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00:00Let me quickly bring on board Sumit Gupta,
00:02research analyst at Centrum Broking Tracks Healthcare.
00:06And that's something that we are trying
00:08to kind of gauge and track better.
00:11Sumit, let me start off by asking you,
00:13what are trends which are currently playing out?
00:16How is pricing playing out?
00:18Do you expect pricing and value-added products
00:22to be the core now for healthcare going forward?
00:26Yeah, thank you for having me on the show.
00:28So regarding the pricing, let's say,
00:30so within the hospitals category,
00:32if you see, there will be a lot of competition
00:35that we expect going forward.
00:37Let's say the Delhi NCR market or in the South,
00:40the kind of expansion that is going on.
00:42Obviously, there might be some pricing issue.
00:44However, we see the volumes continuing.
00:49Like in the near term also,
00:50there might be some pressure on the volumes,
00:52but going over the medium to long term,
00:54we are positive on the space.
00:56Being in terms of diagnostic sector,
00:58the incumbents have regained their pricing power.
01:02So if you see over the last one to two and a half years,
01:04the margins have increased by a majority of volumes
01:07as well as some of the pricing power that they have got back.
01:11Sumit Varsha here, welcome to the show.
01:14So a lot of PE investors and VC investors
01:18are actually interested in healthcare
01:21when it comes to hospitals,
01:22especially in hospitals and health tech startup.
01:25Now, what are the factors that is driving
01:27these investments into hospitals?
01:31Yeah, hi Varsha.
01:32So regarding the PE or VC investment
01:35that has been going on for the last couple of years,
01:37post-COVID majorly,
01:39the key drivers are that there's a lot of scope
01:42in the healthcare sector.
01:43Majority is going towards the hospital sector.
01:46So let's say in 2023,
01:47nearly more than 60% of the investments
01:50have gone to the hospital sector.
01:52So if you see, there's a lot of scope,
01:54not only in tier one,
01:54but also tier two and tier three cities
01:56that we have seen the majority of the PE sector
02:00going towards.
02:01That's like, let's say, a care hospitals
02:03where a good PE firm is there
02:06and some other hospital chains that we have seen.
02:08So I think it will continue going forward also,
02:12the renewed focus towards the investments
02:14in the hospital space in particular.
02:17Right.
02:18Sumit, we're also seeing a lot of increased focus
02:21in terms of technological developments,
02:23robotic surgeries,
02:24and this comes with a lot of cost, of course.
02:26So I want to understand that,
02:29how do you see hospitals managing the cost
02:31versus the kind of R-POP growth that they're expecting?
02:35Right.
02:38Okay, from the starting.
02:39So if I explain,
02:40so basically the hospital sector,
02:42going forward also,
02:44they need to expand not only in terms of
02:46geographic penetration,
02:48they also need to expand or deliver high quality services.
02:52So for that, they need to do investments
02:54in terms of providing technological expertise,
02:56just like installing high-end equipment.
02:59So that itself gives a good healthcare infrastructure
03:03to a doctor also.
03:04So these kinds of investments are very much necessary
03:06for a hospital to maintain the quality
03:08as well as to retain the doctors also.
03:10Because for a doctor,
03:11if that particular investment or machine
03:14is there in that hospital only,
03:17then it reduces the a loss and increase the productivity.
03:22Sumit, I know we've been,
03:25we've not focused in on numbers yet
03:28and on industry growth.
03:30But I just want to cover one more piece
03:32before I move to that.
03:34You know, we've seen plenty of consolidation
03:38happening in this space.
03:40Given that trend,
03:41you expect that to continue to play out very likely.
03:45But who do you believe is best placed at this point?
03:49Is it the larger hospitals,
03:51the bigger brands?
03:54Is it some of the smaller ones
03:55trying to get into more niche categories?
03:58How do you look at it?
04:00So the consolidation space will likely go on.
04:03And over the next few years,
04:04I personally believe that
04:06there might be a good amount of consolidation
04:08within the overall healthcare space
04:10across all the subsectors also.
04:12Let's say we diagnose with big hospitals
04:14or some models of pharma players like CDM players.
04:16So what I personally believe is like hospital sector,
04:20we are going to see consolidation
04:21not only in tier one,
04:23but also tier two, tier three cities also.
04:26Because for a hospital,
04:28just like I treated before also,
04:30so I will,
04:31the point is about
04:33not only increasing in terms of expanding
04:35in terms of geography,
04:37but also improving the quality of services
04:40that the hospitals are giving.
04:41So in that sense,
04:43that will increase the overall brand
04:45of the particular chain
04:47and that will help to attract the patients
04:50and retain the patients also.
04:52So in that case,
04:53the market will increase.
04:54On the large cap versus the,
04:56let's say small size hospitals,
04:58I will see large cap hospitals
05:01doing more of the consolidation
05:02and acquiring good quality,
05:04small hospital chains
05:06across the length and breadth of the country.
05:09Right.
05:10So Sumit,
05:11I also want to understand that
05:12how are you seeing,
05:14future of medical tourism as a whole?
05:16Because that is something that is picking up
05:18and this is something that could be
05:21margin accretive for hospitals overall.
05:24So first of all,
05:25what are the trends you're seeing?
05:26And second of all,
05:27what kind of treatment or surgeries
05:29are likely to get international patients in India?
05:34Medical tourism as an industry in India
05:36is very, very attractive.
05:38So India remains a preferred destination
05:40for the patients across the globe,
05:42majorly from developing,
05:44underdeveloped countries also.
05:45So what is happening in India?
05:47What are the key drivers are?
05:48Basically the kind of affordability
05:50that India provides.
05:51Let's say for angioplasty
05:52or some heart bone replacement surgery,
05:54we are providing more than 80% discount
05:56to the global average.
05:58Or,
05:59and we have like,
06:01high quality doctors,
06:03the kind of talent that we have,
06:06that is at par with the global level.
06:08And if you'll see,
06:09we have a good connectivity
06:10to the majority of the countries.
06:12So like these are some of the factors
06:14which are also driving it.
06:16Going forward also,
06:17one more reason is also,
06:19we have a large NRA population base.
06:21So they visit back for the treatment
06:22to get high quality services.
06:25So in that case,
06:26this particular industry is likely to grow
06:29going forward also.
06:30And I see the majority of the hospitals,
06:34let's say Delhi NCR,
06:35that will continue to have a high volume share from this.
06:41Sumit, a lot of companies,
06:43rather a lot of hospitals
06:44are actually expanding
06:46when it comes to,
06:46you know,
06:47speciality segment,
06:48like oncology and all.
06:50Now, in your preferred list of stock,
06:52which hospitals do you see benefit a lot?
06:55Because that is a margin,
06:57a creative kind of segment.
06:58So,
06:59in your list of stocks,
07:00what are those hospitals
07:01that would benefit a lot
07:03when it comes to speciality segments?
07:06So within speciality side,
07:07if I talk from oncology,
07:08Max is the largest
07:09in terms of oncology.
07:11But overall,
07:12if I see incrementally,
07:13I see a small hospital chain
07:15like Artemis Medicare.
07:16We have,
07:17we see an incremental growth going forward,
07:19just like higher economies of scale
07:21driving the overall,
07:22expanding the overall margins.
07:23So,
07:24and leading to higher returns
07:26on capital input
07:27or on return on equity basis.
07:29So I see companies like Artemis
07:32or Yathart Hospital,
07:33which are,
07:34which going forward
07:35are also increasing
07:36in terms of geography
07:37and also in terms of,
07:40expanding in terms of basically
07:41the beds as well as the pricing also.
07:44Right.
07:45Sumit,
07:46you know,
07:47we spoke with Yathart just last week.
07:47They were guiding for a 30% growth
07:49all the way to FY30.
07:51Of course,
07:51acquisitions was one particular piece,
07:54which they were,
07:55you know,
07:55really constructive on.
07:57They were planning one acquisition every year,
07:59plus debt free.
08:01Looking at valuations also,
08:03when I'm comparing it to peers,
08:05it's a cheaper,
08:07you know,
08:07valuation metric at which it trades at.
08:09Just talk us through one,
08:11whether it's realistic to expect
08:12that kind of growth,
08:13a 30% on the base that they are at,
08:16and whether they can maintain margins
08:18at that kind of a base in your view.
08:21So,
08:22kind of growth that they have,
08:23or the overall geography that they plan,
08:24and yet they operate in basically
08:26the Noida market.
08:27So within Noida,
08:28they have,
08:29Noida,
08:30greater Noida,
08:30Noida extension,
08:31which,
08:32to my mind,
08:33is a high value,
08:34high market,
08:35in terms of potential,
08:37because we need,
08:38let's say for a hospital,
08:39we need to see from micro market point of view,
08:41because hospitals attract patients,
08:43let's say within a 10 to 15 kilometer range
08:45within the local market.
08:46So,
08:47in that sense,
08:48there is a lot of potential,
08:49which you see.
08:50One of the factor,
08:52post debt is,
08:53basically,
08:54if you've seen the population base
08:55in Delhi,
08:56in Sierra,
08:57in particular in Noida,
08:57that has been increasing,
08:58and going forward,
08:59it is also expected to increase.
09:00If you see,
09:01the good amount of IT companies,
09:04and the kind of employment tradition
09:06that has been there,
09:07and the kind of real estate projects
09:08that are coming there.
09:09So,
09:09we expect the population base to increase,
09:12and in that sense,
09:13there will be a need of high quality,
09:16tertiary care,
09:16and quaternary care treatment,
09:17just like Yathart is providing there.
09:19So,
09:20we see a good potential for Yathart,
09:22going forward also,
09:23and the margins,
09:24obviously,
09:24since they are expanding,
09:26they plan to add 200,
09:27300 bed kind of acquisition per year,
09:30and moreover,
09:30there is a brownfield of 150 beds in FY27.
09:33So,
09:34we see there might be some,
09:35like margin,
09:37basically,
09:38maintaining the margin at around 27%.
09:40However,
09:40we see a better per bed,
09:41growing at around 14 to 15%
09:43over the next three years.
09:45Right.
09:46Sumit,
09:46I also want to understand,
09:47for companies like Artemis,
09:48and AstroDM,
09:49they're aiming 8% RPOB.
09:51So,
09:52I want to understand that,
09:53with respect to companies
09:54that are aiming less than 8% RPOB,
09:56what are the key differentiators here?
09:58I mean,
09:58what is the kind of strategy
10:00that these companies are adopting,
10:02you know,
10:02to achieve that kind of RPOB?
10:05So,
10:05basically,
10:06Artemis is a pair mix.
10:07So,
10:08their pair mix is nearly 28%
10:10comes from the international patient.
10:12So,
10:12that is a higher RPOB business,
10:13like basically 1.5x
10:14of the overall average business.
10:17So,
10:18in that sense,
10:18RPOB remains a key driver,
10:21basically,
10:22international patients,
10:22RPOB remains a key driver
10:23to increase the RPOB.
10:24However,
10:25even for,
10:26let's say,
10:27companies like Max or Vedanta,
10:28there might be some,
10:30let's say,
10:31in the daily NCR market,
10:32obviously,
10:33there might be some,
10:34they will be doing it around,
10:35let's say,
10:35six to 7% kind of growth.
10:36However,
10:37the acquisitions that Max has done,
10:39let's say,
10:40in Sahara Hospital,
10:40Lucknow,
10:41or Nagpur,
10:42so there might be some,
10:43like,
10:44moderation in the RPOB.
10:45That's why we have taken,
10:46and overall,
10:47there's a huge base also.
10:48So,
10:49that's why we have taken,
10:50like basically,
10:51a normal,
10:52normalized growth.
10:54So,
10:55you know,
10:56it is a saying that,
10:57you know,
10:58you should never invest in a hospital company,
11:00when they are actually going into CAPEX.
11:02So,
11:03from your list of stocks,
11:04which are those companies,
11:05who are actually not doing a Greenfield CAPEX,
11:07because that will not have a dent in their,
11:10you know,
11:11a profit and loss statement.
11:12So,
11:13any company that you can highlight,
11:14where no Greenfield CAPEX,
11:16but a Brownfield CAPEX,
11:17so no dent in profit and loss.
11:20So basically,
11:20Artemis is one of the topic,
11:22just like,
11:23so recently,
11:23they,
11:24they,
11:25commissioned their Tower 3 facility also,
11:27which had 180 beds.
11:29So basically,
11:30they have increased their overall bed capacity.
11:33Now,
11:33going forward,
11:35as of now,
11:35they plan to expand,
11:36but,
11:37considering the over,
11:39of the bed capacity that they have,
11:40I think,
11:41the economies of scale would play well,
11:43and will likely increase to,
11:44lead to increase in margins,
11:46as well as overall return ratios.
11:47And if you see major,
11:49meet Artemis,
11:50or meet Max,
11:51so these are the kind of hospitals,
11:53which are majority in Brownfield.
11:55So,
11:56Max is nearly 70,
11:5777% of the beds planned is Brownfield.
12:00So,
12:01that will lead to,
12:01like,
12:02faster break-even,
12:03and higher RFC.
12:06Interesting.
12:07Sumit,
12:08you know,
12:09just curious to know,
12:10your position with regard to this,
12:11entire,
12:13PB Fintech saga,
12:14which is playing out.
12:15They're going to aid,
12:17or rather,
12:18they're gonna bring all insurers together,
12:20and set up probably a hospital chain,
12:22or a hospital enabler,
12:24to try and reduce costs in the,
12:27healthcare industry.
12:28If that were to translate,
12:30do you believe that,
12:31that could impact numbers,
12:33overall for the healthcare space?
12:35Would it impact other hospitals as well?
12:37Given the fact that,
12:39maybe 40%,
12:40if I understand right,
12:41of all,
12:43care which is taken in hospitals,
12:46is through insurers.
12:49Yeah,
12:49I get your point,
12:50but I think it's,
12:52like,
12:53in the past also,
12:53there was a hospital,
12:54like Apollo Munich was there.
12:55So,
12:56it's not,
12:57nothing new that,
12:58hospitals and insurance providers are there,
12:59but overall,
13:00if you see,
13:01I see,
13:02the,
13:03it,
13:04first of all,
13:05it's a very nascent space,
13:05as of now,
13:06for this particular plan.
13:07And second is,
13:08I see the,
13:09it's going to be tough,
13:10for insurance plus hospital business,
13:12as a whole,
13:13because if you see,
13:13the insurance requires a massive role.
13:15They're trying to,
13:16we're trying to a particular chain,
13:17which has less market share,
13:19becomes harder.
13:20Second is,
13:21there are a lot of regulatory issues,
13:22which,
13:23which might come,
13:24about consolidation of insurance,
13:26with the hospital,
13:27particular hospital.
13:28And second,
13:29if you see,
13:29also,
13:30there is a,
13:31like,
13:32benefit of insurance,
13:33plus the hospital,
13:35as a,
13:36industry,
13:36is not proven across the world.
13:38So,
13:39insurance company,
13:40doesn't control much power on,
13:42how the patient should be directed,
13:44to a particular hospital.
13:45So,
13:46I think it's,
13:47a very nascent stage,
13:48and we,
13:49like,
13:50it needs to be seen,
13:51how it pans out.
13:53Right.
13:53Sumit,
13:54you know,
13:55there are a lot of picks,
13:56that you have,
13:57from the universe,
13:58that you cover.
13:59How do valuations look like?
14:00What are your preferred picks,
14:01when it comes to,
14:03the valuation bit of things?
14:05So we see,
14:06Artemis and Yathar,
14:08being,
14:08re-rated.
14:09And overall,
14:10the kind of,
14:11growth potential that it has,
14:12the market will,
14:13like,
14:14like,
14:15will,
14:16will,
14:17well,
14:17like,
14:18basically,
14:20they will re-rate it,
14:21and overall,
14:22it's,
14:23it's a good potential,
14:23in these kind of stocks,
14:24that we have.
14:25Well,
14:26and,
14:27apart from the,
14:28this space,
14:29if you talk about,
14:29the,
14:30companies like,
14:31Max,
14:32or Medanta,
14:33there are some delays,
14:34but I think,
14:34the overall valuation,
14:35over the last,
14:36one month,
14:37that has come down,
14:38and,
14:39it was favorable.
14:41Sumit,
14:42one more question,
14:43on private hospitals,
14:44the share of treatment,
14:45there,
14:45is expected to rise,
14:46around 73%,
14:47by FY27.
14:49I want to understand,
14:50what are the kind of,
14:51challenges these hospitals,
14:52could face,
14:54and,
14:55how will this,
14:56overall,
14:57shape up,
14:57for the entire,
14:58hospital industry?
15:00So,
15:00overall private sector,
15:01like,
15:02there are two or three,
15:03key factors,
15:04like,
15:05basically,
15:05the,
15:06basically,
15:07then the penetration,
15:08of the bed density,
15:09and second is,
15:10the price of insurance,
15:11penetration,
15:11that is going on.
15:12Third is,
15:13the medical tourism,
15:14that we discussed.
15:15So,
15:16basically,
15:16the challenges,
15:17that might,
15:18that they might face,
15:19overall,
15:20of the overall,
15:21private hospital,
15:21that there might be,
15:22a good amount of competition,
15:24because there is a lot of,
15:25majority of the hospitals,
15:25are coming with,
15:26a good expansion plan.
15:27So,
15:28there might be some,
15:29kind of consolidation,
15:30as well as competition,
15:31in terms of,
15:32attracting the volumes,
15:33and for some,
15:34obviously,
15:35there will be some,
15:36incremental volume,
15:36for some,
15:37they will see,
15:38volumes declining.
15:39So,
15:40in the near term,
15:41we would see,
15:42there kind of,
15:42would be some kind of,
15:43competition leading to,
15:44lower volumes,
15:45and,
15:46kind of,
15:47pricing pressure also.
15:49Sumit,
15:50any regulatory risks,
15:51or any policy risks,
15:52in your view,
15:53both with regard,
15:54to standardization of fees,
15:56as well as a cap,
15:57on RPOB,
15:58is there something that,
16:00you are building in,
16:01or you,
16:02or one may expect,
16:04given,
16:05given the way in which pricing,
16:07in the healthcare space,
16:08is playing out?
16:11See,
16:12in the hospital industry,
16:13regulation risk,
16:14remain,
16:15like it remains forever.
16:16So basically,
16:17at any point of time,
16:18the regulatory bodies can come.
16:20However,
16:21if you see,
16:23there has been an increased focus,
16:25from the private,
16:25as well as the government,
16:26to increase the beds,
16:28or the overall bed density,
16:29across the length and breadth of the country.
16:31So,
16:32I see that the,
16:33I understand obviously the,
16:35in the March,
16:35when Supreme Court came with that order.
16:37So,
16:38point is,
16:39I think,
16:40it is more of a noise,
16:41than a kind of material event,
16:42that might take place.
16:43Because suppose,
16:44if,
16:45if the particular,
16:46order or some,
16:47pricing pressure is there,
16:49or pricing,
16:50getting all the prices there.
16:51So,
16:52I would see,
16:53majority of the private players,
16:54let's say,
16:56they are checking their plans,
16:57and stopping their overall KPS plan.
17:00That will have a negative impact,
17:01on the overall industry,
17:02as a whole.
17:03So,
17:04I see,
17:05that might not be material enough,
17:08as of now.
17:09And,
17:10the KPS plan would go on as large.
17:12Right, well Sumit,
17:13thank you so much,
17:14for giving us those insights,
17:16on the entire hospital industry,
17:18and the pharma space overall.
17:20Thank you so much,
17:21for taking your time,
17:22and speaking with us at NET Profit.