Indian Healthcare Industry Entering A Golden Era

29 September, 2011

The Indian healthcare industry is entering a golden era with companies looking to build large, organised chains for a growing population seeking quality healthcare across specialties while increasing insurance penetration ensures better spending power on the part of consumers. But deal-making in this space still remains a challenge due to several factors – such as high costs of real estate and medical equipment. However, Investors, entrepreneurs and other stakeholders in this industry, which is expected to become double its size to $100 billion by 2015, have discussed a variety of opportunities and challenges at the VCCircle Healthcare Investment Summit 2011, held in Gurgaon on September 28. Over 200 people have been present at the event which has helped explore the fast-evolving healthcare industry and highlighted the best way to tap growth.

“We are just starting the golden era of healthcare in India. Everyone recognises the opportunity; so it is a competitive market,” comments Naveen Wadhera, director and country head of the US-based private equity firm TA Associates. Wadhera, whose firm is a large investor in the US healthcare space, adds that currently India is where USA was 30 years ago, in terms of trends underlying the sector.

The first panel – Understanding The Indian Healthcare Macro Story – has been moderated by Sabre Capital founder MD Rajiv Maliwal, who feels that the macro story of healthcare is built on a lot of micro issues.

Dr Om Manchanda of Dr Lal PathLabs has said that there will be significant changes regarding how and when patients consume healthcare services. “The shift is now from prescriptive to preventive treatment, which will soon go to predictive. Maybe in the next five years, healthcare will become very predictive in nature. The trend has already started in the west, thanks to genetics,” he adds.

Manchanda has also pointed out that earlier, the dialogue used to be only between doctors and patients. But now, service providers have come into the picture and another segment (insurance industry) will also play an important role in the coming years.

Manchanda, whose company is backed by Westbridge Capital and TA Associates, has added that mediums like the Internet and the mobile, which have not been fully exploited by the industry till date, will also play an important role in scaling the business.

Amit Hirawat, director at India Value Fund Advisors, has noted that the biggest challenge in this sector is getting a team of doctors, providing remunerations and aligning them to the larger business. Then there is the long gestation period so typical of the industry and the difficulty to expand to new geographies with the existing incumbents through referral fees. High real estate cost is also one of the key challenges in this space.  Incidentally, India Value Fund has backed healthcare companies like Care Hospitals and DM Healthcare.

“Cost of real estate in healthcare sector is prohibitively high. One of the models discussed in the recent past is a realty company that leases properties to healthcare service providers (like REITs). However, this concept will take some time to build as one has to face certain regulatory issues in such cases,” says Shailendra Tandon, director at the Asia Pacific Health Care Advisors.

Another challenge mentioned by Ratan Jalan of Medium Healthcare focuses on acquiring talent and the management bandwidth. Dr Amit Varma, president (healthcare) at Religare Enterprises, thinks that doctors are now getting more aware of their contribution to the P&L of companies. While the current remuneration model is a mixture of fixed salary and a cut of the topline, an ideal model should involve a cut of the EBITDA margin.

Dr M.K. Khanduja of BSR Super Specialty Hospitals also feels that manpower is a challenge but points out that in smaller cities, doctors can earn more and recognition comes fast.

According to Manoj Gopalakrishna, MD of medical technology firm Becton Dickinson India, once the healthcare sector gets the infrastructure status from the government, a move that has already seen some progress, access to technology and finance will get easier.

Anjan Bose, president at Philips India, has quoted a CII-McKinsey study to inform that 35-40 per cent of the capex for healthcare firms is the cost of equipment and 80-85 per cent of those have to be imported. Also, MNCs like Becton and Phillips have to rely more on local innovations and production for this cost to go down, which will require government incentives, he has added.

 


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Indian Healthcare Industry Entering A Golden Era

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