New Delhi:Dr Ashutosh Raghuvanshi, MD & CEO, Fortis Healthcare, says the next three years are going to be very exciting because we are looking to get all our Brownfield expansion in place. In the next three years, about 1,400 more beds, which are Brownfield and which will have a kind of a rapid turnaround and absorption in the system, will be ready. As and when these beds keep on getting absorbed, we expect to see a much faster growth than what we have seen in the last decade or so. That would be a significant growth. In terms of numbers, almost 35 per cent capacity is getting added. Being Brownfield, it will turn around pretty fast.
We should start with the fact that the number of COVID cases have increased.
Yes, numbers have certainly increased, but it is not an alarming situation. Hospitalisations have not increased. Most of the infections are self-limiting, though the numbers are increasing, but I think this wave should settle pretty quickly.
When we spoke to you last time, you said Fortis is committed to reduce their debt. You were generating cash flows. Why have you acquired an asset worth Rs 225 crore?
Our debt position has been continuously improving. We will be closing the year in a much better situation than what we started the year with. The balance sheet is strong and we need to look at growth and we have always stated that we are looking for growth which is synergistic and which gives us more depth in the clusters in which we operate. So, this acquisition is in line with that.
This would give us another 350 beds in Gurgaon where we already have a good presence, along with the brownfield expansion in our flagship facility. This would give us about 850 beds and this will help us to serve the community, especially the newer parts of the city which are growing. So, I think that this is very much in line with our stated strategy. At the same time, this is not going to be causing any stress on our balance sheet because our balance sheet is very healthy, our debt position has continuously been improving.
My understanding is that currently you do have an opportunity to go ahead with brownfield expansion, especially looking at your large hospitals and the kind of land which is there in the complex. Why are you not going for aggressive brownfield expansion?
We are very much on that. In fact, I am happy to inform you that the construction for four of our projects is already on and some of the brownfield growth which is to be done by commissioning new beds which are already ready in Mumbai and Calcutta are also ready. Plus, the construction at FMRI Noida, Shalimar Bagh and Faridabad is on. So, by the end of this year, we should have anothefr 250 beds added on the brownfield side.
This is a question which perhaps our viewers and your shareholders would like to understand. While the matter in terms of the open offer is something sub judice and so I am not getting there, but because of this overhang of this open offer, has there been any change in the business disruption? Has there been any change in terms of what IHH wanted to do but they are holding it back?
No, as far as our growth strategy is concerned, we have been very much on track. Focus in the first year was to get the cost structures right. Following that, we were bogged down by the COVID scenario for a couple of years. But post that, our plans are absolutely on track. All the brownfield expansions, a lot of physical infrastructure has already been added in the last three years as well, especially in terms of medical equipment.
A lot of large capital investment has been made in large diagnostic as well as therapeutic equipment and so that part has been completely on track and we are absolutely as per our plan. Going forward also, this acquisition is part of that strategy and we are looking for a little more rationalisation of our portfolio. As you are aware, some of our assets probably have not performed as well as others, so we are focussing on improving those performance or taking other steps for that. But at the same time, the idea is to improve both profitability as well as achieve a growth which is again profitable. So, this acquisition is very much aligned to the broad strategy.
What you are essentially indicating is that while strategically, there is an importance of the open offer to sail through, in terms of business progress and the strategy of the hospital, nothing has changed. The open offer is of strategic importance but in terms of business activity, everything is going as per plan and everything is on track?
Absolutely. There are certain things which we could do a little more but it is not stopping our regular operations. But if we were to look at some major acquisition or something, for that we would probably face some constraints. But at the moment, we are very clear that we do not have much overhang of the legal situation which is there.
What you have reported and the growth that you have planned would have become irrespective of the open offer or not? That is what I am trying to understand.
We are getting it whether we would be requiring further capital and definitely some fundraising will have to be done but we will do that at the right time.
As COVID cases rise, in terms of hospital preparedness and increased testing. a lot of our viewers would want to know a little bit more about that.
Testing infrastructure is very much in place because of the previous experience and the hospitals are also very much geared up to provide services and repurpose the areas which need to be isolated in case there is a need for that. So far, we are not seeing much hospitalisation and that part is pretty much taken care of. What we are also noticing is people are not testing as often as they used to for the simple reason that this is this very self-limiting kind of infection from which one generally recovers in 3 to 5 days.
A lot of M&A deals are happening in the hospital sector suddenly. It is on the top of the priority for PE investors. It is on the top of priority for sovereign investors. What has changed? PE money is considered to be tough money; but long term money is there now?
I think you have given the answer there itself because of the long term nature of the investment in healthcare, most of the funds find it very interesting. At the same time in India, we still have a huge gap between the demand and supply.
With universal health coverage, which the government has been planning in phases, it will give further boost to the healthcare infrastructure. At the same time, the penetration of insurance has been very fast, much, much faster than what it was anticipated. As a result of that, there will be huge demand for private healthcare and that is the reason why long term patient capital is seeking to get into healthcare and the reason we see so much activity and of interest in the healthcare delivery space.
For Fortis, the big uptick During COVID came from your diagnostic business. That segment has seen intense competition. SRL Diagnostics is one of your big businesses. It is number two or three in terms of the diagnostic chain as well. What is happening there?
You are right. There are a lot of tailwinds there because the diagnostic volume going up during the COVID phase has gone away and the space has become extremely competitive and new age players have come in. The digital first providers are there. Traditional players are there. A lot of new players have come in from the pharma and other industries as well. As a result of that, the overall growth rates have come down.
But we are seeing that some of the deep discounting which was happening earlier on has gradually rationalized now and as a result of that, some degree of stability is being seen. The other thing to remember is that in the diagnostic business, the organised sector is still relatively small, and there is a large unorganised sector. So there is a lot of potential for that getting organised. All these players would probably not do well but some of them will do well and the business will start consolidating. We are facing the same challenges as the rest of the industry at SRL as well. We are seeing that our organic growth which used to be around 14-15 per cent has come down to about 8-9 per cent so that has been the case.
Growth in other businesses, medical tourism or planned surgeries, will that more than make up the shortfall?
Yes, we look at diagnostics as well as hospitals separately. As far as hospitals are concerned, the occupancy levels have gone up, the international patients have also gone up. Hospitals have more or less made up for the shortfall which has happened on the diagnostic side but these two businesses have separate dynamics and it is important to evaluate them separately.
For next three to five years, for the industry as well as Fortis, what kind of growth should we expect of – mid-teens, mid 20s?
I think mid-teens is where we expect both the industry as well as our company to grow.
And how will the next three years for Fortis be different from the last three years?
Next three years are going to be very exciting for us because we are looking to get all our Brownfield expansion in place. In the next three years, about 1,400 more beds, which are Brownfield and which will have a kind of a rapid turnaround and absorption in the system, will be ready. As and when these beds keep on getting absorbed, we expect to see a much faster growth than what we have seen in the last decade or so. That would be a significant growth. In terms of numbers, almost 35 per cent capacity is getting added. Being Brownfield, it will turn around pretty fast.
This is purely based on Brownfield expansion that does not include any kind of an acquisition?
Yes, that would be an icing on the cake.
Just to wrap it up, what is the update on the open offer. Legally, where is it stuck?
Our understanding is that there is no restriction from the Supreme Court side. We are just seeking some clarifications and based on that, IHH would decide on the next few steps.
What about all the rumours that IHH is slightly disappointed with Fortis and are getting slightly edgy about what is happening to the legal framework? Can I dismiss all that? Are they fully committed?
IHH has been very committed and very involved with Fortis. And on the operational side, we have a lot of synergies with IHH. As a result of that, both sides are extremely happy for this association and this parentage which we have with IHH. So, there should be no doubt about the commitment which IHH has towards Fortis. All of us are disappointed with the pace at which these matters have proceeded. But definitely there is no disappointment as far as performance is concerned.
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