The US$ 15 bn Indian healthcare industry has innate potential to become the next sunrise industry. CMIE estimates that the industry is expected to grow by 13% - 15% going forward over the next 3-4 years. A good estimate of the growth potential is that while the World Health Organisation (WHO) has recommended 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 demand for additional 80,000 beds each year to be set up in the country for the next five years. 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.
Another big opportunity for the industry emerges from the privatisation of the insurance segment, which would extrapolate into a new delivery system in India. There is a vast insurable population in India, given that only 2 million people i.e. 0.2 percent of the total population are covered under Mediclaim. According to a recent study, there are 315 million potentially insurable lives in the country. India can also tap the potential of healthcare tourism, as comparative costs of surgery are very low in the country. Medical charges in India are between one-tenth and one-thirtieth those of the US. For example, a bypass surgery, which costs $3000 in US, costs between $ 715- 815 in India, with the same technologies and facilities.
Life expectancy, epidemiological profiles, indigenous systems of medicine, economic development and literacy are some of the major demand drivers of this industry. High life expectancy has resulted in a high growth of population that is above 65 years of age. Typically, people aged 65 and above use 3.5 times the health care, the cost per episode is higher, and their use of pharmaceuticals is 2.5 times higher than the average. They are the main users of health care, and therefore their growth will increase both health care demand and costs.
The Indian epidemiological profile is in the state of transition with nearly half of the patient population suffering from non-communicable diseases like diabetes, cancer, heart disease and renal diseases, while the other half is still prone to communicable diseases like cholera, TB, Typhoid etc. This transition is characteristic of a developing country with a relatively high GDP growth rate. Non- communicable diseases of lifestyle diseases are relatively more expensive and are a major growth segment for healthcare providers.
Economic development and higher literacy has increased the demand for quality healthcare services in the country. On the other hand organised healthcare providers face competition from indigenous systems of medicine that have been a part of the Indian culture for a long time. However increasing awareness and demand for quick fix treatment has shifted the balance in favour of organised healthcare services.
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.
Apart from fundamental issues like fragmentation and poor insurance penetration in the country the sector is plagued by poor public spending on healthcare (1.2% of GDP), which is one of the lowest in the world. 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. However the scenario is changing with the entry of serious players like Apollo hospitals, Max India and Escorts.
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).
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.