Kovai Medical Center and Hospital on valuation explosion and growth tragectory

Extracts from the Annual Report 2013-14 of  Kovai Medical Centre Hospital

Last year, we ended the annual report mentioning our desire to start liver
transplant and a world-class cardiac center. Both the dreams became a
reality. Dr.Prashant Vaijyanath, a cardiac surgeon of international repute,
was recruited as Director, Cardiovascular and Thoracic Surgery. His
capabilities has transformed the face of cardiac surgery in the region. The
joining of Dr. Olith Selvan and Dr.Magnus Jayaraj Mansard on the other
hand enabled us to start liver transplant surgery.

Cardiac transplant
Although cardiac transplant has been around for more than four decades,
hardly two cities viz. New Delhi and Chennai have been able to successfully
carry out this path-breaking surgery in India.
http://www.dmrhs.org/tnos/notifications/list-of-approved-hospitals-for-heart-transplantation
Kovai Medical Center and Hospital created history by performing the first cardiac transplant
successfully in Coimbatore for an extremely sick patient. The team headed
by Dr.Prashant Vaijyanath was able to transfer the heart from a 45 years old
brain dead man to a 24 years old young man in a record time of 45 minutes.

https://www.apollohospitals.com/centre-of-excellence-heart-institute.php


The team is confident of starting lung transplant in the near future.


The Members of the Company on 23 August 2011 had approved the borrowings by the Company for an
amount not exceeding 750 Crore (Rupees Seven hundred and fifty crore only) and creation of charge to
secure the borrowings vide Ordinary Resolution(s) under Section 293(1) (d) and 293(1)(a) of Companies
Act, 1956 which is valid for a period of one year from the date of notification of Section 180 of the
Companies Act, 2013.

Your Hospital continues to show robust performance year-on-year and it has to keep investing substantial
amount to increase the bed capacity in existing centers and have to invest continuously in new
technologies, modernization of facilities and expansion of services.
We believe that these investments will help us to attract and retain Doctors and make our Hospitals a preferred destination for patients.
Moreover as part of our ambitious growth plans, we are also contemplating to take up new projects at
different locations other than Coimbatore.

Therefore, it is considered desirable to enhance the borrowing limits to 1000 crore (Rupees One
thousand crore only) apart from temporary loans obtained / to be obtained by the company from its
Bankers in the ordinary course of business.


The Hospital in order to enhance the patient satisfaction has decided to add 150 beds to its existing
capacity - 75 beds for Emergency & Intensive Care and 75 beds for patient rooms at Main Center. In
addition, it has also undertaken modernization / renovation work at Erode Center as well as at City Center.
The capital expenditure for the above plans outlined will be approximately 80 crore.

As a part of our ambitious growth plans, we plan to set up a new Hospital in Chennai in order to reach out to
wider population. It is envisaged to have a 300 bed Hospital at an estimated cost of 300 crore.
The above projects will be funded by existing funds, internal accruals, incremental debt and equity. It is
always our endeavor to provide improved outcomes to patients and in this regard we have added one
more speciality i.e. liver transplant.

Health care Industry in India
At the turn of this century, health outcomes in India and the quality of the underlying health system
significantly lagged those of peer nations. From such weak beginning Indian health care industry, has
made steady progress, but remain inadequate on most parameters.

In India, health care sector suffers from underfunding and bad governance. India has made huge
improvements since independence, but majority (70 percent) of the effort has been private sector led.

Still India accounts for 21 percent of the world's burden of disease – Courtesy Wikipedia.
Though the Government spending on health care is inadequate, it plans to increase it further by 2.5
percent of the GDP in the 12 five year plan. The amount of public fund that India invests in health care is
very small compared to other emerging economies.

With 6 percent of GDP expenditure on health care, India ranks among the bottom five countries with the lowest public health spending globally.

As per the study by CRISIL Research, the health care delivery industry is expected to grow at 12 percent
CAGR to reach 3,500 billion by 2014-15. According to CRISIL, owing to the shortages in public health
care delivery in India, private expenditure on health care accounts for nearly 75 percent of overall health
care expenditure in the country and is the highest in the world.

Health care in India today provides existing and new players with a unique opportunity to achieve
innovation, differentiation and profits. In the next decade, increasing consumer awareness and demand
for better facilities will redefine the country's second largest service sector employer.
India's primary competitive advantage over its peers lies in its large pool of well-trained medical
professionals. Also, India's cost advantage compared to peers in Asia and Western countries is
significant. Cost of surgery in India is one-tenth of that in theUSor Western Europe.

To improve the India's health care access, paradigm shift is required from `infrastructure focus' to
`productivity focus'. This can only be achieved if larger fund allocation for health care is accompanied by
effective and innovative interventions to improve the existing health care ecosystem.

The Indian healthcare industry in India is rapidly growing and is being fueled by large investments from
existing corporate hospital chains as well as new entrants backed by private equity investors. This is a
clear indication that health care is going to be a major sector that stimulates the economic growth. The
healthcare industry forms the backbone of any nation's well being and can be broadly divided into five
segments namely hospitals, pharmaceuticals, diagnostics, medical equipment & supplies and medical
insurance.

Road Ahead
OPPORTUNITIES
Drivers of growth
Increasing Health awareness
Rising income levels
Telemedicine is a fast emerging sector in India, In 2012, the telemedicine market in India was valued at
US$ 7.5 million and is expected to grow at aCAGRof 20 percent to US$ 18.7 million by 2017.
India's competitive advantage also lies in the increased success rate of Indian companies in getting
Abbreviated New Drug Application (ANDA) approvals. India also offers vast opportunities in R&D as well
as medical tourism.
The Indian medical tourism industry is pegged at US$ 1 billion per annum, growing at around 18 percent
and is expected to touch US$ 2 billion by 2015.
There is a significant scope for enhancing healthcare services considering that healthcare spending as a
percentage of GDP is rising. Rural India, which accounts for over 70 percent of the population, is set to
emerge as a potential demand source. Only 3 percent of the specialist physicians cater to rural demand.
There are vast opportunities for investment in healthcare infrastructure in both urban and rural India.
About 1.8 million beds are required by the end of 2025. Additionally, 1.54 million doctors and 2.4 million
nurses are required to meet the growing demand.
Source: India Brand Equity Foundation (IBEF)
India's population is expected to grow from around 1.1 billion in 2009-10 to over 1.4 billion by 2026. The
number of treatments required is therefore expected to increase in tandem. As current health care
delivery system remains woefully inadequate, there is tremendous opportunity for growth.
With the rise in literacy levels across the country, greater percentage of population understands the need
for preventive and corrective health care facility. It is likely to increase the demand for health care delivery
services.
Steady increase of disposable income is expected to create higher demand for quality health care though
health care is largely considered a non-discretional expense.


Change in disease profile
Health Insurance coverage
Medical Tourism
High capital investment
Obsolescence of medical equipments
Increasing inflation
Factors like changing demographics, rising disposable income and change in dietary patterns lead to
increased incidence of life style related diseases. All these will result in increased demand for quality
health care services.
Presently 95 percent of India's private health care expenditure is in the form of out-of-pocket expenditure
as health insurance coverage is under 5 percent. This gives opportunity for cheaper penetration of health
insurance which is likely to become more affordable for a larger percentage of the population.
Medical tourism has gained momentum over the years and India is fast emerging as a major medical
tourist destination. As governments across the globe and patients worldwide struggle with soaring health
care costs, the relatively low cost of surgery and critical care in India is drawing the attention of global
healthcare providers.
The performance of health care industry has been very encouraging and as a result of the significant
growth and opportunities in the industry, many new players are entering into hospital sector. This is
causing increased competition for business, man power, market share etc.
The health care industry is capital intensive and substantial capital amounts are required for establishing
and modernising hospitals.
Rapid technological change in the medical equipments is a common factor in health care industry. The
product innovation and evolving technologies push the health care industry to frequently upgrade its
equipments.
The inflation in India is continuously on the increase. This could cause spurt in the cost of transportation,
wages, raw materials and equipments.


Shortage of skilled manpower
EXPANSIONPLAN

Increasing health awareness, rising income levels, emergence of various domestic hospital chains have
increased the demand for medical professionals, para-medical staff, nurses, technicians etc. putting
pressure on the available resources.