Healthcare providers along with private equity (PE) players and venture capitalists (VCs) are now reviewing the investments they have made and to see if they have paid off. The triggers for the review are the current subdued economic environment and the depreciating rupee, stated Rajen Padukone, managing director and chief executive officer, Manipal Health Enterprises (MHE).
The investment euphoria is mature. PEs are toning down their expectations. This is because healthcare is capital intensive and returns on investment are not easy to come by, the MHE chief told Pharmabiz.
In this industry, a new project needs five years to turn profitable. There are pressures on lowering the service cost from the patient and from the hospital. At the same time the cost of investment is increasing. The depreciating rupee is pushing up the cost of equipment imports and the infrastructure is getting more expensive. There is pressure from patients who are looking for affordable healthcare and from PEs/VCs who looking to maximize returns on their investments, he said.
“Going forward, the large investments made by the PEs and VCs will see a consolidation. It is a phase of strategic partnerships where small and medium hospitals could be part of large healthcare provider milieu driven by the inorganic growth model to maximize revenue generation. Although there is huge growth potential for this sector, we would see a visible openness for divesting of stake by the PEs back to the promoter. Moreover, there is also considerable willingness by the original promoter of a hospital to offload a majority stake to another healthcare provider. Such a shift in the healthcare business environment would only add value to patient care where the best of expertise is combined,” said the MHE chief.
From a global economic perspective, the downturn in the US and EU will see no interests from healthcare providers in the developed world to collaborate with Indian players. This is because of concerns on hospital accreditation, medico legal issues and poor insurance coverage. Presently there is only 16 per cent insurance penetration with 84 per cent of population in the non insured category. Instead, there would be considerable presence of Asia and Africa in the Indian healthcare space. The country’s large medical expertise and hospital infrastructure have created a positive impact in these emerging markets. Moreover, India needs more healthcare facilities as the hospital distribution is skewed. The demand for hospitals exceeds supply of patients: 9:10,000 as against 33:10,000 in the west.
There is also a huge opportunity for medical tourism which Padukone refers to as ‘Medical Value Traveler’ (MVT) going by the cost differentials in medical care. Patients from Africa, South Asia and Middle East are seen accessing Indian hospitals for advanced procedures from world class facilities at Mumbai, Delhi, Bengaluru and Chennai because of reliability and economies-of-scale, he said.