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Apollo Hospitals – First-World Health Care at Emerging-Market Prices - page 6 / 19

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705-442Apollo Hospitals

the physicians, and procured the necessary medical equipment and IT systems.  Apollo was also intimately involved in all business decisions.  It set prices for the medical services offered in the clinics and helped develop their marketing strategy.

Apollo did not require franchisees to be physicians themselves.  In fact, of the 30 clinics that were operational by early 2005, physicians ran very few.  “People with a background in health care often have a limited view of health care.  Today, if you are talking to a person in the industry about spending money on interior design or signage, he would think it is a waste of money.  The health care community does not value the things that are critical to Apollo.  But that is exactly what we are trying to change,” noted Ratan Jalan.

Each clinic included a 24-hour pharmacy, which Apollo expected to generate about a third of the clinics’ revenues.  Company projections indicated franchisees would earn an IRR of more than 25% on their investment, but Jalan conceded financial outcomes were more varied: “Quite a few clinics are doing really well, a large number are doing ok, but a few are not running as expected.”  In coming up with its financial projections, Apollo emphasized that the clinics were stand-alone businesses that did not depend on the proximity of an Apollo hospital for their success.  In fact, more than one half of the planned clinics were located in cities without an Apollo hospital.  Ratan Jalan nevertheless expected positive spillovers for the group: “I have often given the IBM example.  They were in the mainframe business and then they discovered the PC which everybody uses today.  The clinics will give consumers an idea of what Apollo is really all about.  Today’s perception is about high-end operations.  But with the clinics, Apollo will become much more accessible, develop a much warmer image than we have today.”

Competitors

Apollo had a number of competitors in the market for privately-provided tertiary care.  For instance, the health care division of the Manipal Group, one of Asia’s largest hospital management groups, ran 11 private and 7 government-affiliated hospitals with more than 6,000 beds.10  Fortis Healthcare Ltd. managed super and multi-specialty hospitals in three locations in India and planned to grow from 600 beds in 4 hospitals to 4,000 beds in 10 hospitals over the next few years.11  Ranbaxy Labs, India’s largest pharmaceutical company, was a strategic investor in Fortis, holding a 17% stake in the company.  Wockhardt Hospitals Ltd., the hospitals division of the eponymous pharmaceutical company, operated specialty hospitals in Mumbai, Bangalore and Kolkata.  Wockhardt had formed an alliance with Harvard Medical International to gain access to Harvard’s expertise in the field of surgical services.  Wockhardt planned to set up at least five new super-speciality hospitals in the next three years.12  Many of Apollo’s competitors including Delhi-based Max Healthcare and Fortis worked on building integrated delivery networks ranging from primary to tertiary care services.

Analysts expected India’s private tertiary care sector to grow at 15% CAGR in the next few years.13  The Infrastructure Development Finance Company (IDFC), a private-public venture set up by the government of India, saw three main drivers of future growth:14

The present shortage of premium medical facilities, the growing incidence of lifestyle diseases, and growing income levels, have all led to a large unfulfilled demand for high quality healthcare services, translating into a large potential opportunity.  Today, healthcare is being touted as the next big boom, and the sector is expected to grow rapidly over the next decade, to reach a level of Rs. 200,000 to 300,000 crore by 2012, largely spurred by an increased corporate presence in the sector.

Although demand for tertiary care services was poised to grow, keeping hospitals profitable was not easy, mainly because in-patient care required considerable up-front investments.  In the 1990s, many highly-leveraged hospitals found themselves unable to service their debt.  As a result,

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