EMD - Industry Reports - Healthcare Industry July 2014

India Industry Research
Healthcare Industry
July 2014

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Healthcare

1 USD= 60.38 INR (July 17, 2014)

1.Industry Profile 1
1.1 Sector overview 1
1.2 Sector size 3
1.3 Competitive landscape 4
1.4 Environmental scanning 5
2. Market Trends and Outlook 8
2.1 Key economic indicators-India 8
2.2 Health status indicators 11
2.3 Healthcare infrastructure 15
2.4 Human resources 18
2.5 Foreign investments 19
2.6 Medical tourism & health insurance 20
2.7 Market outlook 20
3. Leading Players and Comparative Matrix 21
3.1 Leading players 21
3.1.1 Apollo Hospitals Enterprise Limited (AHEL) 21
3.1.2 Fortis Healthcare Limited (Fortis) 23
3.1.3 Max India Limited (Max) 25
3.2 Comparative matrix 27
3.3 SWOT analysis 28


Healthcare

4. Tables and Charts

Table 1: World health financing statistics
Table 2: Targets to be achieved in respect of healthcare during 12th Plan
Table 3: Change in health infrastructure of the country
Table 4: Average population served per medical professional
Table 5: Top healthcare private equity deals of 2012-13
Table 6: Key financial ratios of leading players

Chart 1: Annual expenditure of Ministry of Health and Family Welfare
Chart 2: Size of Indian healthcare industry
Chart 3: Breakup of annual plan outlay of Ministry of Health & Family Welfare
Chart 4: Cumulative FDI in the healthcare sector
Chart 5: Results of Indian general elections 2014-Seat share
Chart 6: Current account deficit and fiscal deficit
Chart 7: Quarterly GDP growth rate
Chart 8: Average monthly USD to INR exchange Rate
Chart 9: Inflation during FY14-India
Chart 10: Repo rate
Chart 11: GDP by sectors
Chart 12: Percentage change over previous year- GDP by Sector
Chart 13: Child mortality rate
Chart 14: Maternal mortality rate
Chart 15: Infant mortality rate
Chart 16: New HIV infections in India
Chart 17: India-birth rate
Chart 18: Number of institutional births
Chart 19: Cases of communicable diseases
Chart 20: Cases of non-communicable diseases
Chart 21: Shortage of medical professionals compared to health infrastructure
Chart 22: Average population served per government hospital


Healthcare
Chart 23: Average population served per government hospital bed
Chart 24: Health infrastructure under AYUSH department
Chart 25: Breakup of AYUSH hospitals by type of medicine system
Chart 26: Number of health workers in rural areas of India
Chart 27: Private equity investments in healthcare sector
Chart 28: Size of Indian health insurance industry-Forecast
Chart 29: Segment wise revenues of AHEL
Chart 30: Total revenues of AHEL
Chart 31: Profit margins of AHEL
Chart 32: Segment wise revenues of Fortis
Chart 33: Total revenues of Fortis
Chart 34: Profit margins of Fortis
Chart 35: Segment wise revenues of Max
Chart 36: Total revenues of Max
Chart 37: Profit margins of Max


Healthcare India 1

1. Industry Profile

1.1 Sector overview
Over the last few years, the Indian healthcare industry has taken great strides in developing its
various component parts, from its infrastructure and delivery, to how it handles government
spending, medical tourism, health insurance, human resources or telemedicine. Various
government initiatives have acted as a catalyst and also boosted the private sector participation
in this sector. Ministry of Health and Family Welfare (MOHFW) is the apex health body in the
country. The annual expenditure of Ministry of Health and Family Welfare grew at a CAGR of
11% during 2009-14. It surpassed INR 300bn (~USD 5bn) in FY14. The ministry is subdivided
into four departments namely Department of Health and Family Welfare, Department of Health
Research, Department of AYUSH and Department of AIDS Control.

Chart 1: Annual expenditure of Ministry of Health and Family Welfare (in INR bn)

Source: CEIC; *Planned expenditure
The Indian healthcare system is diverse and consists of modern medicine as well as alternative
systems like Ayurveda, Homeopathy and Unani. The sector consists of a large number of
private and unorganized players which flourish due to the lack of a regulatory framework in the
country. India is the second most populous country of the world which is one of the reasons for
its large healthcare burden. High rates of malnutrition are persistent across the country with
around 70% of adolescent girls suffering from anaemia. According to the World Health
Organization (WHO), communicable diseases accounted for about 38% of its disease burden.
Non-communicable diseases (NCD) are also emerging as a new threat. It is expected that
NCDs will account for 59% of the total deaths by 2015. The situation is worsening as NCDs are
occurring around 10 years earlier in the country than western countries. This situation poses a
challenge as well as the opportunity for service providers. With rising purchasing power, literacy
and awareness, the per capita spending on healthcare is expected to rise consistently in the
coming years.
176.6
210.0
244.4
271.9
278.8
301.3
351.6
19%
16%
11%
3%
8%
17%
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
38.0
88.0
138.0
188.0
238.0
288.0
338.0
388.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15*
Total expenditure (INR bn) Y/Y change

Healthcare India 2

India lagged behind the major countries of the world in terms of total expenditure on health as a
percentage of GDP. The country was also far behind in terms of government expenditure on
health. Around 70% of the health expenditure was borne privately, a much larger contribution
than in developed and emerging countries.

Table 1: World health financing statistics (2012)
Country
Total expenditure on health
as percentage of GDP
Ratio of government
expenditure
Ratio of private
expenditure
U.S.A. 17.9% 46.4% 53.6%
Netherlands 12.4% 79.8% 20.2%
France 15.9% 77.0% 23.0%
Canada 10.9% 70.1% 29.9%
Denmark 16.1% 85.5% 14.5%
Germany 11.3% 76.3% 23.7%
Belgium 15.0% 75.9% 24.1%
Italy 9.2% 78.2% 21.8%
Spain 9.6% 73.6% 26.4%
Japan 10.1% 82.5% 17.5%
U.K. 9.4% 82.5% 17.5%
Norway 9.0% 85.1% 14.9%
Australia 9.1% 66.9% 33.5%
Brazil 9.3% 46.4% 53.6%
Finland 9.2% 75.4% 24.6%
Vietnam 6.6% 42.6% 57.4%
China 5.4% 56.0% 44.0%
Singapore 4.7% 37.6% 62.4%
Thailand 3.9% 76.4% 23.6%
Philippines 4.6% 37.7% 62.7%
India 4.1% 33.1% 66.9%
Malaysia 4.0% 55.0% 45.0%
Indonesia 3.0% 39.6% 60.4%
Source: WHO Data

Healthcare India 3

1.2 Sector size
According to World Health Organization, the size of Indias healthcare industry was around USD
76bn as of year 2012. Government accounted for around 33% of the total spending while the
private sector accounted for the remainder. The government of India has targeted to increase its
healthcare expenditure to 2.5% of the GDP by the end of 12
th
five year plan (2012-17).

Chart 2: Size of Indian healthcare industry in terms of expenditure (in USD bn)

Source: WHO; World Bank; EMD; *estimated
The major emphasis of Indian government over the last few years has been on rural health. The
fact that almost 70% of the government planned outlay was on its flagship programme NRHM in
FY13 further substantiates this statement. Buoyed by the success of NRHM in raising the rural
health standards, the government grouped the National Urban Health Mission with NRHM under
one umbrella programme named as the New National Health Mission in FY14 budget. The
central government also increased the budgeted allocation on Ministry of Health and Family
Welfare from INR 275bn in FY14 to INR 352bn in FY15, an increase of 27%.

Chart 3: Breakup of annual plan outlay of Ministry of Health (FY14)

Source: Ministry of Health and Family Welfare (MOHFW)
38
48 48
53
63
73
76
77
27%
-1%
12%
19%
16%
4%
1%
-0.1
0
0.1
0.2
0.3
0.4
0.5
0
10
20
30
40
50
60
70
80
90
2006 2007 2008 2009 2010 2011 2012 2013*
Total size (USD bn) Y/Y change
90%
3%
2%
5%
Department of Health and
Family Welfare
Department of Health Research
Department of AYUSH
Department of AIDS Control

Healthcare India 4

1.3 Competitive landscape
1.3.1 Threat of new entrants
Current regulations and policies encourage foreign companies to own and start operations in
the healthcare sector of India. At present, 100% direct foreign investment is allowed in the
hospital sector under the automatic route. During April 2000 and March 2014, the cumulative
FDI inflow in hospital and diagnostic centres was USD 2.3bn and in medical and surgical
appliances segment was USD 778mn. High growth rates, increasing per capita income and high
profitability are attracting new players to this sector. Thus, there is an opportunity for new
entrants in this sector.

Chart 4: Cumulative FDI in the healthcare sector (in USD mn)

Source: Department of Industrial policy and Promotion
1.3.2 Threat of substitutes
Healthcare is one of the industries which dont have any substitutes. People need healthcare
services irrespective of their social or economic status. However, there can be alternatives
within the sector. Government expenditure may act as a substitute for private spends on health.
In India, as of year 2012, 33% of the total healthcare expense was borne by the government,
which is set to increase in years to come. However, the market size is large enough to
incorporate both organized and unorganized private players in the sector. Hence the threat of
substitutes is minimal in this sector.

1.3.3 Bargaining power of buyers
The growing number of private and government-run hospitals has made primary healthcare
accessible and affordable to customers. Still, there is a lack of quality secondary and tertiary
healthcare delivery systems in the country. In comparison to the size of the population, the
presence of quality medical equipment, infrastructure and human resources is limited. Thus, the
buyers bargaining power is limited as far as secondary and tertiary healthcare services are
concerned. People often have to pay exorbitant prices if they are going to privately owned
centres. Lack of health insurance coverage further adds to their financial burden.

1.3.4 Bargaining power of suppliers
The medical equipment suppliers to the healthcare industry consist of the likes of GE
Healthcare, Phillips, Opto Electronics and others. Due to rising healthcare expenditure over the
782
1,022
1,340
1,597
2,282
348
390
521
604
778
0
500
1,000
1,500
2,000
2,500
FY10 FY11 FY12 FY13 FY14
Hospital & diagonostic centres Medical and surgical appliances

Healthcare India 5

past few years, there has been a high growth in demand for healthcare equipment. However,
medical equipment itself is a very competitive industry consisting of both local and foreign
players. This existing competition prevents the suppliers from bargaining too much with the
customers. The switching cost to suppliers in this sector is low, resulting in their low bargaining
power.

1.3.5 Intensity of competitive rivalry
India has large number of healthcare providers spread across the country. Still, presence of
large number of patients in the country gives enough room for the healthcare providers to
operate at profit. The number of doctors per 1000 inhabitants in the country is one of the lowest
in the world. Thus, demand for healthcare outstrips the supply by a large margin. Most of the
good quality healthcare centres in the country run at full capacity in all seasons, and customers
have to sometimes pay high prices to get effective healthcare services. Hence, the intensity of
competitive rivalry is low in this sector.

1.4 Environmental scanning
1.4.1 Political environment
The incumbent coalition during 2009-14 in India was United Progressive Alliance (UPA) which
was an alliance of multiple parties. Several parties in the ruling coalition have different stances
on economic policy which caused the delay in passage of important bills related to economic
reforms and liberalization during this period. The country witnessed its 16
th
general elections
during the months of April and May and the results were out on May 16
th
. While UPA suffered a
huge loss, the chief opposition alliance National Democratic Alliance (NDA) witnessed a
decisive win bagging 62% of the total seats much above the 50% required for forming a
government. Bhartiya Janta Party (BJP), which is a part of NDA, emerged as the single largest
party winning 52% seats on its own, a feat achieved after 30 years. Various industry bodies
expect that this clear mandate will enable the NDA to take decisive and bold decisions that will
put the Indian economy back on the growth path after a subdued period of nearly three years.

Chart 5: Results of Indian general elections 2014-Seat share (May 2014)

Source: The Economic Times
52%
10%
8%
3%
7%
6%
4%
2%
8%
BJP (NDA) NDA-others INC (UPA) UPA-Others AIADMK AITC BJD TRS Others

Healthcare India 6

1.4.2 Economic environment
The country has suffered through persistent high inflation during the past two years. This kept
the interest rates high throughout the period, resulting in a slower credit off take and industrial
slowdown. Current account deficit (CAD) also reached record high levels in FY13 causing a
steep depreciation in Indian rupee. Rupees depreciation and rising global crude oil prices
bloated the current account deficit to all-time-high levels. Indian government did not have much
flexibility as far as import of crude oil is concerned. It did impose additional duties on the import
of gold, which like crude, accounts for a major portion of the countrys burgeoning trade deficit.
Several import curbs undertaken by the government together with growth in exports brought
down the CAD to a great extent in FY14. Large fiscal deficit doesnt leave much room for the
growth in government spending on health.

Chart 6: Current account deficit and fiscal deficit (as a % of GDP)

Source: CEIC Data; Economic Survey 2013-14; RBI;
*Estimated

1.4.3 Social environment
India has the second largest population in the world, a large part of which is still deprived of
quality healthcare services. The country had an infant mortality rate (IMR) of 42 per 1000 births
and maternal mortality rate of 178 per 100,000 live births. This was much higher than the
Millennium Development Goals. This demographic situation demands further growth of
healthcare services in India. Both government and private sector initiatives are needed to bring
down these rates in order to meet Millennium Development Goals.

1.4.4 Technological environment
Modern medical equipment and machines have not only facilitated the work of medical
practitioners, they have also become a compulsion in several diagnostic techniques and
surgeries. India is promoting local manufacturing of medical equipment to curb import costs as
well as generate employment opportunities. According to a report by FICCI, the size of Indias
medical electronics industry was estimated at USD 1bn at the end of 2010 and is expected to
reach 2.5bn at the end of 2015 growing at a CAGR of 17%.

1.4.4 Ecological environment
India, with its tropical climate, is a breeding ground for a plethora of tropical diseases.
Thousands of people die every year due to Malaria, Dengue, Tuberculosis and other fatal
1.5
2.4
2.2
2.7
4.2
4.8
2.5
3.2
6.0
6.4
4.9
5.8
4.9
4.6
0
1
2
3
4
5
6
7
FY08 FY09 FY10 FY11 FY12 FY13 FY14*
Current Account Deficit Fiscal Deficit

Healthcare India 7

diseases. This further necessitates the countrys need to develop its healthcare sector. There is
a permanent need for large scale vaccinations and health awareness programmes in the
country, which suffers from widespread illiteracy and poverty. Frequent natural calamities like
floods, storms, landslides and famines, demands a well-developed health infrastructure in the
country capable of dealing with emergency situations. The government is providing various
incentives like tax breaks and soft loans to promote health infrastructure in the remote parts of
country,

1.4.5 Legal and regulatory environment
The healthcare industry in India is regulated by the Ministry of Health and Family Welfare. Like
all such ministries, it is responsible for monitoring, development, regulation and implementation
of healthcare programmes and policies in the country. The ministry is subdivided into four
departments namely Department of Health and Family Welfare, Department of Health
Research, Department of AYUSH and Department of AIDS Control. It plays a crucial role in
providing guidance to its four associated departments in implementing policy guidelines. The
incumbent Minister of Health and Family Welfare is Dr. Harsh Vardhan. The vision for the Indian
civil healthcare industry for the 12
th
Plan (2012-17) period is to achieve acceptable standards of
healthcare for the people of the country. However, India still doesnt have a central regulatory
authority for its healthcare sector. In year 2011, a high level expert group constituted by the
Planning Commission of India suggested setting up a National Health Regulatory and
Development Authority to monitor both government and private sector healthcare providers. The
group has also proposed to establish National Health and Medical Facilities Accreditation
Authority (NHMFA) for defining the standards of healthcare facilities in the country.

Table 2: Targets to be achieved in respect of healthcare during 12th Plan (2012-17)
Infant Mortality Rate Reduce to less than 27 per 1000 live births by 2017
Maternal Mortality Ratio Reduce to less than 100 per 100,000 live births by 2017
Leprosy Cases
Less than 1 case per 10,000 population in all the districts of
the country
Government spending on healthcare To increase to 2.5% of the GDP by 2017
Setting up new medical colleges To create 20,000 medical seats
Source: Ministry of Health and Family Welfare

.

Healthcare India 8

2. Market Trends and Outlook

2.1 Key economic indicators-India
India is Asias third largest economy with a population of around 1.2bn. During the last decade,
the country went through a period of rapid economic growth. It had an average GDP growth rate
of more than 7% in the first decade of this millennium. However, in fiscal year 2012 and 2013,
the country saw a successive decline in GDP growth rate over all quarters due to high inflation
rates combined with high interest rates. The economy showed some hope in the fourth quarter
of FY13, registering a GDP growth of 4.8% but dipped again in 1QFY14 to a low of 4.7%.

Chart 7: Quarterly GDP growth rate-India (y/y change in %)

Source: MOSPI
In June 2013, Fitch revised Indias credit outlook from negative to stable with a BBB- long term
rating. Current account deficit grew to around 5% of GDP in March 2013 which fuelled the
depreciation of the Indian currency causing the INR to reach an all-time low of 68.85 against
USD on August 29. Rupee depreciation increased the price of coal imports.

Chart 8: Average monthly USD to INR exchange rate

Source: x-rates.com
7.5
6.5
6.0
5.1
4.5
4.6
4.4 4.4
4.7
5.2
4.6 4.6
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
54.36
54.96
58.13
59.75
62.70
63.80
61.51
62.59
61.84
62.07 62.14
60.96
60.34
59.24
52.00
54.00
56.00
58.00
60.00
62.00
64.00
66.00

Healthcare India 9

Indian economy has been suffering from high inflation rate since the beginning of FY10. The
most worrying factor has been the consistent rise in food prices which has eaten into the
disposable income of Indian middle class. This has hurt the household savings rate as well as
sectors like real-estate and construction, which are highly dependent on the rising middle class
of India. Both the inflation indicators namely Wholesale Price Index (WPI) and Consumer Price
Index (CPI) were above the comfort zones of RBI in most part of FY14, declining slightly in the
last quarter.

Chart 9: Inflation during FY14-India (in %)

Source: RBI

In order to curb inflation, RBI increased the policy rate (repo rate) 13 times between March 2010
and October 2011. RBI raised hopes of the industry by cutting repo rate by 50 basis points
between January 2013 and May 2013, but had to gradually raise it again due to sticky inflation.
The higher interest rate led to a lower credit off take which transpired into an industrial
slowdown affecting almost all sectors of the Indian economy.

Chart 10: Repo rate (Benchmark interest rate in %)

Source: RBI
9.4%
9.3%
9.9% 9.6%
9.5%
9.8%
10.2%
11.2%
9.9%
8.8%
8.0%
8.3%
4.8%
4.6%
5.2%
5.9%
7.0% 7.0%
7.2%
7.5%
6.4%
5.1%
5.0%
5.7%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
6.25
6.50
6.75
7.25
7.50
8.00
8.25
8.50
8.00
7.75
7.50
7.25
7.50
7.75
8.00
6.00
6.50
7.00
7.50
8.00
8.50
9.00

Healthcare India 10

Even the services sector was not spared. Healthcare industry is a part of community, social and
personal services. The sectors contribution was 13% to overall GDP in FY14. Hence, it was an
important contributor to the countrys GDP.

Chart 11: GDP by sectors at factor prices (FY14)

Source: MOSPI
The community, social and personal services group registered a growth of 5.8% in FY14 against
5.5% recorded in FY13. It was however, greater than the overall GDP growth of 4.7% for FY14.

Chart 12: Percentage change over previous year- GDP by Sector (Base 2004-05)

Source: MOSPI
14%
2%
15%
2%
7%
26%
21%
13%
Agriculture, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Trade, hotels, transport and communication
Financing, insurance, real estate and
business services
Community, social and personal services
7.6
7.4
4.0
2.8
10.6
3.6
5.7
3.3
4.5
4.6
4.4 4.4
4.7
5.2
4.6 4.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14
Community, Social and Personal Services Overall GDP at factor Cost

Healthcare India 11

2.2 Health status indicators
In the past ten years, the health profile of the country has improved but it still lags far behind in
many health status indicators. Child mortality rate per 1000 live births has come down
significantly but it was still higher than the global average and even the regional average. The
neighbouring countries of India like Nepal and Sri Lanka had better child mortality rates. Ministry
of Health has targeted to bring it down to less than 27 per 1000 live births by year 2017. One of
the millennium development goals is to reduce the child mortality rate to 42 by 2015. The
country is striving hard to achieve this goal but is likely to miss the target date of 2015.

Chart 13: Child mortality rate (under 5 Years) per 1000 live births

Source: World Bank

The maternal mortality rate per 100,000 live births has also come down in the last decade.
Between 2001 and 2013, the figure came down by almost 40%. Healthcares expanding reach
was one of the main reasons for such an improvement. The Ministry of Health and Family
Welfare intends to bring down this rate to less than 100 by the end of year 2017. The millennium
development goal in this regard is to achieve a ratio of less than 109 by 2015.

Chart 14: Maternal mortality rate per 100,000 live births

Source: Sample Registration System, Office of Registrar General; World Bank

71
69
67
65
61
59
56
42
47
52
57
62
67
72
77
2006 2007 2008 2009 2010 2011 2012
301
254
212
200
190
109
159
209
259
309
359
2001-03 2004-06 2007-09 2010-11 2012-13

Healthcare India 12

Infant mortality rate per 1000 live births of the country also came down in last few years but it is
still not enough to meet the target of millennium development goal by 2015. The infant mortality
rate was recorded at 42 in the year 2012 and is still 16 units greater than the target to be
achieved by 2015. At the current rate of decline, it is highly unlikely that the target would be
achieved. The country is focusing on child and maternal health to improve these indicators.

Chart 15: Infant mortality rate (Under 1 Year) per 1000 live births

Source: Ministry of Health & Family Welfare

India has performed well in another health related millennium development goal that is linked to
HIV/AIDS infection. According to UNICEF, India had a low HIV prevalence of 0.34%, but in
terms of absolute numbers, it had the third largest number of people living with HIV in the world.
India had an estimated 2.1mn people living with HIV/AIDS as of 2011. However, the country
reported a 50% decline in new infections during the last decade. India had 130,000 new
infections in 2011 compared to 261,000 in 2000. The government, together with several NGOs,
has played a major role in bringing down the number of new infections in the country.

Chart 16: New HIV infections in India-All ages (in 000)

57
55
53
50
47
44
42
28
33
38
43
48
53
58
63
2006 2007 2008 2009 2010 2011 2012
261
230
200
179
164
152
143
134
132
130 130
28
78
128
178
228
278
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Healthcare India 13

India is registering more than 25mn births every year. There is a growing need to look after the
health of both mother and the new-born. Private nursing homes are springing up across the
country to cater to the healthcare needs for pregnancy and related medical situations.

Chart 17: India-birth rate (per 1000 inhabitants)


Despite the recorded number of births every year, more than a quarter of deliveries in the
country are not assisted by any trained healthcare personnel. This is the reason for the high
maternal and infant mortality rate in the country. The Ministry of Health targets increasing the
institutional births to 80% in order to ensure greater safety for the mother as well as infant. To
achieve this, it also launched a program named Janani Suraksha Yojna in year 2005. The
intervention has shown results as institutional births grew from 47% in fiscal year 2007 to 73%
in fiscal year 2009.

Chart 18: Number of institutional births (In mn)

23.5
23.1
22.8
22.5
22.1
21.8
21.0
20
20.5
21
21.5
22
22.5
23
23.5
24
2006 2007 2008 2009 2010 2011 2012
11.9
14.3
14.8
16.2
16.8
10
11
12
13
14
15
16
17
18

Healthcare India 14

Communicable diseases have been a major cause of deaths in India. India is home to a large
number of communicable diseases like malaria, tuberculosis, diarrhoea, pneumonia and others.
Most of these diseases are curable and deaths occur due to lack of proper healthcare. In 2012
pulmonary tuberculosis was the single largest killer among all the communicable diseases. The
Government and private sector have been running awareness programmes to promote
vaccination for some of these diseases, and comprehensive treatment in case of others like
tuberculosis.

Chart 19: Cases of communicable diseases in 2012 (In mn)

Source: Central Bureau of Health Intelligence

Non-Communicable diseases have grown significantly over the last decade due to changing
lifestyle and rising per capita income of the country. India has one of the largest cases of non-
communicable diseases like heart disease, hypertension, diabetes, cancer and other such
diseases. Most of these diseases are long term diseases and increase the healthcare burden of
the individual as well as the country. As of 2010, diabetes emerged as the second largest
among all the non-communicable diseases with an estimated number of cases crossing the
37mn mark and is expected to grow to 45.8mn in 2015. India is increasingly being termed the
diabetes capital of the world.

Chart 20: Cases of non-communicable diseases in 2010 (In Mn)

Source: Central Bureau of Health Intelligence
31.68
11.7
1.47
0.95 0.78
1.48
0
5
10
15
20
25
30
35
Acute
Respiratory
Infection
Diarrhoea Tuberculosis Malaria Pneumonia Enteric Fever
37.7
46.9
0.9
0
5
10
15
20
25
30
35
40
45
50
Diabetes Coronary Heart Diseases Cancer (All Types)

Healthcare India 15

2.3 Healthcare infrastructure
The countrys health infrastructure ranges from sub-centres in rural areas, which are the
smallest government healthcare entities, to large scale tertiary integrated health centres like
AIIMS (All India Institute for Medical Sciences). Besides, there is substantial participation of the
private sector in developing and maintaining health infrastructure in the country. Since the
launch of National Rural Health Mission (NRHM) in 2005, there has been considerable
improvement and expansion of health infrastructure in the country .The number of health sub-
centres increased from 146,026 in 2005 to 148,366 in March 2012.Over the same period the
number of primary health centres (PHCs) grew to 24,049.

Table 3: Change in health infrastructure of the country (2005-12)
Description Mar-05 Mar-12 Change
Number of Sub-Centres 146,026 148,366 2%
Number of Primary Health Centres (PHC) 23,326 24,049 3%
Number of Community Health Centres (CHC) 3,346 4,833 44%
Number of Auxiliary Nurse Midwife (ANM) 133,194 207,578 56%
Source: CBHI

Despite on-going improvements in its infrastructure, the healthcare system is still struggling with
the shortage of medical professionals. There is a shortage of trained and qualified resources in
all segments of the healthcare system, be they primary, secondary or tertiary. As of March
2012, there was a shortage of 70% in the number of specialists as compared to the requirement
for the existing health infrastructure of the country.

Chart 21: Shortage of medical professionals compared to health infrastructure (March 2012)

Source: CBHI
70%
75%
65%
80% 80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Overall-Specialists Surgeons Obstetricians &
Gynacologists
Physicians Paediatricians

Healthcare India 16

The average population served per government hospital has come down at a CAGR of 11%
during the period 2006-10 due to rapid growth in number of new hospitals across the country.
There was a huge increase in number of hospitals in the country during 2011-12 backed by a
four-fold increase in rural hospitals. The average population being served by a government
hospital reduced drastically to 50,689 in March 2012, a y/y decline of 49%.

Chart 22: Average population served per government hospital

Source: CBHI
Though the number of government hospitals increased, the number of hospital beds actually
declined in urban areas. As of March 2012, for every single government hospital bed there were
1,947 potential patients waiting, which is an extremely high figure. Again, the private sector has
to come to the rescue for the hospitalization needs of the citizens of the country.

Chart 23: Average population served per government hospital bed

Source: CBHI
145,137
113,124
101,403
97,958
90,972
98,970
50,689
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
2,257
2,339
2,315
2,105
2,012
1,512
1,947
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 41710

Healthcare India 17

Along with a modern medicine infrastructure, India has a developed traditional medicine system
which is backed by the central and state governments. These systems include Ayurveda, Unani,
Siddha, Yoga, naturopathy, Homeopathy, Amchi and others systems. Ministry of Health has a
separate department that caters to these systems named Department of AYUSH (Ayurveda,
Yoga and Naturopathy, Unani, Siddha and Homeopathy). The department was formed in
November 2003. As of March 2012, the infrastructure under AYUSH department consisted of
3,155 hospitals and 23,855 dispensaries. The department was the biggest beneficiary of NRHM
and saw a four times growth in number of dispensaries and 15 times growth in number of
hospitals during the period 2006-12.

Chart 24: Health infrastructure under AYUSH department

Source: CBHI

Among the traditional medicine systems, Ayurveda was the dominant one with around 76%
share of the total number of AYUSH hospitals as of March 2012. It was followed by Unani,
Siddha and Homeopathy.

Chart 25: Breakup of AYUSH hospitals by type of medicine system (March 2012)

Source: CBHI
228
230
3,367 3,378 3,408 3,193 3,155
5,803
5,836
22,566 22,312
24,465 24,280
23,855
0
5,000
10,000
15,000
20,000
25,000
30,000
Hospitals Dispensaries
76%
1%
8%
8%
7%
Ayurveda Yoga & Naturopathy Unani Siddha Homeopathy

Healthcare India 18

2.4 Human resources
Trained, qualified and skilled staffs are the core of a healthcare sector. In India, such human
resources are in short supply. Though India has the second largest population in the world, the
country produces far less qualified medical professionals every year than required for its growth.
The shortage spans at all levels including specialists, general physicians, nurses or paramedical
staff. Average numbers served per doctor has come down considerably but was still at poor
levels when compared with global standards. As of March 2012, there was one registered nurse
for around 571 citizens

Table 4: Average population served per medical professional
Description Mar-11 Mar-12 Y/Y Change
Allopathic Doctors 35,665 51,960 46%
AYUSH Doctor 1,543 1,928 25%
Dental Surgeon 11,250 10,027 -11%
Nurse 691 571 -17%
Pharmacist 1,794 1,922 7%
Source: CBHI

There was also a shortage of nurses and paramedical staff in spite of significant growth in last
few years. Total number of health workers in rural areas grew at a CAGR of more than 3% in
the period 2006-12. The number of female health workers grew at a CAGR of 6% while the
male workforce declined at a CAGR of 4% during the same period.

Chart 26: Number of health workers in rural areas of India

Source: CBHI; EMD

65,511
62,881
60,247
57,439
55,716
54,044
51,705
149,695
147,439
153,568
190,919
196,647
202,546
207,578
0
50,000
100,000
150,000
200,000
250,000
Health Workers-Male Health Workers-Female

Healthcare India 19

2.5 Foreign investments
Healthcare has become the preferred choice of foreign investors in the last few years. Capital
flows from private equity players, venture capitalists, institutional investors and multinational
companies have increased in last few years. According to the Department of Industrial Policy
and Promotion, cumulative FDI inflow in hospital and diagnostic centres was USD 2.3bn during
April 2000 and March 2014. In 2013, the sector registered private equity deals with a value of
USD 1,264mn.

Chart 27: Private equity investments in healthcare sector (In USD mn)


The existing gap in supply and demand is attracting investors to this sector. The sector was
ranked fourth in terms of private equity deals in 2013.

Table 5: Top healthcare private equity deals of 2012-13
Target Company Investor Size of the Deal Timeline
Medicity Carlyle USD 161mn Dec-13
Practo Sequoia Capital USD 5mn Jul-12
Super Religare Lab IFC, NYLIM India USD 66mn Jun-12
Vasan Eye Care GIC USD 100mn Mar-12
Care Hospitals Advent International USD 110mn Mar-12
DM Healthcare Olympus Capital USD 100mn Jan-12
Manipal Health Enterprises India Value Fund USD 180mn Aug-12
300
498
421
1,300
1,264
0
200
400
600
800
1000
1200
1400
2009 2010 2011 2012 2013

Healthcare India 20

2.6 Medical tourism & health insurance
Though medical tourism is generally a part of healthcare industry worldwide, it is governed by
the Ministry of Tourism in India. The segment was expected to touch USD 1bn by 2010
according to a study jointly conducted by Yes Bank and Associated Chamber of Commerce and
Industry. According to the Ministry of Tourism, the percentage of foreign tourist arrivals in India
for medical tourism increased from 2.2% in 2009 to 2.7% in 2010. Health insurance is another
growing segment of the healthcare industry and is regulated by the Insurance Regulatory and
Development Authority (IRDA), an autonomous body. The size of the health insurance market
was around INR 131bn according to industry estimates as of 2012 and is expected to cross INR
266bn by 2016.

Chart 28: Size of Indian health insurance industry-Forecast (In INR Bn)

Source: Max India

2.7 Market outlook

As evident from the previous sections, huge demand supply gap exists in the healthcare sector
of India. The country lags behind in terms of average number of hospitals, hospital beds,
doctors, nurses and other paramedical staff. The huge population accompanied with large
prevalence of communicable and non-communicable diseases demands large scale
development and growth in this sector. Private sector is playing a big role in this regard
accounting for more than 65% of countrys health expenditure.

The outlook for Indian healthcare is positive owing to high growth rate in almost all of its
segments, whether its primary healthcare, secondary and tertiary healthcare, medical
equipment, diagnostics, health insurance or medical tourism. The ever growing population,
increasing government expenditure on health and growing per capita income will increase the
size of this industry in the years to come.

22.0
32.0
51.0
66.0
83.0
111.0
131.0
160.0
192.0
231.0
266.0
15.0
65.0
115.0
165.0
215.0
265.0
315.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Healthcare India 21

3. Leading Players & Comparative Matrix

3.1 Leading players
3.1.1 Apollo Hospitals Enterprise Limited (AHEL)

Chairman P.C.Reddy
Bloomberg code APHS:IN
Reuters code APLH.NS
Current Market Price INR 1100.50
Market cap INR 153,107mn

TTM: Trailing 12 months
MRQ: Most recent quarter
All figures as of 18 July 2014
FY: April 1 to March 31

Key Statistics
Price/Earnings (TTM) 48.33
Price/Book (MRQ) 5.14
Relative P/E vs Sensex 2.66
EPS (INR) (TTM) 22.77

Source: Bloomberg

Apollo Hospitals Enterprise Limited is one of Indias largest healthcare groups. The company
has around 10,000 beds spread across 51 hospitals in different domestic and international
locations. Apart from India, the group also operates in Bangladesh and Mauritius. The company
was founded in 1983 and is based in Chennai. It had around 4,900 doctors on its payroll as of
June 2012.The company lists its shares on the Bombay Stock Exchange (BSE: 508869), and
the National Stock Exchange (NSE: APOLLOHOSP). PCR Investments Limited is the largest
shareholder with 19.57% holding and the remainder is owned by other promoters, institutional
and non-institutional investors. The business of Apollo group comprises clinics, hospitals,
healthcare projects, healthcare BPO and health education. The company also provides health
insurance through its joint venture firm Family Health Plan Limited with Munich Health Holding
AG. Healthcare services accounted for 64% of the revenues of the company as of FY14 and
remainder came from pharmacy and other businesses.

Chart 29: Segment wise revenues of AHEL (FY14)

Source: Company disclosure
64%
35%
1%
Healthcare services
Pharmacy
Others

Healthcare India 22

In the last four years, the gross revenues of Apollo Hospitals grew at a CAGR of 21% due to
growth in demand for healthcare services. The group performed well in terms of operating as
well as financial performance during the last four years. In FY14, the total revenue grew by 16%
y/y.

Chart 30: Total revenues of AHEL (INR mn)

The profit margins of Apollo hospitals declined in FY14 due to a comparatively higher growth in
operating expenses which rose by 17.5% y/y. The employee benefits expenses which account
for grew by 16.4% y/y. As a result, EBIDTA margin declined by 80bps while the net profit margin
declined by 70bps on a y/y basis.

Chart 31: Profit margins of AHEL

18,258
23,320
28,000
33,178
38,616
28%
20%
18%
16%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
15,000
20,000
25,000
30,000
35,000
40,000
15.4%
16.2%
16.6%
16.7%
15.9%
8.3%
7.8%
8.3%
9.3%
8.6%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
EBIDTA margin PAT margin

Healthcare India 23

3.1.2 Fortis Healthcare Limited (Fortis)

Chairman M.M.Singh
Bloomberg code FORH:IN
Reuters code FORH.NS


Key Statistics

Source: Bloomberg

Fortis Healthcare Limited is one of Asias leading healthcare groups. The company has over
10,000 beds spread across 65 healthcare facilities and 240 diagnostic centres in different
domestic and international locations. Apart from India, the group also operates in Dubai,
Singapore, Sri Lanka and Mauritius. The company was founded in 2001 and is based in Delhi.
It established the first hospital at Mohali, Punjab. The company lists its shares on the Bombay
Stock Exchange (BSE: 532843), and the National Stock Exchange (NSE: FORTIS). Fortis
Healthcare Holdings Pvt. Ltd. is the largest shareholder with 71.22% holding and the remainder
is owned by other promoters, institutional and non-institutional investors. The business of Fortis
group comprises of clinics, hospitals, primary healthcare, day-care, specialty and diagnostics. It
had more than 17,000 employees including 4,000 doctors on its payroll as of June 2013. Indian
operations accounted for 72% of the revenues of the company in FY14 up from 53% in FY13 as
the company sold off its Australian, Vietnamese and Hong Kong units to reduce debt. In May
2013, the company completed the sale of its Australian subsidiary, Dental Corporation, for
around USD 263mn. In June 2013, it sold a majority stake in Vietnam's Fortis Haon My
Corporation for USD 80mn to Chandler Corporation. In October 2013, the Hong Kong unit sale
helped the company raising a total of USD 355mn from insurance provider Bupa.

Chart 32: Geographic segment wise revenues of Fortis (FY14)

72%
28%
India Outside India

Healthcare India 24

During 2010-13, the gross revenues of Fortis grew at a CAGR of 85% backed by expansion in
both Indian and overseas business. However, in FY14, the company recorded a revenue
decline of 21%. The sale of overseas entities in Australia, Vietnam and Hong Kong led to this
decline.

Chart 33: Total revenues of Fortis (INR mn)

The profit margins of Fortis have been volatile over the last few years due to the higher
financing costs arising out of debt. In FY14, the EBIDTA margin declined by more than 800bps
while net profit margin declined by more than 600bps. High interest expenses ate into the sale
proceeds of overseas units, thus bringing down the net profit margin as well.

Chart 34: Profit margins of Fortis

9,379
14,828
29,840
60,516
47,593
58%
101%
103%
-21%
-30%
-10%
10%
30%
50%
70%
90%
110%
130%
150%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
15.0%
3.2%
13.5%
11.2%
3.9%
7.5%
9.2%
2.2%
9.3%
2.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
EBIDTA margin PAT margin

Healthcare India 25

3.1.3 Max India Limited (Max)

MD Rahul Khosla
Bloomberg code MAX:IN
Reuters code MAXI.NS


Key Statistics

Source: Bloomberg

Max India Limited is an Indian conglomerate which has interests in multiple businesses that
includes healthcare, health insurance, research and packaging. The companys healthcare
division has more than 2,000 beds and a team of 1,250 doctors, 1,900 nurses and 1,700 other
trained medical professionals. The company was founded in 2001 and is based in Delhi. The
company lists its shares on the Bombay Stock Exchange (BSE: 500271), and the National
Stock Exchange (NSE: MAX). Trading Company Pvt. Ltd. is the single largest shareholder with
8.94% stake and the remainder is owned by other promoters, institutional and non-institutional
investors. The group recorded consolidated revenues of INR 117bn in FY14. Max Life insurance
was the biggest revenue earner accounting for 62% of the total revenues. Healthcare operations
accounted for 17% of the revenues of the company while 3% came from health insurance
business.

Chart 35: Segment wise revenues of Max (FY14)

12%
3%
6%
17%
62%
Max Healthcare Max Bupa Health Insurance Max Speciality Films
Others Max Life Insurance

Healthcare India 26

During 2010-14, the gross revenues of Max India grew at a CAGR of 11% backed by growth in
both life insurance and healthcare business. In FY14, the company recorded a y/y revenue
growth of 10%. The healthcare business of the company grew by 21% y/y while the health
insurance business grew by 49% y/y.

Chart 36: Total revenues of Max (INR mn)

The profit margins of Max India have declined considerably in FY14 due to rise in operational
expenses and finance costs. The pre-tax margin and net profit margin of the company declined
by around 700bps.

Chart 37: Profit margins of Max


76,610
78,910
85,620
106,240
116,830
3%
9%
24%
10%
-10%
10%
30%
50%
70%
90%
110%
130%
150%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
-9.6%
6.0%
3.2%
9.4%
2.3%
-7.6%
0.6%
2.0%
7.4%
1.6%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Pre-tax margin Net profit margin

Healthcare India 27

3.2 Comparative matrix
As of March 2014, AHEL had a strong balance sheet with low debt to equity ratio and a
favourable quick ratio. Fortis has significantly improved on its debt levels and brought its net
debt to equity ratio to much lower levels in FY14.

Table 6: Key financial ratios of leading players
Company
Peer
Median
AHEL Max Fortis
FYE Date 31 Mar 14 31 Mar 14 31-Mar-14
Growth
Net Sales Growth (1yr) % 16.3 16.3 10.0 -21.0
EBITDA Growth (1yr) % 10.8 10.8 -69.8 -73.0
EBIT Growth (1yr) % 8.8 8.8 -78.8 -67.9
Net Income Growth (1yr) % 100.0 4.1 -67.0 -79.3
Profitability
ROE % 11.1 11.1 0.1 4.3
ROCE % 3.3 12.0 0.8 NA
EBITDA /Sales % 12.5 16.1 3.1 16.5
EBIT /Sales % 5.5 12.2 2.0 9.7
Net Income /Sales % 7.8 7.2 1.6 2.5
Capital Structure
Fin. Debt /Assets % 23.9 23.9 2.2 21.0
Fin. Debt /Equity % 43.2 43.2 21.8 38.7
Net Debt /Equity Ratio 0.3 0.3 0.2 0.3
Net Debt /EBITDA Ratio 1.8 1.2 1.8 2.0
Equity /Assets % 39.8 55.4 10.3 54.3
Asset Utilization
Quick Ratio % 84.7 119.2 NA 203.1
Payout % -50.0 N/M- NA NA
Days in Invent. Ratio 5.6 22.9 0.0 NA
Sales /Acc. Rec. Ratio 11.6 8.6 NA NA
Sales /Assets Ratio 0.5 0.9 0.4 0.6
Source: Infinancials

Healthcare India 28

3.3 SWOT analysis

SWOT analysis of AHEL
Strengths Weaknesses Opportunities Threats
Largest healthcare
company in terms of
market capitalization
Lack of diversification
Growing healthcare
market in India
Informal and unorganized
private sector offering
inexpensive alternatives
Strong brand value
Declining bed occupancy
rate
Consistent increase in per
capita health expenditure
Increasing government
expenditure may take
away business of private
players
Strong financial
performance in last four
years
Lower average revenue
per occupied bed than
peers
Large supply/demand gap
in healthcare
Slowdown in economy
may have a negative
effect on health
expenditure

SWOT analysis of Fortis
Second largest healthcare
company in terms of
market capitalization
Highly leveraged
Growing healthcare market
in India
From informal and
unorganized private sector
offering inexpensive
alternatives
Strong brand value Declining margins
away some business of
private players
Large network of hospitals
and health centres
Subdued revenue growth
in healthcare
Acquisitions recently done
may turn out unprofitable


Healthcare India 29

SWOT analysis of Max India
Business interests in
healthcare, health
insurance, life insurance
and packaging
Losses experienced in
other segments apart from
healthcare
Growing healthcare market
in India
From informal and
unorganized private sector
offering inexpensive
alternatives
Employs cutting edge
technologies and
equipment
Network concentrated in
North India only
away some business of
private players
Profitable healthcare
segment
Lower profit margins than
peers
in healthcare
Non-healthcare segments
may cause a strain on
profits

Notes:
Fiscal Year assumed in report: April 1st to March 31
st

1 USD= 60.38 INR (July 18, 2014)

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. Emerging
Markets Direct Media Holdings LLC does not accept any liability directly or indirectly that may arise
from investment decision-making based on this report.


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