Industry Project-

Healthcare
Group 9

Wasim, Abinandan, Hari, Ayushi 4/1/14

S No Topic Page
Number

INDUSTRY OVERVIEW 2
1
INDUSTRY SIZE 3
2
TRENDS AND INVESTMENT 5
3
IMPACT OF BUDGET ON HEALTHCARE INDUSTRY 6
4

5 CONTRIBUTION TO INDIAN GDP 8

6 INFRASTRUCTURE 9

HEALTH INSURANCE INDUSTRY 11

7
MEDICAL DIAGNOSTICS INDUSTRY 13
8

HOSPITALS 17
9
PHARMACEUTICAL INDUSTRY 21
10
FUTURE TRENDS IN HEALTHCARE INDUSTRY 25
11

CHALLENGES 26
12

OPPORTUNITIES 28
13

CONCLUSION 31
14

1
Industry Overview:
The health care industry or medical industry is a combination of sectors within the economic
system that provides goods & services to treat patients. The modern healthcare industry is
divided into many sectors and depends on trained professionals to meet health needs of
individuals. The healthcare is one of the largest & fastest growing industries& contributes
10% to the GDP of most developed nations. It can form an enormous part of a country’s
economy.

The healthcare industry consists of various sub-sectors:

 Hospitals
 Clinical trials
 Outsourcing
 Tele medicine
 Health insurance &
 Medical equipments

Healthcare

Health Speciality Diagnostic

Hospitals Pharma
Insurance Clinics Centres

Over the past few years there has been a major change in the industry from paper files to
electronic mediums. India’s growing economy is driving urbanization & creating an
expanding middle class, with more disposable income to spend on healthcare. Another

2
factor which drives the growth of India’s healthcare sector isrise in both infectious & chronic
degenerative diseases. Indians in general, live more affluent lives and adopt unhealthy
western diets that are high in fat and sugar, the country is undergoing a rise in lifestyle
diseases such as diabetes, hypertension, cancer which is reaching epidemic proportions.

Over the next 5-10 years, lifestyle diseases are expected to grow at a faster rate than
infectious diseases in India, and to result in an increase in cost per treatment. India’s
healthcare infrastructure has not kept pace with the economy’s growth. The physical
infrastructure is woefully inadequate to meet today’s healthcare demands, much less
tomorrow. While India has several centers of excellence in healthcare delivery, these
facilities are limited in their ability to drive healthcare standards because of the poor
condition of the infrastructure in the vast majority of the country.

When it comes to healthcare, there are two India’s: the country that provides high-quality
medical care to middle-class Indians and medical tourists, and the India in which the
majority of the population live-a country whose residents have limited or no access to quality
healthcare. One of the main challenges that India faces is the lack of health insurance.
While public sector health insurance has not fared well, the market for private health plans
is expanding in India. In some cases, the government is partnering with the private sector to
provide coverage at a low cost. Clearly, there is an urgent need to expand the health
insurance net in India.

Industry Size:
The Indian healthcare assisted by IT market has been growing tremendously over the past
few years. It is expected to grow at a CAGR of around 22.7 per cent during the period 2013-
2015.

The hospitals and diagnostic centers in India received foreign direct investment (FDI) worth
US$ 1,914.28 million, while drugs & pharmaceuticals, medical & surgical appliances
industry registered FDI worth US$ 11,318.32 million and US$ 653.45 million, respectively
during April 2000 to June 2013, according to data provided by Department of Industrial
Policy and Promotion (DIPP).More so ever, the other related segments like genetic testing
market is expected to grow at a CAGR of around 9 per cent during 2012-2017 and that of

3
the diagnostic services market in India at a CAGR of around 26 per cent during 2012-2015.
All the growth is based on the foundation on huge investments, fast expansion into tier II &
III cities, and strong government support to strengthen the healthcare infrastructure in the
country.

Healthcare revenues:

The current market size of the Indian healthcare industry is around US $ 80 billion and it is
growing at a 15% CAGR. It is expected to reach US $ 160 billion by 2017

4
 Trends & Investments:

The Indian healthcare providers plan to spend INR 5,700 crore (US$ 897.64 million) on IT
products and services in 2013, a seven per cent rise over 2012 revenues of INR 5,300
crore (US$ 834.65 million), as per a report by Gartner.

The Indian-American doctors’ community organized the "Global Healthcare Summit" in

Ahmedabad, Gujarat, from January 3-5, 2014, to bring affordable world class healthcare for
Indians. Global Healthcare Summit 2014 aims at advancing the accessibility, affordability
and quality of world-class healthcare to the Indian people. The Summit will also focus on
prevention, diagnosis, treatment options and share ways to truly improve healthcare
transcending global boundaries, as per Dr Jayesh Shah, President of Association of
American Physicians of Indian Origin (AAPI).

Some of the major investments in the sector include:

 VLCC has bought controlling stake in Singapore-based Global Vantage Innovative

Group (GVIG).
 Apollo Hospitals has 1,500 beds capacity in the East and North East region and plans
to add another 1,500 beds. The firm plans to open four new hospitals – one each in
Kolkata, Patna, Raipur and Guwahati
 Piramal’s healthcare plans to invest US$ 2.5 million at its FDA-approved Grange
mouth (UK) site to upgrade their antibody drug conjugate (ADC) manufacturing suites
 ASK Pravi, a joint venture (JV) between ASK Group and Pravi Capital, has acquired a
minority stake in Hyderabad-based OMNI Hospitals for INR 60 crore (US$ 9.45
million)
 Zydus Cadila plans to set up an injectable facility at Vadodara, Gujarat, at an
investment of `100 crore (US$ 15.75 million) by 2015. The company also plans to
expand its hospital business across Gujarat in the next three years
 Dr Devi Shetty and Rudrabhishek Infrastructure Trust have entered into a JV to set up
a 300 bed multi-specialty hospital worth INR 100 crore (US$ 15.75 million) in
Lucknow, Uttar Pradesh (UP)

5
  CDC Group and Abraaj Group have jointly invested INR 107.3 crore (US$ 16.90
million) in Hyderabad-based Rainbow Hospitals Source: CII

Investments in the Healthcare industry

Private sector’s share in hospitals and hospitals beds is 74% and 40% respectively.

Impact of Budget on Healthcare Industry

Government policies are one of the major effecting areas in every sector & it has effects on
healthcare. Indian finance minister P. Chidambaram has already put forward the budget for Fiscal
year 2014 -2015 allocating INR 337 billion (USD 5.4 billion) to healthcare & it clearly shows the
reduction or cut of 9.7% compared to the budget of 2013 – 2014. Although the budget is been
prepared but it also depends on elections & the party who will come in power if they want then
they can alter it in June or July when new party will come in picture.

Its effects can also be seen in pharmaceutical & medical device industry. This year the allocation
of fund for it is INR 1.25 billion against INR 1.33 billion in 2013-2014.Many Industry experts feel
that the fund allocated is not sufficient for the industry as medical equipments have high import
duties so it may affect the improvement of diagnostic centers across the country.

Implications of Budget:

We observe the cut in the fund allocation in the healthcare sector so it would not be wrong to say
that next year the industry is likely to remain flat in terms of services & development

6
(Infrastructure, medical equipments or medical services). Still today we see that rural areas are
not developed, people are not able to afford the cost of expensive treatments of non -
communicable diseases, they are also not aware of health insurance so they have to survive with
the disease.

Instead of these facts & falls in the budget still the government this year has not allocated the
proper funds to the industry for its improvements rather they tried to cut the expenses from it &
invest in some other sector. With funding remaining so tight it seems that government policy of
saving from pharmaceutical industry will continue.

With pharmaceutical price cuts & environment of cost saving now set to remain tight we can say
that Indian Healthcare sector will face a challenging phase until new government comes into
power & make any changes.

Government Initiatives:

The Government of India has decided to increase health expenditure to 2.5 per cent of gross
domestic product (GDP) by the end of the Twelfth Five Year Plan (2012-17). Dr Manmohan Singh,
the Prime Minister of India, also emphasized the need for increased outlay to health sector during
the Twelfth Five Year Plan. Moreover, 100 per cent FDI is permitted for health and medical
services under the automatic route.

In a recent initiative, 348 essential medicines will now come under price control in India. These
currently contribute INR 13,033 crore (US$ 2.05 billion) to the total annual sales of INR 72,762
crore (US$ 11.46 billion), according to market research firm IMS Health’s analysis.

Some highlights of the Union Budget 2013-14 presented by Mr. P Chidambaram, Minister of
Finance, Government of India, for the healthcare are as follows:

 Health for all remains one of the priority sectors for the Government
 INR 4,727 crore (US$ 744.41 million) for medical education, training and research
 The Ministry of Health & Family Welfare has been allocated INR 37,330 crore (US$
5.87 billion). Of this, the new National Health Mission that combines the rural
mission and the proposed urban mission will get INR 21,239 crore (US$ 3.35 billion),
an increase of 24.3 per cent over the Revised Estimates (RE)

7
In addition, contributions made to schemes of Central and State Governments similar to Central
Government Health Scheme, eligible for section 80D of the Income Tax Act.

The federal government has begun taking steps to improve rural healthcare. Among other things,
the Government launched the National Rural Health Mission 2005-2012 in April 2005. The aim of
the Mission is to provide effective healthcare to India’s rural population, with a focus on 18 states
that have low public health indicators and/or inadequate infrastructure. India’s first medical
insurance scheme for the poor was launched in the 1996-97 budget. The “Janarogya Yojana”
scheme is marketed by the four subsidiaries of GIC, and covers people between the ages of 5 and
70 for pre– and post–hospitalization expenses, for up to 30 and 60 days, respectively. The
insurance coverage costs around $122 per annum.

Contribution to Indian GDP

In India has emerged as one of the largest service sectors with estimated revenue of around $30
billion constituting 5% of GDP and offering employment to around 4 million people. By 2025,
Indian population will reach 1.4 billion with about 45% constituting urban adult (15 years+). To
cater to this demographic change, the healthcare sector will have to be about $100 billion in size
contributing nearly 8 to 10% of the then GDP. By then, the 10 large national healthcare networks
would be able to absorb 30% of the market share. The leaders in the Indian healthcare sector will
be benchmarked to international quality and efficiency standards. Opportunities According to
Investment Commission of India, the sector has witnessed a phenomenal expansion in the last 4
years growing at over 12% per annum. As per a recent CII-McKinsey report, the growth of this
sector can contribute to 6-7% of GDP and increase employment by at least 2.5 million by 2012.
The key drivers for Indian Healthcare sector are: Medical Value Travel or Medical Tourism World
class treatment and benefits at a fraction of the Cost (almost 1/10th) with no waiting time for
surgeries as compared to advanced nations like UK and US where waiting period is substantially
longer have been instrumental in a large number of foreign arrivals to access healthcare services
in India. Medical tourism market is valued to be worth over $310 million with foreign patients
coming by every year, and the market is predicted to grow to $2 billion by 2012.
 Diagnostics & Pathology Services

8
  Outsourcing of Pathology and Laboratory tests by foreign hospital chains due
to the high cost differential in India. Clinical Trials
 Availability of a Huge Patient Pool
 Cost advantage with testing of drugs possible at 60% of the price.

Health Insurance with less than 10 per cent of the population having some sort of health
insurance, the potential market for health insurance is huge. McKinsey-CII estimates the number
of potential insurable lives at 315 million with a potential of US$ 7,700 million in health insurance
premium by 2015. Telemedicine Allows even the interiors to access quality healthcare and at the
same time, significantly improves the productivity of medical personnel. Telemedicine is one such
innovative technology, which if used effectively can double the utilization of scarce human
medical personnel. Source: FICCI

Infrastructure

As the economy is growing but there is no much development in the infrastructure of

healthcare. There are hospitals, Diagnostic Centre’s which have well equipped infrastructure but
still large percentage of it is the same. Therefore it is not possible for everyone to avail the
facilities as the infrastructure is not proper especially in the rural & semi – urban areas compared
to the urban areas.

Public health facilities are also not adequate. For example India needs 74000 health
centers per million populations it is not even half the number. There are still 11 states in our
country which do not have proper drug testing centre’s and the laboratories which exist either are
not well equipped or nursing problem.

Healthcare Divide:

India is divided into two: one is high-quality medical care to middle-class Indians and medical
tourists, and other is in which the majority of the population lives—a country whose residents have

9
limited or no access to quality care. As per the research today only 25% of total population can
take allopathic medicines rest are still dependent on Ayurvedic or homeopathy medicines.

Health care in India:

 India has 48 doctors per 100,000 persons which is fewer than in developed nations

 Wide urban-rural gap in the availability of medical services

 Poor facilities even in large Government institutions compared to corporate hospitals (Lack
of funds, poor management, political and bureaucratic interference, lack of leadership in
medical community)

 So there is a huge need of changing the scenario as early as we can because these
drawback will not let us come out from it.

Technology in Industry:

Let it be any industry there is always the need of technology to take it forward. Better technology is
always the promoting factor in surgeries & ambulatory services. Both of these are the demand of
time so their supply needs to be perfect. If technology is proper used then it also promotes
telemedicine which will be of great help in rural areas.

There are various drivers for the implementation of technology in the industry:

 Cost Pressure

 Improving the quality of clinical care

 Competitive & regulatory pressures

 Reducing medical errors & evolving physician support tools

Investments & government policies play a big role in technology because if both of these are not
balanced then it will have a direct effect on the industry in terms of investment. Healthcare is a
growing demand as these days people are more conscious about their lifestyle & related diseases
in urban areas they go for a regular routine checkup for their healthcare awareness & to be saved
from future diseases.

10
Annual per capita spending on healthcare:

India
China
Brazil
USA

“We Spend Like Misers”

Indian Health Insurance Industry:

What is health Insurance?

Health insurance is an insurance against the risk of incurring medical expenses among individuals.
To cover the risk there is a pre-planned financial structure in terms of monthly paid premium so
that they are relaxed if any emergency is to be faced then they need not worry about the monetary
terms. According to the Health Insurance Association of America, health insurance is defined as
"coverage that provides for the payments of benefits as a result of sickness or injury. Includes
insurance for losses from accident, medical expense, disability, or accidental death and
dismemberment”.

Industry gurus always have been suggesting the best governance when the government does
not deliver a product or service, but monitors its quality and ensures that the people get the
relevant service or product through able private players. In this case, government policies are seen
to be changing and their role in healthcare is seen shifting from healthcare delivery to financing
the delivery of care. With their launch of health insurance schemes like Rashtriya Swasthya Bima

11
Yojna, Aroygashree and other similar schemes has tremendously improved healthcare delivery
through private players, the schemes will cover millions of BPL patients in the years to come.

The government will save billions on the capital costs and HR costs by having the private player
invest in the same.

With opening of health insurance to private players, the insurance sector is booming.
Especially with rising disposable incomes, and the highest population being the earning age group
of 15-64 years (60 per cent of population), the insurance reach is bound to grow from the present
meager two per cent to 20 per cent as estimated by industry experts. This will bring in demand for
better quality care and a dominant role of insurer on choice of healthcare units for patients in
reference to quality and professionalism.

Patients will have a lot to shop around before choosing the 'right care provider' as he will be
armed with the vital medical insurance.

Major Players in Health Insurance Industry:

 Aviva Life Insurance

 Bajaj Allianz General Insurance
 Max New York Life Insurance
 HSBC health Insurance
 Reliance Health
 TATA AIG

Some points we would like to highlight about health Insurance:

 Indian healthcare insurance industry is INR 60,497 corers from 2008-2015 compounded
annual growth rate of 42.3%.

 The market penetration is 3 folds higher in 2015

 According to world health report 95% of Indians will face a monetary crisis so health
insurance is a required

 Less than 3% of population is covered by private insurance players & 22% by the
government organizations ( Reimbursements etc)

12
MEDICAL DIAGNOSTICS AND PATHOLOGY INDUSTRY IN INDIA

Indian diagnostics and pathological labs, based on the working level, are classified into high-end
labs, accounting for 38% of the market share, manual labs (28%) and second-level regional labs
(34%). By therapeutic segment, the major share is held by biochemistry (38%), followed by
immunology (23%), hematology (15.8%), critical care, urine routine, others, microbiology and
coagulation. Seventy seven per cent of the market is contributed by biochemistry and clinical
pathology, which includes immunology and hematology. According to the estimates, the Indian
diagnostics and labs test services, in view of its growth potential, is expected to reach Rs159.89
billion by FY2013, reflecting a CAGR of 18.9% during FY09-FY13. Applications of molecular
diagnostic testing will revolutionize clinical practices with major implications, opportunities and
challenges for the labs.

Heightened physician awareness to better clinical outcomes and increasing patient requirement to
avail of high quality care, have made it imperative for providers to deliver targeted therapy. This
has been made possible by the availability of sensitive and specific diagnostic tests, along with
technologically advanced medical devices and equipment’s. These further enable healthcare
providers to utilize material and human resources optimally.

Source: KPMG

MARKET SIZE(IN USD BILLION)

Market Size(in USD Billion)

6409.9
5189.3
4185.7
3403
2777.9

Market Size(in USD Billion)

2009 2010 2011 2012 2013

13
Major Players

Lab No. of Labs Collection Centres

Dr. Lal Path Labs 35 600
Metropolis 50 350
SRL Diagnostics 35 800
Piramal 104 300

Drivers:

These are areas with huge unmet demand for diagnostic services

 Improved accessibility of these areas due to building of new national/international airports

for example: Nagpur, Vishakapatnam
 Government is trying to open up these untapped markets through public private
partnerships.

Challenges:

 Difficulty in recruiting and retaining medical and paramedical talent

 Difficulty in patient recruitment and retention as business is based on credibility in local
communities
 Profitability of centres in Tier III cities restrains large players from entering them i.e,
challenges exist around scale and price points.

Lal path Labs:

Established in 1949, Dr Lal PathLabs today is the largest and most respected diagnostic service
provider in the country. It has a proven track record of over six decades for strict adherence to
international standards and benchmarks. Dr Lal PathLabs offers widest test menu and has a pan
India presence in all important cities and towns of India, in the form of state-of-the-art
laboratories and patient service centres. Its employee strength of over 3000 people, serves over
10 million customers every year.

The Company's main and reference laboratories at Delhi utilize state-of-the-art technology
and equipment to carry out widest test menu and panels in the disciplines of Molecular
Diagnostics, Biophysics, Flow Cytometry, Immunophenotying, Cytogenetics, Endocrinology,

14
 Genetics, Nutrition and Metabolism, Oncology, Toxicology, Immunohistochemistry, Infectious
diseases, Biochemistry, Hematology, Histopathology and Cytology.

Dr Lal PathLabs provides top end quality services to its customers and has internationally
accepted external and internal quality assurance programs in place. Dr Lal PathLabs is
India's highest accredited laboratory, with accreditation from College of American
Pathologists (CAP), National Accreditation Board for Testing and Calibration Laboratories
(NABL), Ministry of Science and Technology, Govt. of India, and ISO 9001:2000 certification.

The company's revenue has more than tripled in the past five years, to Rs. 452 crore in
2012/13 from Rs 128 crore in 2008/09. During the same period, the number of employees
has nearly doubled to more than 3,500. Growth was helped by investment received from
venture capital and private equity firms West Bridge Advisors and TA Associates India.

Business Model:
The company - now headed by Chairman and Managing Director Arvind Lal, the founder's
son - also has 10 collection centres outside India. These centres in Oman, United Arab
Emirates, Saudi Arabia, Nepal, Bangladesh, Sri Lanka and Malaysia ship samples to India
for testing.

The company follows franchise model. Highly experienced Dr Lal PathLabs project team
would provide full management services to enable the planning and implementation of the
project.

Dr Lal PathLabs would provide the unique "STARLIMS", top–of–the–line Laboratory

Information Management Software (LIMS). This software has the unique ability of
performing tests through bar–code reading of patient’s samples and a bi–directional
interface with the diagnostic instruments, for the first time in India, which enables a
completely “hands off” fully automated testing and reporting process.

Dr Lal PathLabs would provide inputs in Lab design and operations. The project would be
implemented under the guidance of Dr Lal PathLabs Project Management Team to comply
with high Dr Lal PathLabs standards.

Future Plans:

Dr Lal PathLabs aims to reach out to every nook and corner of India with their world-class
diagnostic services. And keeping sight of its mission, Dr Lal PathLabs is rolling out many
expansion plans to achieve this goal.

o Expansion into new markets - 175 Labs By 2014

o Strategic alliances with / acquisition of existing players
o Public - Private Partnerships

15
 Strengths
1. Experience of over 60 years in the industry.
2. Accredition from CAP(College of American
Pathologists), NABL(National Accredition
Board for Laboratories
3.Workforce of 3500 people.
Weakness
1. Less in promotional activities
2.Franchise model.
3. There is lack of regulations and standardization
on services in the industry itself

SWOT Analysis of
Metropolis

Threats
Opportunities
1. Entrance in the dental and optical clinics 1. Tough competition from other players like
segment Metrolpolis and SRL.
2. Expansions in different regions through mergers 2. Technoloical advancements in equipments
& acquisitions
3.Investment in new technologies

Metropolis-Excellence in Diagnostics

Since its inception in 1981 as a purely Mumbai based lab, Metropolis has come a long way.
Visionary leadership, strategic associations with other leading laboratories across the
country, strict ethical policies and a penchant for technology are some of the reasons.
Metropolis is India's largest laboratory chain. NABL, CAP (College of American Pathologists)
accreditation (Mumbai) reiterates that they meet stringent national and international quality
requirements - imperative in a vital service sector like healthcare.

Their network of more than 85 state-of-art-laboratories across India, UAE, Sri Lanka, South
Africa, Bangladesh etc., with over 650 collection centers further demonstrate how
committed they are to delivering accurate and timely results.

Business Model of Metropolis

Metropolis Healthcare is India’s only multinational chain of diagnostic centers across India,
Sri Lanka, South Africa and the UAE. It offers a test menu of 4000 tests under a single roof,
ranging from routine tests in immunochemistry to highly specialized markers in genetics and
molecular biology, covering all therapeutic areas.

They use best-of-breed technologies, highly skilled manpower and globally accepted best
practices. Metropolis is the preferred provider of specialized testing for more than 10,000
laboratories, hospitals and research institutions and 50,000 doctors across 125 cities in
India through 350 collection points.

16
Their services include:

1. Pathology Testing
2. Preventive Health Checks
3. Wellness and Clinical Research

Future Plans of Metropolis

They have entered into dental care services segment in Mumbai and Chennai and have
plans to expand it. We are planning to invest Rs 200-300mn for adding 15 new laboratories
and another Rs 50-100mn investment for new equipment. They are also planning an Initial
Public Offering (IPO) over the next three years and also to expand into new regions like Africa
and Middle East. They are also planning to acquire companies, particularly in North India
and East India. We may acquire companies in Rajasthan, Punjab, Uttar Pradesh,
Chhattisgarh or West Bengal.

HOSPITALS IN INDIA
Apollo Hospital

Vision: “'Touch a Billion Lives”.

Mission: Healthcare of International standards within the reach of every individual. We are
committed to the achievement and maintenance of excellence in education, research and
healthcare for the benefit of humanity.

Growth in Healthcare Spectrum: The Apollo Hospitals Group is the pioneer of integrated
healthcare delivery in India. This vision led the group to earmark time and resources to
strengthen each vital cog in the process of healthcare delivery. As a result of these efforts,
the group today is in a unique position to exponentially increase its healthcare cover.

Hospitals:
o Apollo Reach Hospital
o General Multi Specialty
Health and Lifestyle:
o Apollo Life Wellness Programs
o The Cradle
o The Apollo Clinic
o Apollo Health and Lifestyle
o Nurse Station.

17
Consulting and Solution
o Global Project Consultancy.
o Health Street Limited
o Health Hiway
o Apollo Telemedicine

Insurance

o Family Health Plan ltd

o Apollo Munich Health Insurance

Education and Research:

Apollo Hospitals Education and Research Foundation
Health Knowledge city.

APOLLO REVENUE (IN INR MILLIONS)

Revenue (In Million)

33178
28801
26054
20265
14804
11501
7191 8995
4485 4998 5956

Revenue (In Million)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

FORTIS HOSPITALS:
Fortis Healthcare Limited is a leading, pan Asia-Pacific, integrated healthcare delivery
provider.
The healthcare verticals of the company span diagnostics, primary care, day care specialty
and hospitals, with an asset base in 5 countries, many of which represent the fastest-
growing healthcare delivery markets in the world.

18
Currently, the company operates its healthcare delivery services in India, Singapore, Dubai,
Mauritius and Sri Lanka with 65 healthcare facilities (including projects under development),
over 10,000 potential beds, over 240 diagnostic centres and a team strength of more than
17,000 people.
Fortis Healthcare is driven by the vision of becoming a global leader in the integrated
healthcare delivery space and the larger purpose of saving and enriching lives through
clinical excellence.

REVENUE (IN INR MILLION) FOR FORTIS

Revenue (In Million)

42431.66

26176.72

14957.91
9379.38
5070.95 6305.45
998.9 1328.1
Revenue (In Million)
2006 2007 2008 2009 2010 2011 2012 2013

Growth Revenue Comparison

45000
40000
35000
30000
25000
20000
15000
10000
5000
0
2006 2007 2008 2009 2010 2011 2012 2013
Apollo Hospital (In Million) 7191 8995 11501 14804 20265 26054 28001 33178
Fortis Hospitals (In Million) 998.9 1328.1 5070.95 6305.45 9379.38 14957.91 26176.72 42431.66

19
 SWOT Analysis
Strength
It’s all the centres are equipped with the well maintained
pharmacy where it has got unique advantage compared to
its competitors.
It has good infrastructure & quality resources which
provide a world class service to the patients.
SWOT analysis of Apollo hospital
Opportunities
Increasing number of medical tourists
In India on every 1000 persons there are 0.3
doctors & 0.8 nurses while the same figure in the whole
world is average 1.23 doctors & 2.56 nurses
Strength
Lower delivery cost
World class facilities
India is very well placed to tap the
growing potential of the healthcare sector
SWOT analysis of Fortis
hospital
Opportunities
Healthcare industry is one of the world’s largest
industry
Medical tourism in iindia will be one of the major
source for foreign
exchange
20
Weakness
It has added 297 standalone pharmacies during the year
since most of the pharmacies are in the incubation stage
which can depress the margins
High attrition rate among the nursing workforce to western
countries & competition due to higher salaries & perks being
offered requires higher investment for providing required
trainings to keep the quality services
Threats
Medical equipments requires 40-45 % of the total
expenditure in hospitals so this industry requires constant
investment in new health care devices that is upgrading the
technology
Weakness
Increasing cost of curative medical service
Limited health benefits to employees
Limited number of quality medical institutions
Threats
Poor public infrastructure
Inflation
Medico legal jurisdiction
Country specific restrictions
 Apollo Hospitals
 It is one of the country’s premier
healthcare provider
 It has 8500 beds in across 50 hospitals
in India
 Beside owning & managing hospitals,
the group has leadership position in
healthcare technology, health & life
style clinics.
 It also has the largest pharmacy chain
in India spanning around 1400 stores.
 Over the past few years the
company’s revenues & profits have
grown at a compounded rate of 38%
& 30% respectively
Fortis Healthcare
 It is one of the largest healthcare
companies in India based on the number
of hospital beds
 The company has a network of 11
hospitals primarily in north India, 15
satellite & heart command centers across
the country
 It also has a heart command center in
Afghanistan

PHARMACEUTICAL INDUSTRY IN INDIA

Indian Pharma Industry is the third largest in terms of volume. The government started
encouraging the growth of drug manufacturing by Indian companies in the early 60s, and
with the Patents Act in 1970. Liberalization was the turning point in the history of Indian
Pharma Industry. It has the domestic market worth$12.26 billion and it holds market share
of about $14 billion is US market. There are about 4000 drug manufacturing units in India
employing approximately 3.45 lakh employees. In global market, Indian companies have
mere 1-2% share but the industry grows at a good pace about 10 % every year.

Below is the table showing top 10 Indian Pharmaceutical companies.

S. No Company Net Sales in 2013( in INR bn)

1 Cipla 69.77
2 Dr.Reddy’s 66.86
3 Ranbaxy 63.03
4 Lupin 53.64
5 Aurobindo 42.84
6 Sun Pharma 40.15
7 Cadila Healthcare 31.52
8 Torrent Pharma 27.66
9 Jubilant Lifesciences 26.41
10 Wockhardt 26.50

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 Net Sales(in INR Bn)

80
60
40
20
0 Net Sales

Net Sales

Cipla:

CiplaLtd (formerly Chemical, Industrial, Pharmaceutical Laboratories).It makes drugs to treat

cardiovascular disease, arthritis, diabetes, weight control, depression and many other
health conditions. As of March 2013, Cipla had Market Capitalization of $3.6 billion. The
company has 34 manufacturing units in 8 locations and present in 170 countries worldwide.
Exports account for 52% of total revenue. The company has about 27000 employees.

In December 2008, Cipla won a case in India clearing it to manufacture a cheaper generic
version of oseltamivir, marketed by Rocheunder the trade name Tamiflu, under the Cipla
trade name Antiflu.In May 2009, Cipla won approval from the World Health
Organization certifying that its drug Antiflu was as effective as Tamiflu, and Antiflu is
included in the World Health Organization list of prequalified medicinal products

Profit (in crores)

2,000.00

1,000.00

0.00 Profit
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

Profit

22
Dr.Reddy’s Laboratories

Started by Anji Reddy in Hyderabad, this company has wide range of around 190
medications and 60 API’s (active pharmaceutical ingredients). Dr. Reddy's began as a
supplier to Indian drug manufacturers, but it soon started exporting to other less-regulated
markets that had the advantage of not having to spend time and money on a manufacturing
plant that would gain approval from a drug licensing body such as the U.S. Food and Drug
Administration (FDA).

In 2001 Reddy’s completed its US initial public offering of $132.8 million, secured
by American Depositary Receipts. At that time the company also became listed on the New
York Stock Exchange. Funds raised from the initial public offering helped Reddy’s move into
international production and take over technology-based companies. Reddy’s soon acquired
companies like BMS laboratories and Meridian UK. They acquired Trigenesis Therapeutics
Inc; a US-based private dermatology company. This acquisition gave Reddy’s access to
proprietary products and technologies in the dermatology sector.

They are licensed by Merck to sell a generic drug simvastatin in USA. They exceeded
$500 million revenue in 2006 and API account to about 75% of their revenue.

Profit (in crores)

1,400.00

1,200.00

1,000.00

800.00

600.00

400.00

200.00

0.00
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

Profit

23
 Porter's 5 Forces Analysis
•Describes the intensity of the competition among companies from a certain industry.
•As diferrent players serves different needs of the customer/patients based upon their area of
living, economic condition & convenience, competitive environment is not clearly defined.
Competitive •Though the sector is grossly under served there is some competition in urban areas in non
specialty segment as faciliites are mostly concentrated there.
Rivalry

•The threats of new player joining the market should be considered as an important factor.
•The barriers to entry into the healthcare sector are fairly high
•for insurance companies the most significant barrier to entry are regulatory requirements & the
initial cash investment
Threat of new •Hospitals also face the same barrier : regulation by the government is quite heavy
entrants •In other words the threat of new entrants in the healthcare industry is very less.

•In healthcare industry there are different categories of companies such as large conglomeration
where suppliers & buyers are interacting within the industry itself.
•Hospitals face some suppliers problems where companies that produce healthcare equipments
could choose not to sell them their equipment but this is not the large threat because there is a
fairly arge number of healthcare equipment companies.
Supplier •In insurance industries also physician can choose whether to join or not to join the network of a
Power given insurance companies which would effect the number of people who choose to buy this
insurance because it is not accepted in many places

•The healthcare industry as whole is relatively uneffected by buyer power in the sense that the
healthcare industry is composed of all the companies involve in providing healthcare to people
•Whether the economy is good or bad, whether the price of medicine are high or low it does not
reakky effect the choice of buyer to consume or not consume healthcare.
Buyer Power •The need for medicine is not affected by changes in the economy .

•In general though, the healthcare sector as whole has no subsititute. There is essentially no way
to get healthcare from anywhere other than the healthcare industry
•Within the industry the pharmacuetical companies face subsitutes for the drugs when the
Availability of patent expire. When the patents are in effect they enjoy the monopoly in their drug.
•Insurance & Hospitals essentially have no substitutes.
subsititutes

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 Future Trends in Healthcare Industry in India
According to recent studies conducted, the customer's (patient) aspirations are fast
changing. Customers are growing more aware of their health needs, demand quick
response, less waiting times, and above all - demand nearness of the healthcare unit to
them.

Customers though now demand better quality care; they however now do not want to travel
much as in earlier days.

And if you notice, the billing and pricing though important, is not a very high priority now as
insurance reach is getting stronger (to the tune of 40 per cent among patients visiting a
urban hospital).

If this is the window to the future of healthcare, then it leaves immense opportunity for
existing hospitals across the country to revamp and re-organize in order to woo back their
immediate local drainage population as the competition would heat up soon. The patients
would have a lot to choose from, now being insured.

As per various studies including a report by IDFC, and Mc Kinsey, Indian Healthcare industry
will be worth $125 billion in the next five years.

Public spending is likely to increase beyond 20 per cent, there is room for everyone in the
organized private healthcare sector.

The entities who have noted this advantage to name among the other few are Apollo and
Fortis with its cumulative market cap of around $ five billion and may be considered as a
reflection of the healthcare scenario of the present and future of Indian healthcare.

India presently has a bed deficit of approximately 30 lakh beds as per the WHO
recommendation of four beds per 1000 population. Considering even a 250 bedded
hospital on an average, the country would need 12000 hospitals in the near future. As
almost 80 per cent of this would be fulfilled by the private players, a huge rise in IPO's and
premium commanding players in the arena would flutter bringing in interesting times for the
healthcare industry.

Recent spurt in Public Private Partnership (PPP) projects, and thrust on quality by the
government sector and its demand (& mandate in some areas) on NABH and ISO, a lot of
consultancy business is abuzz with the projects galore in the accreditation and QMS field.
India to its credit already has one government hospital NABH accredited and many are in the
pipeline. With CGHS making NABH mandatory for care and hospitalization cost
reimbursements, there is hectic activity seen in hundreds of hospitals waking up to the long
due need for quality healthcare and applying for the coveted quality mark.

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The trend is on a steep rise, and it is just a matter of time when the government launches
patient awareness on NABH quality in full swing. This would make the patient demand at
least an ISO QMS certified hospital if not NABH.

Good times ahead for healthcare consultants in every sphere be it new projects or existing.

There are various other trends observed which will be discussed in the article ahead, but
would discuss challenges and opportunities before embarking on the same which ultimately
is linked to the justification on the future trends seen.

Challenges in Indian Healthcare Industry:

The important challenges faced by Indian Healthcare Industry are
1. Inadequate human health resources.
2. Rise in non-communicable and infectious diseases especially in rural areas.
3. Access to health services is severely limited as health infrastructure is minimal.
Other challenges are:

High capital costs:

Depending on the region and real estate costs, an average hospital requires capital infusion
of `40 lakhs to a crore per bed (& even more). Industry estimates suggest that any hospital
with capital costs of more than 50 lakhs per bed has high gestation period and even may be
unviable. Land and building together account for almost 40 per cent of the total project cost
and affects the viability depending on the resulting per bed cost.

Medical equipment:

Contributing to almost 40 per cent costs in a tertiary setup, the medical equipment though
cutting edge at the time of purchase poses the threat of inevitable obsolescence within five
to seven years of setup. This problem is compounded by the fact the most of such
equipment is imported and very few local reputed manufacturers exist.

This will lead to apportioning to higher treatment costs and will further lead to lesser
competitive edges and low utilization rates resulting in an undesired operating margins.

Human resources:

The fast-expanding domestic healthcare industry is the third largest employer, but is
severely short of manpower.

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As per ministry of health, there is a shortage of approximately half a million doctors, a million
nurses and the deficit needs to be filled in the next five years. Such shortage will lead to
exponential salary hike demands, and further lead to high patient care costs.

With organized sector being the preferred choice now, there will be a huge demand even for
the skilled and quailed health administrators to run the show. Considering one skilled and
qualified administrator is required for every 50 employees, there would be a requirement of
almost 50000 such healthcare professionals in the near future.

Highly regulated environment and unrealistic stringent norms and restriction of entry to the
private entities in the field of medical education has led to further deficiencies in terms of
number of skilled professionals being released for intake by various hospitals.

Conventional models of business:

Rarely an out-of-the-box idea of running a healthcare business is seen. Recent niche

segments of single specialty centres (for e.g. - focused on OBGY or other specialties (Cradle
etc.) have been very few. Even in the public health sector, millions of square feet of space is
left unutilized, expensive equipment ill-maintained and lack of skilled professionals adding
to the -woe, still do not find adequate initiatives happening towards outsourcing or even
PPP.

Almost 90 per cent of private sector in India is run under the unorganized sector. The clinical
establishment bill also has faced immense opposition and a professional healthcare
consultancy firm guided healthcare business is not still seen frequently.

The conventional model would need to be broken to mitigate the presently seen long
gestation periods of five to 10 years of which almost three years are spent in project
conceptualization to commissioning.

The conventional model of healthcare business would need to change to bring in untapped
opportunities, operational efficiencies and better profitability. This would also attract better
private equity which is now diverted to more lucrative industries.

In the public healthcare sector the infrastructure is provided based on the size of the
population instead of epidemiological profile. This many time results in under-utilization of
infrastructure, and ultimately not meeting the demands of the local population and
drainage.

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 Opportunities
Population:

Many would consider that the massive population of India would be a bane. But it has
turned out to be an immense business opportunity across industries like telecom, broadcast
and healthcare.

The 1.17 billion population of 2009 is projected to reach 1.33 billion in the next 10 years. Of
which almost 60 per cent of population is in the 15-64 year age group - which is the active
earning population and will primarily drive the industry, especially the healthcare insurance
industry which will make healthcare accessible over a period of time to majority of the
population.

As India 'shines', and we chant 'Jai ho', the disposable income of Indian families has
increased by a whopping 70 per cent since 2004 and is growing at a pace of 10 per cent
ever year.

This will lead to increased demand for good quality healthcare even at a premium.

Comparative low costs and Medical Tourism:

As per industry studies, almost five million foreigners had availed treatment in Indian
healthcare setups by 2008. With surgical cost almost one tenth in western worlds, the
estimated 15 billion dollar medical tourism industry will only grow further.

This has led to the creation of health cities and medical tourism hub. Now with immense
support of the Indian tourism ministry and its dedicated medical arm, the medical tourism
industry in India will grow leaps and bounds.

Looking Forward
With the personal disposable income rising by more than
70 per cent and over all income of the population rising,
the demand for better quality in healthcare is bound to
exponentially rise. With the CGHS mandating the
requirement of NABH for all reimbursements, and
hundreds of hospitals applying to get the coveted ISQua approved NABH-the mark of
international healthcare quality, this is just the beginning.

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There is no doubt that the government too is focusing on improving the quality of healthcare
delivery in its own infrastructure and the promising beginning is seen with a public unit getting
the NABH accreditation in Gujarat and more on the anvil.

With only 20 per cent of healthcare delivery provided through public health units and the
government not intending to spend more on capital expenditure, more PPP projects and private
healthcare initiatives would see the light of the day.

To bridge the immense HR gap, especially in the clinical and professional side, the government
is mooting the idea of corporatizing medical education and it is just the matter of time when
private run non-trust based medical education on commercial lines will be seen across the
country.

Health insurance sector has never seen better days than today and with what is on the anvil.
With a population as strength, even the present two per cent penetration to a five per cent
penetration would mean millions and billions in business. The projected penetration in the next
five to 10 years is 20 per cent of the population, because the earning population of 15 to 64
year age group comprises of more than 60 per cent of the total population who can afford
health insurance. And with rising awareness and the acknowledgement that insurance is the
way to a healthy life, the demand for medical insurance will only rise further. Trend reveals that
at least in the large corporations and private organizations including public sector units,
insurance is provided as a norm to all employees. This trend will only substantiate in time to
come.

With the increase in population and to bridge the gap of number of beds, hundreds of quality
healthcare units will spring up. However, with economy growing, demand for real estate also
grows and further leads to making real estate capital investments for healthcare expensive and
making operational margins tighter. This will lead to (and already has) in unconventional model
of health care delivery by way of single specialty centres, life style units, and retails clinics, to
bring in operational efficiencies and increase the EBITAs. A lot of earlier untapped models will
be tapped and the consumers will have plenty to choose.

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With tax sops and other government incentives, more secondary and tertiary care units will
open in tier-2 /3 cities.

With quality standards coming on even in AYUSH and alternative medicine, and India's rich
heritage already attracting a lot of tourists, medical tourism will see a marked boom in years to
come. Health cities with an aim to woo medical tourist is on the rise, and the healthcare players
will leverage on the integrated medicine model by providing Ayurveda, Homeopathy, Unani,
Yoga and others along with the modern medicine.

This holistic approach will attract patients from far lands further, because the cost of care is
almost one tenth the western world’s costs.

Technology will play a major role in bringing quality in healthcare, be it better nursing
communication systems, patient monitoring devices or telemedicine to provide low cost
diagnosis to remote patients etc.

Companies like HCL, HP and Microsoft are already investing heavily in healthcare technology
and Google trying to ambitiously woo the consumers for a centralized healthcare database,
what is in store for the future of healthcare is limitless.

Pneumatic chutes, PACS, automated laboratories and other technologies are on the verge of
becoming norms in both public and private hospitals.

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 Conclusion

The Indian healthcare sector can be viewed as a glass half empty or a glass half full. The
challenges the sector faces are substantial, from the need to improve physical infrastructure to
the necessity of providing health insurance and ensuring the availability of trained medical
personnel. But the opportunities are equally compelling, from developing new infrastructure
and providing medical equipment to delivering telemedicine solutions and conducting cost-
effective clinical trials. For companies that view the Indian healthcare sector as a glass half full,
the potential is enormous.

Healthcare industry is the fastest growing industry but the gap between urban & rural is still
vast & that need to be filled because it will be the biggest sector to invest.

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