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Healthcare: A bright horizon - Views on News from Equitymaster
 
 
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  • Jun 20, 2002

    Healthcare: A bright horizon

    The Indian healthcare industry may just be the next sunrise industry considering the innate potential of the sector. CMIE estimates the industry to be worth Rs 730 bn (US$ 15 bn) and expects it grow by 13% - 15% going forward. A good estimate of the growth potential is that while the World Health Organisation (WHO) has recommends a population to bed ratio of 1 bed per 300 patients the current ratio in India is about 1 bed per 1,000 patients.

    Considering that the number of hospital beds available in the country is approximately 5.5 m, the requirement is for nearly 6 - 6.5 m beds. The huge gap in supply and demand has created a potential for additional 75,000 to 100,000 beds to be set up in the country. Another driver for growth in this sector is the burgeoning middle class in the country. According to CMIE estimates the middle and higher income population as a proportion of total population has grown to 22% in 2000 from 14% in 1990. Health insurance will make healthcare affordable to a large number of people. Opening up of the insurance sector is going to benefit the industry further.

    The healthcare sector was recognized as an industry in the mid 1980s. Consequently, allowance of long term funding by financial institutions and reduced import duty on medical equipment and technology were some of the benefits provided by the government. While the prospects for the industry are encouraging, all has not been rosy for the industry. Fundamentally, fragmentation and poor of insurance penetration in the country plague the industry in India. The domestic healthcare sector is dominated by small hospitals run by trusts and the government. Long gestation periods and high capital investment are also deterrents to investments in this industry.

    The major players in the industry include the Apollo Group, Fortis Health Care, Max India, Escorts and Wockhardt & Duncans Gleneagles International of these Apollo Hospitals and Max India are listed on the stock markets. Apollo Hospitals not only the largest player in India but also one of the largest in Asia. The Apollo group has nearly 2,600 beds under its management. The closest competitors to the Apollo group are Max India and Escorts. The other players are very small in size. Apollo Hospitals is the only dedicated healthcare company listed on the bourses and has annual revenues of nearly Rs 4 bn (US$ 80 m).

    The health care industry is a very specialized industry and only the serious players are likely to sustain in the future. The Indian health care industry has traditionally been dominated by hospitals run by the government and private trusts but slowly the scenario is changing with the entry of serious players like Apollo hospitals, Max India and Escorts.

    With a growing middle class population and increased insurance cover for individuals the health care industry in India is on the verge of turning a new corner. The healthcare sector may very well offer an investment alternative for investors. Having said that it is very important not to get enamoured by numbers. But to conduct a through analysis of the company, its business proposition and its management and thus, consider it as an investment opportunity.

     

     

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