HEALTH CARE IN INDIA.

1. Growing Health Care Sector

Health care is one of India's largest sectors, in terms of revenue and employment. Health care
encompasses the industries like pharmaceuticals, biotechnology, medical equipment and
medical care services. The private sector accounts for more than 80% of total health care
spending in India.
2. Factors Contributing to the Growth of Health Care Sector

A) Growing population and economy. Our population is currently 1.2 billion and increasing
at a 2% annual rate. This increase is due in part to a decline in infant mortality and as a result
of better healthcare facilities and government emphasis on eradicating diseases like hepatitis
and polio among infants.

B) Expanding Middle Class.

As per the 2010 survey middle class constitute nearly 60% of the population. India's thriving
economy is driving urbanisation and creating expanding middle class with more disposable
income to spend on health care. More women are joining the work force as well, further
boosting the purchasing power of Indian households. Thanks to rising income, today at least
large sections of population can afford to buy western medicines.If the economy continues to
grow faster, and the literacy rate keeps rising, much of western and southern India will be
middle class by 2020

C) Rise of disease.
Another factor driving the growth of India's health care sector is a rise in both infectious and
chronic degenerative diseases. Some communicable diseases such as dengue, viral hepatitis,
TB, malaria, swine flu, once thought to be under control, have returned in force or have
developed a stubborn resistance to drugs. Indians live more affluent lives and adopt unhealthy
western diets that are high in fat and sugar resulting in increase of life style diseases like
hypertension, diabetes, cardiac ailments and even cancer.

D) Pharmaceuticals.
Paralleling the rise of disease is the emergence of a robust pharmaceutical industry in India.
Though the domestic pharmaceutical industry is highly fragmented, they control about 80%
of the market. The central government uses price controls to ensure that vital and essential
drugs are affordable to the Indian population.

E) Hospital Infrastructure.
Roughly two thirds of Indian hospital was public and that is changing now and more facilities
are coming up in private sector. In our country middle class, rich and medical tourists have
access to high quality medical care whereas the remaining vast majority have little or no
access to medical care.
F) Insurance:

A wide spread lack of health insurance compounds the healthcare challenges that India faces.
But with the growth of secondary and tertiary sectors the situation is rapidly changing. Nearly
10% of the population has some form of insurance. State governments are also taking
initiatives to increase insurance cover to reduce their spending on treating diseases. State
Governments provide 80% of public funding.

G) Medical Tourism.
Medical Tourism is one of the major external drivers of growth of the Indian health care
sector. Medical tourism leverages the country's well educated, English- speaking medical
staff, modern private hospitals. India's private hospitals excel in fields such as cardiology,
joint replacement, gastroenterology, ophthalmology, transplants and urology. The costs are
very low compare to the tariffs in the U.S.A. For an example Cardiac surgery in India costs
around US$5,000 against 50,000 in the US. It was estimated Indian Medical tourism will
contribute nearly US $ 2 billion by 2014 to the economy.

CAPITAL RAISING STRATEGIES IN CORPORATE HOSPITALS.

We discussed at length about the potential of Indian Health care sector in general and medical
care in particular.
The growth of medical care is largely restricted to tertiary Health Care which refers to a third
level of health system, in which specialised consultative care is provided usually on referral
from primary and secondary medical care. Specialised intensive care units, advanced
diagnostic support services and specialised medical personnel are the key features of tertiary
health care in India.

The rapid deterioration of quality services in public hospitals largely contributed to the
emergence of corporate hospitals in India. The other key drivers are medical tourism, growth
of middle class, increased health insurance cover and transfer of government sponsored
health schemes to private hospitals.

The investments in corporate hospitals have long gestation and it will take good 3,4 years to
make profits from the date of commissioning. The funding is largely restricted to tertiary care
and high end diagnostic chains.
The criteria for funding,

1. It should be a large tertiary care centre.

2. Facility should have long tenant lease at least 20 years.

3. Owned premises are not encouraged considering huge costs involved and investors prefer
asset light concept.
4. Ability to expand to multiple locations and scale up the operations significantly.

5. Quality of health care professionals.

6. Profile of key doctors and promoters.

7. Emphasis on teaching and research.

8. Brand Value to attract patients.

CAPITAL RAISING OPTIONS.

1. In the case of a Greenfield1 project initial contributions must come from promoters, doctor
partners, angel investors and a small portion of debt with a moratorium of 2 years.

2. If it is an established chain of hospitals with positive EBITDA, there is a significant

investment interest from private equity funds, high net worth individuals, equipment
suppliers and banks and financial institutions. The valuations are multiple of EBITDA and
usually the multiple ranges between 8 to 14 depending on the quality of business and
earnings. If the EBITDA is , say Rs 50 cr , the equity valuation is Rs 500cr(10 multiple)
minus debt on the books.
The private equity funds expect an IRR of 18 to 20% per annum. They stay invested for a
period of 5-6 years.

3. Another funding option is to seek investment from a strategic investor ie an established

hospital group either from India or abroad who have a long term interests in India and who
eventually will take management control. Ex: controlling stake investments by Parkway
group of Singapore in Continental Hospital and Global group. Investments from Strategic
partner will fetch higher EBITDA multiple usually in excess of 15 considering the fact that
they will have management control.

4. Equipment finance from medical devices manufactures like Siemens, GE, Phillips and
Olympus is a good option. They extend loans at lower rate of interest considering they have
huge margins in their selling price. Since they understand the intricacies of the business it is
better to barrow from them than banks. The drawback is, credit is available only for purchase

1
Green field investments occur when multinational corporations enter into developing countries to build new
factories and/or stores. Developing countries often offer prospective companies tax-breaks, subsidies and other
types of incentives to set up green field investments. Governments often see that losing corporate tax revenue is
a small price to pay if jobs are created and knowledge and technology is gained to boost the country's human
capital.
medical equipment manufactured and sold by them.

5. Loans from banks and institutions to complete the interiors and purchase of misc
equipment and meeting other costs. It is advisable to restrict the bank loan to a bare
minimum, say 0.5 to equity against usual debt- equity ratio of 2:1

6. Raising resources from an IPO is a limited option. This is open to groups with significant
profits and operating from multiple locations. Smaller groups like Agarwal eye institute and
Kovai Medical canter who chose IPO route command far less PE multiple compared to
larger players like Apollo and Fortis.