Narayana’s dilemmas
Indian hospital chain Narayana Health, whose innovations in procurement, process and staffing have cut the price of open-heart surgery to US$2,000, and brought its chairman, Devi Shetty, the status of rockstar surgeon, is entering Kenya – backed by the Abraaj Group and the IFC. This long-term partnership opens up a new frontier for its rapid expansion. It has been years in the making. And, yet, could it still be too soon?
Yes, Narayana is only opening 130 beds – it’s not a major bet for a devotee of scale. It’s only its second foreign venture and director of strategy, Viren Shetty, described the project as Marks & Spencer’s healthcare, not Harrods. Kenya’s National Hospital Insurance Fund (NHIF) scheme and regional hub status should also bring plenty of demand. And the Africa to India medical tourism stream looks like it’s stagnating, forcing Indians to chase African patients at home.
But, unlike most of its compatriots, Narayana has made the significant step of investing its own capital. And when you look at its occupancy figures at home, you might wonder why.
At 54% for the financial year 2016, occupancy has grown gradually from the dismal 45% of 2013, but is still far behind the 72% of Fortis. Even Apollo, which has had some very public difficulties this year, is at 63%.
Narayana claims admirably that it never turns a patient away, and with only a quarter of the hospital beds in India of the global average, you would expect the 50-60% of its beds, which serve the general public, to be pretty busy.
So it’s a surprise that just 18% of patients for the group come from India’s basket of SHIs – although it’s not clear how many “walk-in patients” are subsidised – and for occupancy to still be flagging.
Shetty points to its rapid expansion – and it’s true that EBITDA in hospitals that have been up and running for five years or more is over double the 11.5% for the group as a whole at 23.8%. He claims the group will continue to expand “as long as it can afford it”. But investors might wish Narayana put more energy into getting patients into its existing beds before they open any new ones. Some clarity on how you combine a charitable purpose with commitments to boost margins and grow average revenue per occupied bed (ARPOB) would also not go amiss.
Devi Shetty was Mother Theresa’s personal physician. Unlike her, however, he’s chosen capitalism, not charity, as the vehicle for his philanthropy. That means if he wants his reputation to ever match hers, he might want to start making more money.
We’ll have more on this story in next week’s edition.
We would welcome your thoughts on this story. Email your views to Claude Risner or call 0207 183 3779.
