1. Indian Healthcare Sector: A Galore of Scope and Opportunity
May 2012
CONFIDENTIAL
The information contained within this document is proprietary to MEGStrat Consulting and it reserves the right to all information
provided. The recipient would treat this material as Confidential Information.
www.megstrat.com

2. Executive Highlights 3
Industry Overview 4
• Introduction
• Industry Composition
• Current Scenario
Key Trends and Growth Drivers 9
• Conducive Demographics
• Rising Affordability
• Increase in Lifestyle Diseases
• Health Insurance and Medical Tourism
• Regulatory factors Boost Reach and Quality
• Market Trends
• Deal Activity
• Private Equity
• M&A
Operating Models 20
• Revenue Drivers for Tertiary Hospitals
• Operating Models
Opportunities and Growth Strategies 22
• The Unmet Need
• Opportunities
• Growth Strategies
• Building Functional Efficiencies
Risk Factors and Mitigation 27
The Way Forward 29
About MEGStrat Consulting 32
2

3. • The Indian healthcare industry, valued at USD 40.0 billion in 2011, is highly fragmented and
dominated by private players. The sector is expected to grow at 24.1% p.a. till 2020, fueled
by large investments from existing corporate hospital chains and new entrants backed by
private equity investors.
• Demand for Healthcare services is poised to grow exponentially owing to a growing old age
population with rising incidence of lifestyle diseases, rising incomes and affordability, and
increased penetration of health insurance
• India only spends 4.2% of GDP on healthcare, compared to an average of 8.3% globally, and
lower than other emerging countries like Brazil (8.4%) and China (4.3%). As such, India’s
current healthcare infrastructure would not be adequate to meet the exponential demand
expectations.
• Government-run facilities have inadequate equipment and poor quality. As a result, private
players can capitalize on the opportunity. The private sector is expected to contribute
80.0% - 85.0% of the USD 86.0 billion investment required in healthcare till 2025.
• The sector has attracted private equity players, who have been playing a significant role in
various strategies of Indian hospitals, including organic & inorganic growth, and to make
hospitals asset-light enterprises.
• Most hospital chains have aggressive expansion plans to scale up their operations and
establish a national presence. Increasing entry barriers like high Capex intensity and
reserve crunch will favor existing players to pursue accelerated growth.
• Indian hospitals are exploring various innovative models to improve their performance and
profitability, viz. introducing telemedicine, focusing on specialty centers and day care
centers.
• There is increased penetration into tier II & III cities that have lower Capex & costs and
higher IRR, using models such as hub & spoke and operating & maintenance contracts to
expand reach.
3
3

4. MEGStrat Disclaimer Applicable
4

5. The Indian Healthcare sector is at a vital juncture, perched for assured growth till 2020. Healthcare expenditure in
India being among the lowest globally, offers tremendous scope and opportunity to the industry stakeholders,
especially in the private sector.
Industry Revenues
300 280
250
(USD Billion)
200
150
100 79
41 46 50
50 34 38
23
0
2005 2006 2007 2008 2009 2010 2012E 2020E
However, considerable challenges
exist in terms of service Robust Demand A Galore of Opportunities
accessibility and patient care  Healthcare expenditure in India is  Greater investment is required in
quality. As such, Government projected to increase by 12% per healthcare infrastructure to
support would inherently play a annum from 2011 -15 increase the number of doctors
significant role in the overall and hospital beds to bridge the
development and growth of the  Increasing incomes, greater demand gap
sector. health awareness, shift to
lifestyle diseases and increasing  The Union Government allocated
insurance penetration to drive USD5.6 billion in 2011-12 for the
growth of the sector sector, an increase of 11% from
the previous fiscal year
Quality and Affordability Levels Regulatory Support
 There is a large pool of well-  Government of India aspires to
trained medical professionals in develop India as a global
the country healthcare hub
 Compared to countries in the  High level of effective policy
West and Asia, India has a support in the form of reduction
comparative cost advantage in exercise duties and higher
budget allocation for the
healthcare sector
Source: MEGStrat Analysis, IBEF, KPMG
5

6. Healthcare
Medical
Medical
Hospitals Pharmaceutical Diagnostics Equipment and
Insurance
Supplies
Manufacture, Establishments
Government extraction, primarily engaged Health insurance
Hospitals processing, Businesses and in manufacturing that cover an
Include Private Hospitals purification, and laboratories that medical individual’s
healthcare Include nursing packaging of offer analytic or equipment and hospitalization
centers, homes, mid-tier, chemical diagnostic supplies, such as expenses and
dispensaries, and top-tier materials to be services including surgical, dental, medical
district hospitals private hospitals used as body fluid orthopedic, reimbursement
and general medications for analysis ophthalmologic, facility incurred
hospitals humans or and laboratory due to sickness
animals instruments
Market break-up by revenues (2012E)
Hospitals and Pharmaceuticals are
the top revenue generating 13% Hospitals
subsectors in the Indian Healthcare 9%
industry, accounting for 71% and 4% Pharmaceuticals
13% of industry revenues 3%
respectively.
Medical Equipments and
Supplies
Other subsectors including Medical
Equipments & Supplies, Insurance Medical Insurance
and Diagnostics share a smaller
part of the pie; however, play a key
Diagnostics
role in the overall development of 71%
the sector.
Source: MEGStrat Analysis, IBEF 3
6

7. The Indian healthcare industry, valued to be worth USD 40.0 Billion in 2011, is highly fragmented and dominated by
private players. The industry is rapidly developing and is being fueled by large investments from existing corporate
hospital chains and new entrants backed by private equity investors. A growing old age population with rising
incidence of lifestyle diseases, combined with rising incomes & affordability and increased penetration of health
insurance are fuelling growth of the industry.
Government-run facilities have inadequate equipment and Indian Healthcare Spending(2008)
low quality. A chronic shortage of healthcare
infrastructure exists, especially in rural areas and tier II &
III cities, with potential requirement of 1.75 million new
beds by the end of 2025. Most hospital chains have
32%
aggressive expansion plans to scale up their activities and
establish a pan India presence. Various innovative models Private
are being explored to improve their performance and
Public
profitability, viz. getting into telemedicine, and
increasingly focusing on specialty centers and day care 68%
centers. High upfront investments, long gestation periods,
and rising real estate costs are compelling private players
to innovate with business models and expand into under-
penetrated tier II & III cities. As a result, these private As of 2008, the private sector accounted for 68% of
overall healthcare spending. The overall healthcare
players can capitalize on the opportunity to expand. The spending in India is expected to rise by 12% per
private sector is likely to contribute 80.0% - 85.0% of the annum.
USD 86.0 billion healthcare investment required till 2025.
The sector is expected to grow at 24.1% p.a. till 2020, Spending as a % of GDP (2008)
witnessing significant interest from private equity players,
15.2%
who would play an integral role in the strategies employed 16%
by Indian hospitals, such as organic & inorganic growth, 14%
and making hospitals asset-light enterprises.
12%
10% 8.7%
% of GDP
India’s healthcare spend is significantly lower when 8.4% 8.3%
compared to the global, developed and other similar 8%
emerging economies. 6%
4.3% 4.2%
In 2008, the healthcare spend in India was close to half 4%
the global average in percentage terms, when 2%
evaluated on a “percentage of GDP” basis.
0%
USA Brazil UK China India Global
Source: MEGStrat Analysis, WHO
7

8. Global Comparison of Healthcare Spend
90% The healthcare spend, when
83%
compared on public-private
80%
68% contribution basis, exhibits
% of Total Healthcare Spend
70% a skewed scenario. The
61%
56% Private Sector contribution
60% 52% 53%
48% 47% to the healthcare sector at
50% 44%
~68% is amongst the highest
39%
40% 32% in the world in percentage
terms. Public spending,
30% 17%
however, is amongst the
20% lowest in the world and is
10% ~29 percentage points lower
than the global average.
0%
UK USA China Brazil India Global
Public Sector Spending Private Sector Spending
The Indian healthcare spend, on a per capita basis, both in terms of USD (at average exchange rate conversion) and in
terms of Purchasing Power Parity (PPP), is amongst the lowest globally. When compared to the global average, the per
capita Indian healthcare spend is ~95% lower on an average exchange rate basis and ~86% lower on a PPP basis.
Per Capita Spending (USD) Per Capita Spending (PPP)
8000 8000 7164
7164
7000 7000
6000 6000
5000 5000
3771
USD
USD
4000 4000 3222
3000 3000
2000 2000
854 875 899
721
1000 1000 265 122
146 45
0 0
USA UK Brazil China India Global USA UK Brazil China India Global
Source: MEGStrat Analysis, WHO 3
8

9. MEGStrat Disclaimer Applicable
9

10. Population Growth
• India’s population has grown from 1,024
Old Age Population
million in 2000 to 1,191 million in 2010
and is expected to reach 1,272 million by
2015, at a CAGR of 1.3% over 2010 – 2015
• Increasing population will impose pressure
on the already inadequate healthcare
infrastructure, creating a severe need for
more hospital beds
• India’s average life expectancy has
increased from 57.0 in 1990 to 65.0 in
2009. This, coupled with a declining
population growth rate, implies that the
number of people in old age groups (>60
years) is likely to increase
• Population above the age of 60 is likely
An increase in ageing population will boost the
to double from 96.4 million in 2010 to demand for healthcare services.
192.7 million in 2030
Population Estimates
1500 2.0%
1272
1191 1.5%
1024
1000 1.0%
0.5%
500 0.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Population (Million People) Population Growth Rate (%)
Source: MEGStrat Analysis, US Census Bureau, IMF
10

11. Affluence Leading to Health Consciousness
• In the recent decade, India has witnessed rapid growth in income levels and wealth
• GDP per capita has grown from USD 729 in 2005 to USD 1,389 in 2010, and is expected to reach USD 2,226 by
2015
• Increasing wealth and standard of living has led to greater health awareness, resulting in higher healthcare
spending
• Healthcare expenditure per capita in India has increased from USD 27 in 2004 to USD 45 in 2009
• Rising affordability and the resultant quality consciousness along with increasing healthcare spending is a major
factor driving the demand for the healthcare industry
GDP Per Capita (USD)
2500
2226
2000
1389
1500
1000
729
500
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Healthcare expenditure per capita (USD)
45 45
42
45
40 34
35 30 Rising affordability
27 and attention on
30
quality of life to
25 increase
20 healthcare
15 expenditure
10
5
0
2004 2005 2006 2007 2008 2009
Source: MEGStrat Analysis, WHO, IMF
11

12. Accelerating Incidence of Lifestyle Diseases
Increase in Lifestyle related Ailments
• India is experiencing fast growth in number
of people suffering from lifestyle related
diseases 6.0%
• Percentage of population suffering from
4.9%
cardiac diseases, diabetes, obesity and
Percentage of Population
cancer are expected to rise from 7.7% in
2005 to 11.6% in 2015 4.0% 3.7%
• As of 2008, lifestyle related diseases 3.1% 3.0%
comprised 13% of total ailments in India, 2.7%
which is expected to increase to 20% by 2018
• This increase is likely to trigger additional
2.0%
demand for specialized treatment, which 1.3%
can be provided better in specialty or super-
specialty hospitals 0.3%0.3%
• This will also lead to increasing margins for
hospitals, since these are the high margin 0.0%
Cardiac Diabeties Obesity Cancer
end of disease spectrum
2005 2015
Ailment-Wise Case Mix (2008)
6%
4%
Cardiac Oncology
3%
2%
5% Diabetic Orthopedic
43%
3%
Gynecology Neurology
4%
Urology Gastro intestinal
12% Accidents Fever
Others
10%
8%
Source: MEGStrat Analysis, Edelweiss Research
12

13. Rising Health Insurance Gross Health Insurance Premiums
• Health insurance is gaining high momentum in India
2500 2095.3
• Gross health insurance premiums have increased
at a CAGR of 30%, from USD 733.9 million in 2006- 2000
1533.2
2007 to USD 2,095.3 million in 2010-2011
USD Million
1215.3 1320.5
1500
• Penetration as % of GDP has risen from 0.08% in
2006-2007 to 0.12% in 2010-11 1000 733.9
• Reduction in out-of-pocket expenses on health from
500
92.2% of total private expenditure in 2000 to 74.4% in
2008 clearly indicates the increase in health 0
insurance 2006-07 2007-08 2008-09 2009-10 2010-11
• Penetration of health insurance will significantly Health Insurance Penetration
increase the affordability of healthcare services for 0.14%
0.12% 0.12%
the population, while improving the quality of 0.12% 0.11%
0.10%
% of Nominal GDP
healthcare
0.10% 0.08%
Medical Tourism: Lower Costs enable Growth 0.08%
0.06%
• Treatment for major surgeries in India cost ~10.0% of
that in developed countries; further, the Indian 0.04%
tertiary and specialty hospitals boast of a high level 0.02%
of quality 0.00%
2006-07 2007-08 2008-09 2009-10 2010-11
• Medical tourism is attractive for patients from
developed countries (due to the cost advantage) as Medical Tourism Industry Size
well as emerging countries (due to better quality).
2200
India’s huge expat population itself is a large target
2400
market
• The medical tourism industry is expected to increase 2000
USD Million
from USD 350.0 million in 2010 to USD 2.2 billion in 1600
2015; Specialty care and tertiary hospitals are 1200
350
estimated to account for USD 1.0 - 1.5 billion of the 800
total potential revenue 400
0
2010 2015
Healthcare Cost Differential
Treatment Cost (USD) India USA Singapore India cost as % of USA
Heart surgery 4,800 100,000 15,312 4.8%
Heart value replacement 4,800 160,000 13,000 3.0%
Bone marrow transplant 30,000 250,000 150,000 12.0%
Liver transplant 69,000 300,000 140,000 23.0%
Knee replacement 5,000 48,000 25,000 10.4%
Hip replacement 5,200 38,000 12,000 13.7%
Sources: MEGStrat Analysis, IRDA, WHO, Morgan Stanley Research, PUG Research 3
13

14. Boost to the private sector
•The benefit of section 10 (23 G) of the IT-Act has been extended to financial institutions that provide
long-term capital to hospitals with 100 beds or more
•Government is encouraging the PPP model to improve availability of healthcare services and offer
healthcare financing
Pushing investments in rural areas
•The benefit of section 80-IB has been extended to new hospitals with 100 beds or more that are set up in
rural areas; such hospitals are entitled to a 100% deduction on profits for five years
Tax incentives
•Custom duty on life-saving equipment has been reduced from 25% to 5% and exempted from countervailing
duty
•Import duty on medical equipment has been reduced to 7.5%
Incentives in the medical tourism industry
•Incentives and tax holidays are being offered to hospitals and dispensaries offering health travel
facilities
Drug and Cosmetic Act, 1940
•Regulates the import, manufacture, distribution, and sale of drugs and prohibits the manufacture and sale
of drugs which are misbranded, adulterated, spurious, or harmful. Specifies license requirements for
manufacturer / distributor of drugs & cosmetics
Bio-Medical Waste (Management & Handling) Rules, 1998
•Regulates the mode of treatment & disposal of bio-medical waste. Requires the institutions that generate
waste to, ensure that waste is handled without adverse impact on health & environment
Clinical Establishment Bill, 2010
•Makes it mandatory for all clinical establishments to register under the act. The act is to be eventually
implemented nationwide and may lead to closure of nursing homes which do not meet the requirements
National Accreditation Board for Hospitals and Healthcare(NABH)
•NABH accreditation of facilities confirms quality assurance and its standards focus on patient safety and
quality care
Drug Controller General of India (DGCI)
•DGCI formulated guidelines in July 2006 for the import and manufacture of medical devices
Foreign Ownership
•FDI in hospitals is permitted up to 100% under the automatic route
3
14

15. Higher Profitability in Hospitals in Tier II & III Cities
• The healthcare market in tier II & III cities is expected to grow at a CAGR of 17.9% till 2023,
~5.0% higher than a CAGR of 13.2% for healthcare market in metropolitans
• Hospitals in tier III cities require Capex of USD 113,600 per bed, as compared to the Capex
requirement of USD 454,500 per bed in metropolitans
• Operating costs in tier II & III cities are ~30.0% lower than metropolitans & tier I cities
• The IRR in hospitals in tier III cities is double of that of the ones in tier I cities
• A tier II & III city hospital attains operating profitability in the 1st or 2nd year of operations,
as compared to a tier I city hospital that reaches this stage around the 5th year
Capex per Bed (‘000 USD) IRR in Hospitals
500 454.5 26%
30%
400 340.9 21%
Focus On Smaller cities
300 20%
204.5 13%
200
113.6
10%
100
0
0%
Metros Tier I Tier II Tier III
Tier-I Tier-II Tier-III
Cities Cities Cities
Operating Margins of Hospitals
30%
20%
10%
0%
Year1 Year2 Year3 Year4 Year5
-10%
-20%
-30%
Metros Tier I Cities Tier II Cities Tier III Cities
Sources: MEGStrat Analysis, PUG Research 3
15

16. Shift from communicable to lifestyle diseases
• Due to increasing urbanization and the problems associated with modern-day living in urban
settings, disease profiles are shifting from infectious to lifestyle-related ones
• It is estimated that by 2012, 50% of the spending on in-patient beds would be for lifestyle-
related diseases, which is resulting in increased demand for specialized care
Management Contracts
• Many healthcare players such as Fortis and Manipal Group are signing management contracts
to provide an additional revenue stream to hospitals
Evolution of telemedicine
• Telemedicine is evolving fast in India, supported by the ICT sector
• Several major private hospitals such as Apollo, AIIMS, Narayana Hrudayalaya have adopted
telemedicine services and some have developed PPPs
• Currently, about 650 telemedicine centers exist throughout India
Expat Doctors
• Medical professionals of Indian origin practicing abroad are willing to return and settle in
India
• This trend is being supported by Improved healthcare infrastructure in India, increase in
medical tourism, improved compensation structures and growing restrictions on licensing and
practicing in UK and Europe
Holistic Well-Being
• Holistic well-being is a combination of modern and traditional medicine
• Various hospitals have tied-up with holistic health centers to combine traditional healthcare
knowledge and practices with conventional systems
• Various services offered in wellness centers are diet & nutrition, yoga, herbal medicine,
humor therapy and biofeedback
3
16

17. Private Equity Deals
Deal value
Date Target Acquirer (USD Million)
Jun-11 Angels Health Pvt Ltd Housing Development Finance Corp NA
Jun-11 Vaatsalya Healthcare Solutions Aquarius India & Seedfund 10
May-11 Jeevanti Healthcare Seedfund 2.2
May-11 Super Religare Laboratories Sabre Partners 11.2
Apr-11 Super Religare Laboratories Avigo Capital Partners 22.5
Mount Kellett, TVS Capital and Ajay Piramal
Mar-11 MedPlus Health Services Group's healthcare fund 88.4
Jan-11 Global Healthcare Sequoia Capital and Elevar Equity 3.3
Integrated Health and Healthcare
Jan-11 Services Halcyon Finance & Capital Advisors 44.4
Dec-10 BSR Super Speciality Hospitals Aureos Capital 10
Nov-10 Medfort Hospitals TVS Shriram Capital & ePlanet Ventures 13.1
Aug-10 Dr Lal PathLabs TA Associates 34.8
Jun-10 Metropolis Health Services Warburg Pincus 84.9
May-10 Nova Medical Centres GTI Group and New Enterprise Associates 5.3
Apr-10 Manipal Health Systems Kotak PE 33.5
Feb-10 HealthCare Global Enterprises Milestone Religare Advisors 10
Nov-09 Krishna Institute of Medical Sciences Milestone Religare Advisors 12.9
Mar-09 Vaatsalya Healthcare Solutions Oasis Fund and Seedfund 3.7
Feb-09 Kavery Medical Centre and Hospitals India Venture Advisors 17.8
Jun-08 CARE Hospitals Ashmore Group 23
Sep-07 Apollo Hospitals Enterprise Apax Partners 104.3
Mar-07 Fortis Healthcare India Trinity Capital 19.7
3
Source: MEGStrat Analysis
17

18. India Healthcare M&A Activity
Inbound
16
Domestic
14
12
10
8
6
4
2
0
2006 2007 2008 2009 2010 2011
Recent Strategic Deals
Deal Value
Date Target Acquiror (USD Million) Deal Synopsis
Supported Aetna in gaining entry into the Indian market
Indian Health
Jul-11 Organization Pvt Aetna Inc N.A. and getting access to 80,000 customers, 3,000 doctors,
Ltd
clinics and wellness programmes.
The deal gave an exit to Warbug Pincus, which had
Jun-11 Max Healthcare MAX India 31.2 invested in the Company in 2004 and 2005 through two
tranches.
Integrated operations of a hospital company with a
diagnostic chain. SRL has a strong network of laboratories,
Fortis
Super Religare
Apr-11 Healthcare 178.5 wellness centers and collection centers. Fortis has been
Laboratories
India
looking for acquisitions in new specialties to augment its
current operations.
The acquirer (promoter) bought 20% additional stake in
Dr Agarwal's Eye Dr Agarwal's
Jan-11 2.0 the target via open offer to increase promoter stake to
Hospital Health Care
75%.
The acquisition costed USD 107,000 per bed, against a
Fortis greenfield cost of USD 133,000 per bed. Also, the deal
10 Wockhardt
Aug-09 Healthcare 185.2
Hospitals gave Fortis a strong presence in Mumbai and Bangalore,
India
where it did not have presence earlier.
Sources: PwC, MEGStrat Analysis
18

19. MEGStrat Disclaimer Applicable
19

20. Other businesses
Corporate tie-ups Operating beds
Other revenue generating streams
such as pharmacies
Result in long-term contracts, Number of beds based on Capex
however, increase receivable days and project execution
Average revenue per
operating bed (ARPOB) Occupancy
Revenue
ARPOB depends on casemix, type Drivers Number of beds occupied; 80% is
of procedures, utilization of considered to be “full” capacity
equipment, and pricing
Average length of stay Outpatient to inpatient
(ALOS) conversion
Inpatient share
First 2-3 days generate maximum Higher revenues come from
revenues from a patient Typically, inpatients generate inpatients than outpatients
~75.0% of hospital revenues
Source: Industry Research 3
20

21. Hub & Spoke Model
1. Under a hub and spoke model, a super-specialty hospital (hub) is established in a major city of a
region, with smaller multi-specialty hospitals or day care centres in surrounding towns
2. Enhances profitability by ensuring better treatment at the spokes, and transfer of patients to hubs
only if required, increasing occupancy and ARPOB
Spoke
Spoke Hub Spoke
Spoke
Operating & Maintenance Contracts
1. A corporate chain (like Fortis or Apollo) takes over management of a hospital owned by a trust
2. The corporate hospital may or may not acquire an equity stake in the target
3. In return, the corporate hospital gets a fixed annual management fee or a share of the revenue/
EBITDA
Corporate hospital
(such as Fortis or Target Hospital
Apollo)
3
21

22. MEGStrat Disclaimer Applicable
22

23. Healthcare infrastructure deficiencies
The penetration of healthcare infrastructure in India is much lower than that of developed countries and even lower
than the global average in terms of healthcare infrastructure and manpower.
Indicators Year India USA UK Brazil China
Hospital Bed Density (per 10,000 population) 2000-2009 12 31 39 24 30
Doctor Density (per 10,000 population) 2000-2009 6 27 21 17 14
Births attended by skilled health personnel (%) 2000-2009 47 99 NA 97 98
No of doctors 2009 6,43,520 7,93,648 1,26,126 3,20,013 18,62,630
No. of Nurses 2009 13,72,059 29,27,000 37,200 5,49,423 12,259,240
No. of Dentists 2009 55,344 4,63,663 25,914 2,17,217 1,36,520
Avg. no. of doctors per bed 2009 0.6 0.81 0.53 0.69 0.46
Avg. no. of nurses per bed 2009 1.27 3 0.16 1.18 3.02
No. of doctors per 1,000 population 2009 0.6 2.7 2.1 1.7 1.4
No. of nurses per 1,000 population 2009 1.3 9.8 0.6 2.9 1
The Requirement
Parameter 2008 2018 2028 Parameter Annual Production (2011) To fill the gap
Additional Beds
Required 1.1 million 3.1 million 2 million Physicians 30,558 993,500
Bed/1000
population ratio 0.7 to 1.7 4 5 Nurses 114,218 2,510,250
Inadequacy of Public Sector: An opportunity for Private Sector Health Infrastructure in Villages
• Healthcare has received inadequate attention from the
government in India Infrastructure / services % of villages
• Indian government spends 4.1% of its total budget on Connected with roads 73.9%
healthcare, compared to a global average of 13.9%
Having any health provider 95.3%
• The government contributes only 32.8% of total
healthcare costs, compared to a 60.5% globally
• Government-run healthcare facilities are not well managed, Having trained birth attendant 37.5%
and are known to have poor quality of services and Having Anganwadi worker 74.5%
inadequate infrastructure & equipment
• The shortage is more severe in rural areas, where only 43.5%
villages in the country have a doctor Having a doctor (private & visiting) 43.5%
• Bridging the gap requires high investments; this opportunity Having a private doctor 30.5%
can be capitalized by private players to expand operations
Having a visitor doctor 25.0%
into smaller towns which lack good quality private hospitals
Sources: MEGStrat Analysis, IMF, Intel Case Study, KPMG
23

24. India has a competitive advantage in healthcare over peers, owing to its large skilled manpower, low
cost of surgeries, vast opportunity in Research & Development and medical tourism.
Opportunities for investments in Healthcare
Diagnostic & Pathology Services
• High cost differential in India allows for outsourcing of Pathology and Laboratory tests by International
hospital chains
Telemedicine
• Provides rural areas access to better quality healthcare
Healthcare infrastructure
• An additional 2 million beds and 993,500 physicians are required for India to bridge the gap and prepare
for demand estimations in 2025
• To achieve these targets an investment of USD 86 billion will be required
Contract Research
• Contract research is a rapidly growing segment in the Indian health care industry
• Foreign players are entering into contract research to reduce their operational and clinical cost
• About 60% of the global clinical trials is outsourced to developing countries
Medical tourism
• The Indian medical tourism industry is poised to grow at a CAGR of 58.3% into a USD 2.2 billion industry
by 2015
Health Insurance
• Less than 15% of the Indian population is covered through health insurance
• Increasing healthcare cost and burden of new diseases along with low government funding is raising
demand for health insurance coverage
• Many companies are offering health insurance coverage to employees, driving market penetration of
insurance players
• With increasing demand for affordable quality healthcare, the penetration of health insurance is poised
to grow exponentially in the coming years
• The health insurance premiums are expected to grow at a CAGR of over 28% for the period spanning
from 2008-09 to 2012-13
3
24

25. Growth by addition of number
Greenfield projects
of operating beds
Increase in ARPOB &
Organic growth
occupancy
Revenue growth by increasing
operating efficiencies
Reduction in average
length of stay
Acquisition of existing Buy-outs or through operating
Growth strategies Inorganic expansion
hospitals & management contracts
Hive-off real estate Cash infused by sale of real
Hiring off non-core
assets to make estate assets, and increase in
assets
operations asset-light ROA
Build/ acquire
Example: Fortis’ acquisition of
Diversification across businesses such as
the value chain pharmacies, & Super Religare Labs in May
diagnostics labs 2011 for USD 178.5 million
Asset-light model
is the preferred
growth strategy
for Private Equity
investors
3
25

26. Apart from infrastructure improvement, capacity addition and development of manpower
being critical for the Indian healthcare sector, it is also necessary that the existing facilities
are operated in an efficient manner. This can be ensured through various measures such as
Accreditation, adoption of Cost Accounting Procedures and increased penetration of
Healthcare Insurance.
Accreditation
Accreditation is one of several models of external evaluation used by healthcare entities
throughout the world to regulate, improve and promote health care services. Domestically,
accreditation is sought from the National Accreditation Board for Hospitals and Healthcare
Providers (NABH), an entity under the control of the Quality Council of India.
JCI, an international accreditation arm of the US joint commission also provides accreditation.
Few hospitals in India like Moolchand Hospital and Fortis hospitals, have already been
accredited by this body.
Trends of Accreditation
To date, only 17 Indian hospitals are JCI-accredited and all are large corporate entities,
including hospitals in the Apollo, Fortis, and Wockhardt Hospital systems.
As of March 2007, over 700 Indian hospitals had applied for NABH accreditation. NABH is
involved in the accreditation of blood banks, diagnostic centres, nursing homes, dental clinics
and Ayurvedic centres in addition to private hospitals, nursing homes. As of January 1, 2008,
only 12 medical facilities were accredited by NABH.
Advantages of Accreditation
Patients benefit in terms of high quality of care and patient safety. They are serviced by
credible medical staff and their rights are respected and protected.
Accreditation results in continuous improvement of the overall services of the hospital in order
to provide high quality care with least possible risks. Accreditation provides an objective
system of empanelment by insurance and other third parties. It provides access to reliable and
certified information on facilities, infrastructure and level of care with education on good
practices to improve business operations.
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27. MEGStrat Disclaimer Applicable
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28. Risk Factors Mitigation
Long gestation periods
Hospitals require significant upfront investments and have a Increasing number of hospital acquisitions are happening
long payback period. This makes investments in the sector through operating & maintenance contracts which have
less attractive short gestation periods and faster revenue ramp up.
Lack of qualified staff Stringent license requirements abroad and improving health
Finding qualified staff & specialized doctors is a major infrastructure in India is encouraging doctors to return to
challenge for hospitals in India, especially for new start ups, India. Medical education & training is seeing growing
leading to wage inflation and inadequate quality investments, especially by healthcare companies such as
Manipal.
Rising real estate prices Substantial amount of growth in the industry is driven from
Increasing real estate prices lead to higher initial outlay or tier II & III cities, mainly because of lower real estate cost.
higher lease payments, resulting in decreasing profitability Some have adopted the leased model to offset high real
estate prices.
Lack of capital The growth prospects of the industry have led to a rapid
Huge capital will be required to meet the growing demand of increase in investments in hospitals. Private equity players
healthcare. However, long gestation periods make the sector have invested USD 373.4 million in the sector since 2010, and
unattractive existing players are rapidly deploying capital for expansion.
Increasing operating cost Equipment manufacturers like GE and Philips are increasingly
Increasing costs of equipment and labor lead to margin focusing on India to sell healthcare products, resulting in
pressure and lower profitability favorable terms of supply.
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29. MEGStrat Disclaimer Applicable
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30. Public Sector and Government Interventions – Current and Going Forward
Improving the Reach and Quality: High investments
in a growing
1. The government plans to build 6 super speciality tertiary care hospitals with research and market, along with
education centres across the country. These would cater to the weaker sections making openness to
high end clinical care available to the masses. innovate endorse
well for the sector
2. Encouraging current initiatives on PPP’s in the sector should continue.
3. The government should continue flagship programmes such as Rashtriya Swastha Bima
Yojana (RSBY) and State level Insurance schemes like the Arogyashri and Chiranjeevi
4. To improve availability of medical staff in rural and far-flung and inaccessible areas,
doctors, specialists and para-medicals are given monetary benefits such as 25% hike to
those posted in rural and distant areas and 50% hike for those in areas that are almost
unreachable by road.
5. A truncated medical course designed by the Central Government from the Chinese
“barefoot doctors model” that is assumed to produce 145,000 rural doctors every year,
would cover most primary level needs. The existing health sub-centres, the first point of
care for villagers, are now being manned by Auxiliary Nurse Midwives (ANM).
6. Through NHSRC, the NRHM (National Rural Health Mission) is encouraging almost 200
hospitals to go for a sustained Quality Accreditation program and this is sought to extend
to 400 hospitals.
7. CGHS (Central Government Health Services) has made it mandatory for all healthcare
institutions and diagnostic centres providing care to have either NABH / NABL
certification.
Healthcare Education:
1. To meet the demand for more human resources, especially the doctors and nurses, the
government has reduced land requirements from 25 acres for medical colleges to 10
acres in urban areas. The INC norm of 4 acres for nursing colleges has also been relaxed.
2. Private medical colleges are allowed to conduct their own CET and the reservation
criteria for government seats and management quota have been relaxed with a uniform
pre-decided fee. Only the NRI reservation is maintained at 15%.
3. Private medical colleges are now allowed to register under Section 25 Act, unlike earlier
when they had to be under the Charitable Trust banner.
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31. Public Sector – Action Items:
1. Special benefits, Viability Gap Funding, and subsidies on cost of care for PPP initiatives
would make it more attractive for the private sector to participate.
2. Awareness drives, IEC for Health Insurance schemes covering both the rural and urban
poor to be initiated through collaborative approaches.
3. Incentivize corporate sector to take up healthcare initiatives for CSR activities.
4. The current compulsory rural stint for medical professionals should be continued;
however, it needs to be augmented with better facilities and support systems.
Import Duty Concessions:
1. Reduction in Import duty on equipment from 25%to 5%.
2. Customs Duty reduced from 16% to 8% for medical and veterinary furniture.
3. Custom’s duty on 24 medical equipment like X-ray, tele-therapy stimulator equipment,
goniometer have been reduced to 5%.
4. Depreciation on medical equipment raised from 25% to 40%.
Medical Device Interventions:
1. The government announced a USD 69 million in October 2009 to promote domestic
device/ manufacture to enable price control of critical equipment including stents,
catheters and heart valves, among others.
2. Central government to set up the first specialised device centre ‘National Centre for
Medical Devices’ in Gujarat to promote indigenous R&D efforts.
3. Medical Devices Regulation Bill has been tabled and is under consideration.
4. Enabling IT driven healthcare to improve the reach and costs. Tele-medicine, as a
branch of diagnosis and treatment, should be encouraged and widely implemented to
help ensure availability and accessibility of care to all areas in spite of infrastructural
inefficiencies.
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32. MEGStrat Consulting is a Research based Consulting firm based in Gurgaon, India. Privately held since 2011,
MEGStrat participates with its clients to address their most important and challenging business issues
through integrated research based consulting services comprising of market research, business research,
strategy consulting and corporate advisory.
The firm is on a growth track with fresh industry knowledge and ideas, which are continuously tested and
applied in terms of client impact, clients' customers, employees and revenues.
For more information on MEGStrat Consulting, please visit www.megstrat.com
Enabling [M]easurable [E]ffective [G]rowth Strategies
info@megstrat.com | MEGStrat Consulting (P) Ltd. | Website: www.megstrat.com | Board: +91-124-471-1910 | Mobile: +91-981-018-4350
MEGStrat Consulting, Level - 6, JMD Regent Square, Mehrauli Gurgaon Road, Gurgaon - 122002, Haryana, India.
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