologically sound infrastructure make it a viable option. Yet another area is the export of medical equipment to India. There is a demand for more technologically sound instruments in India. With the rise of high-end hospitals, this offers immense prospects. And with patients vying for quality healthcare facilities and hospitals this is an expanding field. India is also a rising destination for medical tourism. With affordable medical expenses and a sound technology in place, this is a growing sector. This bodes well for the healthcare industry in India. Also, Indian Healthcare Systems like Ayurveda and Homeopathy are increasingly gaining prominence overseas. More patrons abroad are going for these alternate therapies as they are completely natural (derived from plant extracts) and have no side effects. There are no inhibiting factors for foreign investment in this industry unlike other industries. The absence of regulatory laws is an encouragement. The government recognizing the need for technological advances in this sector has granted many relaxations.

Healthcare Sector: Overview and Trends 2012

The Indian healthcare industry, unlike other industries, stands untouched by recession. There had been a steady growth in this sector, revenues from the healthcare sector accounts for 5.2% of the GDP, making it the third largest growing sector in India, which is further projected to grow at a Compounded Annual Growth Rate (CAGR) of 15-17% for the next 710 years atleast. Major players are Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd., Max Hospitals and Aravind Eye hospitals. Market Size: The sector comprises hospital and allied sectors that include: a. Medical care providers that includes physicians, specialist clinics, nursing homes and hospitals b. Diagnostic service centers and pathology laboratories c. Medical equipment manufacturers d. Contract research organizations and pharmaceutical manufacturers e. Third party support service providers (e.g. Insurance companies) In India, 80% of all the healthcare expenditure is borne by the patients. State bears 12% and insurance claims is 3%. As a result the price sensitivity is quite high. The high level healthcare facilities are out of reach for the patients Among the top 5 therapeutic segments, gastro-intestinal and cardiac are experiencing high volume and value growth. Opthologicals, cardio-vascular, anti-diabetic and neurological drugs continue to top the growth list. The anti-infective, neurology, cardiovascular and anti-diabetic segments have witnessed a high number of new product launches in recent years

Current Landscape Amount spent on healthcare 103,000 Crores/annum 86,000 Crores is the healthcare delivery market 17,000 Crores is the retail pharma market

Key Features in recent trends Private spending on healthcare delivery 69,000 Crores 61% of this is spent on OPD services; 44,000 Crores indicates low levels of affordability and a disease pattern dominated by infections 39% on IPD services = 25,000 Crores 85% of IPD spend is in 5 major areas: cardio, cancer, accidents, infections and maternity

The Road Ahead 2012

Private spending on healthcare delivery: 156,000 Crores because of an increase in the population will lead to increase in treatments Change in socio-economic mix will lead to 8% increase in treatment rate and 30% increase in average price paid Change in prices: 26% increase in price per treatment Change in mix of diseases 50% increase in prevalence of lifestyle diseases will lead to 12% increase in treatment rate & 7% increase. This would lead to a change in GDP from 5.2% to 6.2% Richest(15%) will account for 50% of all private healthcare spending & 60% of inpatient spend Private spending would increase by another 39,000 Crores, if the insurance is likely to impact on middle-income households(approx. 350 million) in 2012, leading to achieving GDP spending to 7.5% and private spending on healthcare delivery to 195,000 Crores

Fact File
Parameters No. Of Beds No. Of Doctors No. Of Nurses Infant Mortality Rate Maternal Mortality Rate % of population Insured Total Private Spending OPD Spending Hospitals Current 1.2 beds per 1000 50,00,000 doctors 0.8 per 1000 34:1000 4:1000 12.00% 69,000 Crores 44,000 Crores 30,000 (approx.) By 2012 9,14,543 In addition 6,25,130 In addition 8,36,000 In addition 10:1000 1 :1000 50.00% 156,000 Crores 82,000 Crores 17300 In addition 1,64,000 In addition 24,000 In addition 179 New

Primary/Community Health Centres 1,50,000 (approx.) Retails chemist outlets Medical Colleges Market size Average life Expectancy 3,50,000 229

103,000 Crores(current) 1,80,000 Crores(est.) 63.3 years 74 years

A Brief Background
Fortis Healthcare Ltd., the fastest growing and Indias second largest healthcare provider was incorporated in 1996 by a visionary business leader, Late Dr. Parvinder Singh, the architect of Ranbaxy Laboratories. It was a manifestation of his ideology: To create a world-class integrated healthcare delivery system in India, entailing the finest medical skills combined with compassionate patient care. Companys Vision Statement To be a globally respected healthcare organization known for clinical excellence and distinctive patient care. Companys Mission Statement To deliver quality healthcare focussed on clinical excellence, technology, research and patient care.

Starting with its first hospital which opened in 2001,Fortis Healthcare Ltd. now is a network of 45 hospitals with the capacity to increase inpatient beds to ~6600 beds. These hospitals include multi specialty hospitals as well as super-specialty centers providing comprehensive tertiary and quaternary healthcare to patients across specialties such as cardiac care, orthopedics, neurosciences,oncology, renal care, gastroenterology, mother and child care . Fortis has been rapidly growing through a combination of acquisitions, greenfields, brownfields and management contracts. In addition there are two hospitals in the company which are run in a public private partnership framework. Recently, Fortis created history in the Indian Healthcare Sector by acquiring 10 hospitals from Wockhardt, including two under construction, giving it a strong pan India presence. This deal is the largest ever in the Indian healthcare space. The previous biggest deal in the Indian Healthcare Sector was the acquisition of the five Escorts Heart Institute & Research Ltd. Hospitals in 2005, also by Fortis. To match this stupendous growth, the company's employee strength across the network has increased to over 10000.

In January 2009, Fortis announced its first international foray. Jointly with its Mauritius based local partner, the company acquired majority stake in leading private hospital, 'Clinique Darne'. Rechristened as 'Fortis Clinique Darn', the hospital is one of the most modern medical centres in Mauritius -- combining the traditions of dedicated personal care with hi-tech facilities and offering wide range of general and specialized medical services in a caring and friendly environment.