As non-healthcare players increase stakes in the healthcare sector and investors continue to search for value buys, legacy players are repositioning themselves into more agile parts, to coax out more efficiencies and compete with more recent entrants.
But single specialty players, especially those with a trusted brand name and legacy in the markets they serve, could turn out to be the real winners in this race to attract market share and investor interest.
Consider the recent news that market leader Apollo Hospitals Enterprise (AHEL) got approval from its board to demerge its pharmacy and digital health business, as a precursor to an expected listing of the new entity in 18-21 months. As per a company release, this three step reorganisation would result in an omni-channel pharmacy distribution and digital health platform, with scale of Rs ~16,300 crores of revenue in FY25, with stated plans to achieve Rs ~25,000 Crores revenue by FY27, with ~7 per cent EBITDA margin. Subject to approvals from the regulator, the reorganisation represents a potential customer funnel of over 100 million individuals into the Apollo healthcare universe, as per the release.
AHEL’s reorganisation has got the thumbs up from most analysts. A Motilal Oswal Financial Services Ltd (MOFSL) report titled, Strategic demerger sets stage for long-term value creation, the demerger allows for a sharper strategic focus, with Apollo Hospitals concentrating on core healthcare services, while NewCo drives growth in digital health and pharmacy distribution under dedicated leadership. The MOFSL report predicts additional benefits for AHEL, like the integration of pharmacy-related functions which is expected to enhance margin realisation through efficient supply chain management.
AHEL earlier refuted market buzz about the divesting of its maternity and children care division Apollo Cradle and Children’s Hospital (https://www.expresshealthcare.in/news/ why-apollo-hospitals-is-divesting-apollo-cradle/449410/) stating that “there is no truth to such rumours as reported. Apollo Cradle continues to pursue its path of growth with its distinct nurturing touch and care.” AHEL subsequently announced expansion plans for the division, projecting the opening of 7-8 new centers across India within the next five years.
Groups like AHEL currently have the advantage over contenders like Amazon, which recently added diagnostics to its Medical services category, to complete the patient’s journey from its existing teleconsultation and pharmacy services. (https://www.expresshealthcare.in/news/not-having-diagnosticswas-not-an-option/449547/)
India’s health sector is in a sweet spot and everyone is aiming for pole position. As per a recent Angel One report, India’s hospital market is expected to grow at a CAGR of 8 per cent and is expected to reach a size of $193.6 billion. Around 64 per cent of the market is controlled by private players who are expected to add around 10,000 beds in FY26. Planned greenfield expansions in metro and tier 1 cities by the private sector are expected to break even in 12-15 months, as per Angel One.
AHEL led the private sector, with a bed count of over 10,000 beds across 73 hospitals but that lead is now under threat. Manipal Hospitals’ acquisition of Medica Synergie and AMRI Hospitals gives it 10, 500+ beds across 37 hospitals. Manipal could further consolidate this lead if it succeeds in its bid for Pune-based Sahyadri Hospitals.
But as per media reports, Manipal has tough competition from peers like Max Healthcare as well as private equity (PE) investors like IHH Healthcare-backed Fortis Healthcare, KKR, Blackstone, and EQT Partners. The frenetic bidding for Sahyadri Hospitals continues the trend of PE investors investing in Tier 2/3 city based regional healthcare chains, and exiting at higher valuations once the regional player has scaled up. Fortis Healthcare, Aster Quality Care, Ujala Cygnus are also reportedly scaling up in their chosen niches.
While the multi super speciality chains fight for market share, the single speciality care segment is proving that size is not everything, relevance is. And growth rates could be more attractive, even on a smaller base. According to Avendus Capital’s recent report titled, Breaking Away: How Single Specialties Are Carving Their Own Path in Indian Healthcare, organised single specialty chains,with a current market size of USD 4 billion and 27 per cent share within the single specialty segment, are expected to grow at 24 per cent CAGR to USD 9 billion by 2028. Their growth is underpinned by strong fundamentals – EBITDA margins exceeding 20 per cent, ROCEs above 30 per cent, and early break even within two years. The segment has attracted cumulative PE investments exceeding USD 3.7 billion since 2015, accounting for over 35 per cent of total hospital investments. 70 per cent of these investments have gone to established specialties such as IVF, eyecare, mother & child care, dialysis and oncology.
Investors have also widened their search to more segments. As the Avendus Capital report points out, in the last 2- 3 years, leading players in specialties such as dental care, urology / nephrology, skin and hair care have also started to attract investor interest due to significant whitespaces in the demand-supply in these specialties. These formats offer an ideal blend of low capital intensity, high specificity of care, and replicable business models that are increasingly appealing to institutional investors and founders alike.
Market leaders are clearly positioning themselves to make the most of increased investor interest. However, success would depend on the smooth execution of these planned reorganisations and integration of merged entities. Above all, while these could generate shareholder value, will patient outcomes and affordability benefit to the same degree?
VIVEKA ROYCHOWDHURY, Editor
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