Healthcare in India

Healthcare  in India   Healthcare sector in India is one of the most competitive ones in the world and Quality medicines and quality health care services in India are available at very affordable price in the world. The sector is growing at more than 10% per annum in the last few years and the growth is likely to be at 15% p.a in the years to come. The size of the industry is likely to reach $ 160 bn by 2017.   The planning commission has allocated $ 55bn to this sector in the 12th five year plan. This is a three fold increase from the allocation made in the 11th Five year plan. The 12th Plan focus is to provide Universal Healthcare, improve the Health infrastructure , promote R&D and develop Patient friendly  regulations.   The growth of this sector provides opportunities in many areas including, Hospitals, Pharmaceutical development, Diagnostics, Hospital Supplies, Medical Insurance,etc.   The contribution of each segment to this sector is as follows : Hospitals 71%, Pharmaceuticals 13%, Medical equipments and supplies 9%.   The contribution of private sector in this industry was 66% in 2005 and it is expected to increase to 81% by 2015. Since there are financial constraints in the public sector, Private sector was playing a major role in creating new capacity and the share of private sector will increase year on year in the coming years.   Due to change in life styles , the number of in patients getting treated for life style diseases is showing a rising trend and the share of these patients in admissions had already reached 50% and it is likely to rise further.   The size of the Hospital services was estimated at $ 54 bn in 2012 and the projections show that it is likely to double in four years . The growth of Hosptial services segment is likely to be around 20% p.a. going forward.   The factors driving higher growth in this sector include , increasing purchasing power , increased interest of private sector to start hospitals, Changing age profile, increasing penetration of Medical insurance and increasing awareness of health and health related issues among the consumers.   The demand for quality treatment is increasing in Tier – II and Tier – III cities and hospitals with good quality high tech equipments are being created to meet the demand in Tier II and Tier III cities. To encourage the private sector participation, the government has given a tax concession of five years for new hospitals.   The high quality service is also being extended through Telemedicine to rural areas and this business has already gained a critical mass with the size of $ 7.5 bn and this will grow at a rate of more than  20% p.a in the years to come.   The low cost advantage in Medicines and Medical treatment is a big advantage for India and the country is able to attract patients from across the world for various treatments. The increasing medical costs in developed countries offers lot of opportunities for Indian healthcare industry and like in IT, wherein India became the back office for the world, in Healthcare, India can become low cost provider of medical services for the world. The developed countries should look at India as a good destination for treatment and should help develop world class healthcare services to reduce the cost of their medicare.

India is emerging as a preferred location for carrying out R&D activities and the cost of doing R&D and drug development in India is much lower than the cost in developed countries. India has lot of advantages in R&D and this trend is being witnessed in creation of R&D centres in other industries also. MNCs around the world are setting up R&D centres in India, since India has the advantage of large number of trainable candidates coming from Higher education institutions.   To meet the emerging requirements, there will be a need to increase the capacity of seats in Medical colleges and to train large number of supporting staff. The efforts are on to promote the skill development in the country catering to the needs of this sector. Due to high demand supply gap, there are good opportunities in creation of educational institutions meeting the requirements of the emerging need in this sector. As per the estimates, additional 2 mn beds and 1.6 mn doctors are required to realise the growth potential in this sector. The estimated investments required are about $ 90 bn to achieve these targets.

The government has drawn up a plan to promote India as a global healthcare hub. To meet the global requirements, the entrepreneurs and government have to collaborate with the leading healthcare institutions and the Accrediting agencies in the world which will help to promote the India brand and India’s advantages. The cost of surgeries in India in many procedures are one tenth of cost in developed countries. By improving the quality of hospitals and services, India should be able to attract more patients from abroad.Medical Tourism Several key trends are giving impetus to the growth of India’s healthcare sector. Of these, medical city is relatively a new concept that offers immense growth opportunities, in addition to the medical tourism. India is also regarded as the most competitive destination with advantages of lower cost and sophisticated treatments. Due to such promising factors, the medical tourism has great potential in the country. The industry in India is pegged at US$ 1 billion per annum, growing at around 18 per cent and is expected to touch US$ 2 billion by 2015. India has witnessed an influx of patients from Africa, CIS countries, Gulf and SAARC nations, Pakistan, Bangladesh and Myanmar, who mainly come for organ transplant, orthopedic, cardiac and oncology problems. Apollo Hospitals has six tele-medicine (through video-conferencing system) centres in the East and North East India. Plans are afoot to add another 24 over the next couple of years. 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 emphasised 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 Rs 13,033 crore (US$ 2.05 billion) to the total annual sales of Rs 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 The Ministry of Health & Family Welfare has been allocated Rs 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 Rs 21,239 crore (US$ 3.35 billion), an increase of 24.3 per cent over the Revised Estimates (RE) Rs 4,727 crore (US$ 744.41 million) for medical education, training and research 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. Road Ahead The country's healthcare system is developing rapidly and it continues to expand its coverage, services and spending in both the public as well as private sectors. This is creating a large market for hospital information systems and other healthcare-related IT solutions. The favourable demographic virtues offer an attractive market for healthcare providers and investors in India. An increase in foreign investment inflows and private equity (PE) deals in the industry’s various segments have also been noted, in addition to the increased focus received from the Government. Exchange Rate: INR 1 = US$ 0.01574 as on September 12, 2013 References: Department of Industrial Policy and Promotion (DIPP), Union Budget 2012-13, RNCOS Reports, Media Reports, Press Information Bureau (PIB)

 

Healthcare is attracting lot of interest from PE players and out of total deals , more than 60% of investments by PE’s was in the healthcare sector. The sector is one of the attractive sectors for investment  in India today and increasing penetration of quality health services in India will go a long way in meeting the needs of the Indian population.

Value Creation - Strategies

One of the challenges for corporates today is creating value out of operations and once having created the value , sustaining the created value going forward. There are many examples in the world where companies created value and not able to sustain it for a long time. The good examples are Sony, Nokia, RIM in the recent past and there are several examples and many companies which created value , not able to sustain the value for a long time. The following strategies need to be adopted to create and sustain value.




1.The value creation starts with a Competitive strategy. Every company has a strategy but the strategy adopted by a company should help in creating a competitive advantage over others. This should result in faster growth and higher profitability compared to the competition.



2. There are five strategies available to create a competitive advantage. A) Cost Leadership b) Differentiation 3) Focussed cost leadership 4) Focussed Differentiation and 5) Integrated Strategy ( cost leadership as well as differentiation). Depending on the technology and marketing capability ,cost structure and competition in the particular product segment, one of the above strategies and combination of them have to be chosen. The objective should be to minismise the impact of competition on growth and profitability.



3. Keeping the age of the product portfolio young. To ensure a sustained good performance , there is a need to introduce new products at regular intervals and keep the average age of the products very. Low. This does not assure sustenance in cases where there are technology break throughs . Hence, apart from age of portfolio , it is necessary to make sure that there is an adoption and absorption of emerging and new technologies. The focus for new products should be the segments where there is a good potential for growth, less competition and good profit potential.



3. Many companies develop good strategies but there is a poor implementation due to slow decision making, organisational inertia and poor discipline in implementation. Allowing so many exemptions from the planned strategy leads to slippages and not continuously monitoring the performance and taking course correction leads to poor results compared to the plan.



4.Good corporate governance. The starting point of value creation is good corporate governance. The books of accounts should be closed on time every month. The actual performance should be compared with the plan and reasons for variance in performance should be identified and without much delay the course correction should be put in place. There should be a fit administration which looks into the governance discipline and adoption of best practices in each functional area of operation. Many companies do not have well defined SBU’s ( Investment Centres ,Company within companies ) , Profit centres and Cost centres. This is the starting point for good corporate governance. There is a need to review whether the organisation is well structured and appropriate organization structure and robust systems and procedures are in place.



5. Good governance and good performance creates a good image in the minds of all stakeholders ( investors, bankers, customers , suppliers ). .The market gives a premium to the quality of governance and company starts commanding good multiples. It is true for even unlisted companies, wherein it would be possible to command good premium for the products and achieve above average profits..



6. In Capital intensive industries and where there is hyper competition , scope for collaborating with the competitors should be explored. This is a general practice in electronic hardware industry . telecom , auto and financial services. This provides a full flexibility to an organistion to adapt to variations in economic performance.



7. It is essential in general the companies should be able to maintain market leadership. But there are cases, where, even smaller companies command a high premium. Good example is HDFC’s market cap is higher than ICICI and SBI. The bank had given a sustained performance over the years, which helped to keep its P/E ratio at the highest levels, ever since the bank allowed FII’s to invest in the bank. So far, the bank was able to maintain its lead.



8. The companies / groups which have created a big value, generally grow at a CAGR of 25% . The stretch target of 25% CAGR is very stiff but it is better to keep this target and identify opportunities for faster growth. ( It has to be a combination of old product – old market , old product – new market , new product –new market , new product – old market , new technology – old market , new technology – new market ). Both organic and inorganic routes to be pursued.



9. Reputation. When one of the companies came for an IPO, the inherent value of the stock was even less than Rs.10 per share and no project was on. Since the group was known for creating value for shareholders, the investors were ready to pay Rs.500 per share for the stock. Cognizant technologies was able to win more projects and have become the number one software provider in US over taking TCS. This was mainly on account of Cognizant is seen as a US company and it is parent was Dun and Bradstreet corporation. Further the company adopts an integrated strategy which is helping it to over take others in Revenue growth and it reinvests any surplus amount which is more than 20% margin in the core business.



10. Constant Restructuring. At any point, only a few industries grow and some industries decline and some industries are at a maturity stage. The fortunes of industries change and the portfolio of a corporate should be well balanced to generate enough cash and sustain the growth levels. The strategy is not only about growth but also about keeping the portfolio healthy. The portfolio should be churned to ensure that the businesses generating negative cash flow and where scope for future revival is limited should be removed from the portfolio through divestment and sale. Many a times, the poor performance of corporates is due to keeping the businesses where there are continuous cash losses. There should be well defined criteria for entry in a business and criteria for exiting a business. GE is a role model for corporates in this respect and this is the secret of GE’s survival for more than hundred years.



11. Not Succumbing to herd mentality. The high growth businesses after the entry of few players start attracting many new investors. This results in overcapacity in the industry and the players who enter late find it difficult to adopt the cost leadership or differentiation strategy. In a few cases, new entrants come up with new business models and redefine the industry. If the industry is overcrowded and there are many players, then the best form of entry in the industry is through acquiring a company which is doing very well in the industry rather than starting a green field venture. In many industries, the feature of herd mentality leads to entry of many entrants and those who are not able to create competitive advantage report poor performance affecting the overall performance of an industry.



12 Constant interactions with the Investor community. This is the one way; the value created could be taken to higher levels. One of reasons for faster growth of Infosys compared to its peers few years back was due to early listing of the stock in a market where most of its customers were coming from . Whenever analysts brought out analysis on companies growing fast and reporting higher profits, Infosys was always coming on top of the table in USA. This has created awareness among the CXO’s in US who were the decision makers and investors in the stocks. Since the company was growing very fast and profits were growing faster, inventors felt the company was well managed. So when bids were opened for awarding assignments, even when Infosys quoted 10% higher price compared to competition, they were willing to pay the premium , despite the competitors were as good as Infosys. But Infosys lost this advantage , after listing of TCS and TCS moving away from the strategy of cost leadership to differentiation like Infosys. Cognziant also started growing fast which had reduced the attraction for this stock.



To create and sustain value, a corporate has to use the combination of above strategies to achieve a sustained competitive advantage.