Big opportunity size, however, is it investment-worthy? Let's see.
The Business Model of Indian Hospitals Simplified.
“We are blessed to be living in a country where the cost of healthcare is the lowest in the world.” ~Dr. Devi Shetty, Narayana Health
A thread 🧵👇
Big opportunity size, however, is it investment-worthy? Let's see.
Do brush up on the different abbreviations associated with the Hospitals & the Pharmaceuticals industry in General, for example ALOS, ARPOB, NABH, etc.
Inpatient (IPD): Need to get hospitalized
Outpatient (OPD): No need to get hospitalized
Primary: For OPD only (no beds), sends to below hospitals for further treatment
Secondary: IPD & OPD in medium-sized general hospitals
Tertiary: Can treat all complex ailments & huge in size, Major listed companies are focused here.
Here, the listed companies either are in private or manage hospitals owned by others (Asset light business, due to the very high land prices in metro cities)
This ratio can vary b/w different hospitals depending on the therapies they cater to.
A single bed in a metro city for most listed cos. costs 50 lakhs-1crore/bed
Note that 65-75% of these costs are one-time (Land & Equipment) & expansions in already established hospitals are cheaper at 25-30 lakhs/bed.
Hospitals are open 24x7 no matter if they have patients on not; they should be there staffed & ready to go in case somebody needs them: An accident or a pandemic.
This leads to Huge Fixed costs: does not matter how many patients they have.
All about more patients, more so from higher value therapies like Neuro, renal & IPD (getting more hospitalized)
Keeping a hospital profitable is tough: One has to be a brand in its locality.
Are Equipment Investments a constant? Mostly yes. leading to consistent maintenance capex
Da Vinci robotic surgical system
128 Slice CT scanner
Digital LINAC Accelerator...
Intellectual Capital: Full-time Doctors, Consultants, Student doctors & the support staff
Big Shortage of Specialists in India (seats are much less than required in medical colleges); most prefer to stay in cities.
Over 60% of the expenses are from out of pocket, even for others government & private insurers: they continue to squeeze hospitals for lower costs.
Even health insurance premiums are very high.
People travel Intra & inter-state; putting a huge burden on these assets.
One of the big reasons most lost money in FY21: due to COVID travelling restrictions.
The largest player (Apollo) is not even 1% of the industry; Huge competition.
High fragmentation & very low profitability (max 12-14% ROCEs) indicates Industry needs massive consolidation before it gets attractive.
By way of an active regulatory regime, be it in terms of price control or capping of margins on medicines and implants has been stepped up.
State and Central Healthcare coverage schemes are also impacting industry margins.
Pricing power to some extent due to the granularity of the customers & loyalty/Trust that they too most doctors.
However, can get affected by hyper-competition locally. Even Narayana Health had to close one of its hospitals in Bangalore.
https://t.co/fbJvO825wr
A retail store where the owner decides what you have to buy and how much you need to spend is a good investment \U0001f44c
— Conviction | Patience (@unseenvalue) June 18, 2021
Stronger financial discipline
Negotiating power with suppliers
Better ability to attract medical talent
Greater capital and administrative resources
Vs standalone hospitals
Inorganic way is expected to be the next leg of growth.
ALOS is decreasing (efficiency)
ARPOB is increasing (complex therapies⏫)
Majority of greenfield capex over; more of brownfield going forward & potential higher utilization
Low competition; location check
Adjacencies like diagnostics & Pharmacy
“I left England in 1989 and the first patient I did the bypass grafting in Calcutta paid 1.5lk Rs
30 yrs later, we are doing the same operation for less than 1lk.” ~Dr. Devi Shetty
Hospitals' non-covid sales are just back to pre-covid levels & it looks amazing optically due to the subdued FY21 sales.
Most of the people who deferred elective surgeries due to COVID risk are back; not much has changed on the structural front.
All of this will be a temporary jump & FY23 might show a more normal year as growth will slow down.
It's a long way to go for this to become a sustainable business; 6-8cr people go below the poverty line every year while paying their healthcare bills. Even after decades of independence, It's sad.
Nevertheless, The logic stops us from allocating a lot into this industry due to the multiple challenges mentioned above.
Don't overpay: Most private deals happen at 10-15x EV/EBITDA.
End.
Also, please give me ideas on what pharmaceutical industry's segment or company do you want me to make my next thread on, in the comments section 😇
https://t.co/o0P4m1VES9
The Business Model of Indian Hospitals Simplified.
— Anish Moonka (@AnishA_Moonka) November 17, 2021
\u201cWe are blessed to be living in a country where the cost of healthcare is the lowest in the world.\u201d ~Dr. Devi Shetty, Narayana Health
A thread \U0001f9f5\U0001f447
