Panorama

DECEMBER 2010 ISSUE SIX

•Overview of Healthcare
Sector
•Player profiles
•News updates

An Overview of the Healthcare Sector

Introduction
The healthcare sector in India has
tremendous scope for growth. Per capita
healthcare spending in India is less than a
tenth of that of other BRIC countries.
Additionally, public expenditure on
healthcare as a percentage of total
healthcare spending is less than 20-22%
(compared to an average spend of 40%
for other growing economies), making
India significantly dependent on private
sector spending. The Indian healthcare
d: 1
er thousan
f d o c to r s p
-Number o
health estimated to grow 14 per cent
annually, according to a report by The Indian healthcare
industry chamber FICCI. Another
FICCI report estimates that the sector is sector is expected to
poised for growth at a CAGR of 14% become a USD 280
and is expected to increase in size to USD
280 billion. This expectation of rapid billion industry by 2020
growth has its basis in the predicted
increase in personal income, government
healthcare outlays and private domestic
approximately 0.9 per 1000 as opposed to
investments, combined with longer life
the world average of 4 per thousand.
expectancy.
Similarly, the number of doctors is also
The healthcare insurance
abysmal – 1 per 1000 with the world
segment in India has a
average being 3.5 per 1000. Thus an
penetration of only 10%, one of
estimated expenditure of USD 10 billion
the lowest in the world, and it is
per annum for the next ten years is
even lesser in rural parts of the
country. Since the majority of
required to bring India on par with the
insurance premiums come from
standards of BRIC countries.

o rld average: 3.5) the private sector, healthcare is

(W currently a ‘discretionary
0.9
thousand:
r expense’ rather than a necessity
f b e d s p e
-Number o for the lower middle class.
rage: 4) However, this too is expected to
(World ave change in the next 5 years.
The rapid expansion plans that
companies such as Apollo and
Fortis have kick-started
demonstrates the commitment
and expectations of the private
sector is expected to become a USD 280 sector from this segment.
billion industry by 2020 with spending on The number of hospital beds in India is
Sub-segments
Hospitals:
Accounting for 70% of the revenues of
the sector or approximately USD 40
billion, this is also the fastest-growing
segment with players like Apollo and
Fortis expanding rapidly. Considering the
abysmally low ratios of doctors and beds
to patients, it is also the sector with the
maximum potential for growth.

1
 CRAMs:
The Indian pharmaceutical industry is
gearing up to exploit the over USD 35
billion global contract research and
manufacturing (CRAM) business in a big
way. Astra Zenca, Pfizer, Eli Lily, GSK,
Merck, Allergan are amongst a host of
global companies that are increasingly
outsourcing their demands from Indian
CRAM companies and if the recent
Medical Tourism
• Patients from developed countr
ies fly
in to receive healthcare at
a fraction of
the cost
• Ministry of Tourism is also pro
moting
medical tourism in India thr
ough
packages and schemes.
USD 60 million order from global life
science majors to Jubilant Organosys,
over USD10 million contract each from
three to four global majors to Chennai-
based Shasun Chemicals and a few other
major orders to Nicholas Piramal, Divis
Lab, Dishman Pharma are any
indication, Indian pharma companies are
certain to benefit immensely from the
CRAM business.
CROs:
A contract research organization, also
called a clinical research organization,
(CRO) is a service organization that
provides support to the pharmaceutical
and biotechnology industries in the form
of outsourced pharmaceutical research
services (for both drugs and medical
devices). CROs range from large,
international full service organizations to
small, niche specialty groups and can
offer their clients the experience of
moving a new drug or device from its
conception to regulatory approval
without the drug sponsor having to
maintain a staff for these services.
Although the CRO market in India is
valued at only about USD 140 million, it
has been growing at an astonishing 30%
annually and is expected to accelerate in
the future.
Pharmacies:
India’s retail pharmacy market is highly
fragmented and dominated by archaic,
independent kiosks. The penetration of
organized retail was only 4% in 2007. In
comparison, retail pharmacy chains in
the UK and the US contribute over 50%
of pharmacy sales. However, with the
entry of organized players such as
Apollo, this segments is seeing annual
growth rates of over 40%, one of the
fastest in the organized sector.
Diagnostic Centres:
Diagnostic services are an integral
component of the overall value chain as
70% of treatment decisions are based
on lab results. The current market
comprises of 40,000 - 50,000
laboratories with around 2 million tests
per day. Given this, less than 1% of the
laboratories in India are accredited
and approximately 10% are located
within hospitals. This signals a huge
latent opportunity for growth.
Medical Tourism
This is a rapidly growing segment of
the healthcare sector. Advantages for
medical tourists include reduced costs,
the availability of latest medical
technologies and a growing compliance
on international quality standards, as well
as the fact that foreigners are less likely to
face language barriers in India. The
Indian government is taking steps to
address infrastructure issues that hinder
the country's growth in medical tourism.
Most estimates claim treatment costs in
India start at around a tenth of the price
of comparable treatment in America or
Britain. The most popular treatments
sought in India by medical tourists are
alternative medicine, bone-marrow
transplant, cardiac bypass, eye surgery
and hip replacement.
Hospitals groups like the Global
Hospitals Group, MIOT Hospitals, Fortis
Healthcare and Apollo hospitals have
increased their presence in international
market for medical tourism.
Telemedicine
Telemedicine is a rapidly developing
application of clinical medicine where
medical information is transferred
through interactive audiovisual media for
the purpose of consulting, and sometimes
remote medical procedures or
examinations. It has tremendous scope
and application in India, due to the large
majority of the population that resides in
villages.
Telemedicine can be broken into three
main categories: store-and-forward,
remote monitoring and interactive
services.
2
CRAM: Contrac
t Reasearch
and Manufacturing
.
Globally, this indu
stry is valued
at USD 35 billion
and it is still
in its nascent stag
es in India
Store-and-forward telemedicine involves
acquiring medical data and then
transmitting this data to a doctor or
medical specialist at a convenient time for
assessment offline. It does not require the
presence of both parties at the same time.
A key difference between traditional in-
person patient meetings and telemedicine
encounters is the omission of an actual
physical examination and history. The
store-and-forward process requires the
clinician to rely on a history report and
audio/video information instead of a
physical examination.
Remote monitoring, also known as self-
monitoring or testing, enables medical
professionals to monitor a patient
remotely using various technological
devices. This method is primarily used for
managing chronic diseases or specific
conditions, such as heart disease, diabetes
mellitus, or asthma. These services can
provide comparable health outcomes to
traditional in-person patient encounters,
supply greater satisfaction to patients, and
may be cost-effective.
Interactive telemedicine services provide
real-time interactions between patient
and provider, to include phone
conversations, online communication and
home visits. Many activities such as
history review, physical examination,
psychiatric evaluations and
ophthalmology assessments can be
conducted comparably to those done in
traditional face-to-face visits. In addition,
“clinician-interactive” telemedicine
services may be less costly than in-person
clinical visits.
Considering that if healthcare in India
becomes cheaper and more inclusive, a
huge segment of the population will be
able to access it, telemedicine can give
hospitals and healthcare companies
access to a massive untapped segment of
the population. Indeed, both Apollo and
Fortis have begun their forays into
telemedicine.

Fortis Healthcare
Background
Promoted by Malvinder and Shivinder
Singh of Ranbaxy fame, Fortis is one of
the largest companies in the healthcare
segment by market capitalization.
Although it’s recent well-publicized
attempt to take over the Singapore-based
Parkway chain of hospitals failed, Fortis
netted INR 350 crore in a little over three
months. However, this has not deterred
Fortis from continuing to expand rapidly
both in India and abroad. Recently, Fortis
bought out HK based Quality Healthcare
for USD 186 million. With forays into
telemedicine and medical research
supplementing the hospitals business,
Fortis is now a dominant player in the
healthcare segment.
Future Plans
1. Fortis is in plans to add 2100 beds in 8
hospitals over the next 7 months. It is also
in talks to buy out Care Hospitals based
out of Hyderabad.
2. Fortis Hospitals is looking at the Real
Estate Investment Trust [REIT] to raise
capital for expansion in Singapore. Plans
for a secondary listing in Singapore are
underfoot to establish Fortis as a Pan –
Asian player in the segment.
3. A super-specialty hospital has been
planned in Shalimar Bagh, West Delhi,
with specialization in cardiac care,
orthopaedics, neuro-sciences, renal
The Abbott-Piramal Deal
As part of its strategy to move beyond the
proprietary or patented drugs business,
Abbott recently set up its Established
Product Business globally. The business is
spearheading the pharmaceutical giant’s
penetration into emerging market
regions. This is the second acquisition for
the company over the past year and
follows the $6.2-billion deal for the
branded generics portfolio of Solvay
Pharmaceuticals, which gave it access to
the European market. The deal gave the
company control of Solvay’s Indian
business and added a fifth to its
consolidated sales of about Rs 1,000
crore. Abbott expects its 69 per cent-
owned Indian subsidiary to quadruple its
Player Profiles
sciences, mother and child care and
gastroenterology.
4. The upcoming Fortis International
Institute of Medical and Biosciences
(FIIMBS Medicity) will have two multi-
speciality hospitals having 750 beds along
with a medical college for 500 students.
FIIMBS Medicity Gurgaon will have a
focus on trauma, oncology, mother and
child care, cardiac care, orthopaedics,
organ transplants and neuro-sciences.
Apollo Hospitals
Background
The first Apollo hospital in Chennai (also
the first private hospital in India) began
operating in 1984. Founded by Dr.
Prathap Reddy, it now has 8500 beds
over 50 hospitals with a global presence.
Apollo hospitals also have a history of
innovative firsts, including the first liver
transplant in India. The Apollo group
has now diversified into pharmacies ( over
1000 pan-India), a joint venture foray in
the health insurance segment, medical
consulting and clinical research.
Future Plans
1. Apollo already has hospitals in Nigeria,
Mauritius and plans to expand in Africa,
which has a great Indian expatriate
population, and is the second largest
group that contributes to medical tourism
in UK.
sales to Rs 11,200 crore by 2020, riding
on the growth prospects of the branded
formulations business of Piramal
Healthcare. This deal would catapult it
to the number one formulation player in
the domestic market, with a market
share of seven per cent.
Impact on the Indian Pharmaceutical
Industry
The Piramal Healthcare deal to sell its
domestic formulations business to US
drugmaker Abbott for a whopping Rs
17,000 crore, was reiteration of the India
story. However the applause over
3
2. Apollo has plans to invest INR 2200
crore, for 3000 new beds by the end of
2012.
3. Apollo has tied up with Aircel to create
applications and provide medical
services via mobile. Also, they have tied
up with the BMJ Group, a global
medical publisher, to get relevant
content for Indian doctors.
Comparison of Strategies
Both Apollo and Fortis are expanding
into Tier II and Tier III cities. Breaking
even in these cities may be a difficult
proposition because revenues per bed for
hospitals are usually half of that of
comparable hospitals in the metros. Thus
greenfield investments are less likely to
break even quickly, considering that
setting up a hospital is quite capital
intensive. Given the high costs of real
estate and long gestation periods, building
on existing infrastructure is much less
capital intensive and is likely to be
profitable much faster, especially if the
overhaul of the existing facilities and
personnel can be executed smoothly.
Apollo primarily follows a consolidation
strategy. Although it does have a few
greenfield investments in the pipeline, it is
more focussed on strategic domestic
acquisitions. Fortis on the other hand has
made significant investments both in
India and abroad and its domestic
investments are mostly greenfield. This
likely gives Apollo an edge over Fortis in
terms of attractiveness to investors in the
short term.
valuations was not without a tinge of
concern over the changing landscape of
the domestic pharmaceutical industry.
The fact that Piramal Healthcare chose
to sell a business division that had clocked
revenues of over Rs 1,800 crore - a
virtual "golden goose" - seems to be
justified by the valuation they have got.
Outlining the India advantage, the
customs manufacturing business, where
Piramal Healthcare makes products for
overseas clients, may be under some
pressure at present. But the prospects for
this business are good, given global
recessionary trends and efforts by
Governments to keep healthcare
expenditure under control.

Furthermore, Rs 17,000 crore remain
with Piramal Healthcare and that adds to
confidence in the company, in stark
contrast to the Ranbaxy deal about two
years ago, where promoters exited by
selling their entire stake to Japanese
company Daiichi Sankyo.
Through the execution of this deal,
Abbott gets a booster shot in its emerging
markets strategy, even as it integrates its
earlier acquisition of Solvay
Pharmaceuticals, which also has an
Indian arm.
But one surprise loss for Piramal
Healthcare from the transaction is the
loss of cough syrup Phensydyl that will go
into the Abbott stable, say analysts, a
detail confirmed by a Piramal Healthcare
official.
While Piramal Healthcare pulls off a
great valuation, the acquired business will
give Abbott a seven per cent market-
share in the local market, something that
would have otherwise taken the
multinational a "generation" to achieve.
However to quell all the optimism around
the deal, industry watchers point out with
both excitement and concern that the
domestic pharmaceutical landscape is
seeing a "seismic shift". Some years ago,
the list of top drug-makers in India, saw
only 20 per cent representation from
multinational companies.
Now, with this deal putting Abbott at the
top of the pile in India, it is of concern
how this will reflect in the profile of the
medicines market, their pricing and so
on.

The Luxury Goods Industry in India

The roots of the luxury goods industry in India date long back in time. The land of Rajas and Maharajas, India was renowned for its
opulence. Jacques Cartier visited India in 1911 in pursuit of fine pearls and persuaded a number of Maharajas to reset their jewels using
Cartier designs.

However, with unrest in the country, the market for luxury goods almost ceased to exist post independence. During the License Raj, when
Income Tax rates were as high as 90%, anyone who could own high-end luxury products was perceived as devil.

In recent times, with per capita disposable incomes on the rise, India has in recent years witnessed resurgence in the luxury goods Industry.
India has 126,000 HNIs (High Networth Individuals) and another 3 million households earning above 10 lakhs also ready to consume luxury.
The base is huge and the market promising, according to Confederation of Indian Industry (CII). The highly uneven distribution of income in
India means that wealth is concentrated in small pockets- in the Forbes list for 2010, the ranks of Indian billionaires grew by a third in 2010,
with the wealth held by the 100 richest Indians being comparable to that held by the 400 richest in mainland China.

The Indian luxury market is currently estimated to be $4.76 billion (Rs 21,712 crore) and is set to touch $14.72 billion (Rs 67,712 crore) by
2015. Categories such as automobiles, jewellery, watches and sunglasses are growing the fastest. Jyotiraditya Scindia, minister of State for
Commerce and Industry, Government of India, remarked, "India has historically been a sourcing area and now it’s becoming a market for
luxury goods. India is already aware of creating luxury with the skilled workforce, but what is needed is consistency, marketing and technology
to transform this niche market."

Decades ago, when luxury brands forayed into the Indian territory they had to make do with the five star hotels’ shopping arcades due to lack
of decent luxury retail infrastructure in the country. However, over time as luxury retail evolved luxury brands increased their presence in big
cities like Delhi, Mumbai and Bangalore. Currently there are two dedicated locations for luxury products — the DLF Emporio mall in Delhi
and the UB City Mall in Bangalore — apart from stores in five-star hotels.

While brands pay exhorbitant rentals for a retail space at luxury malls, their sales remain low as they get many customers who visit the shops
simply to get a feel of the luxury products without an intention to make a purchase. On the other hand, at their outlets present at the shopping
arcade in five star hotels they get Indian visitors who splurge on high-end brands and pay in hard cash unlike their foreign counterparts who
prefer making payments through credit cards.

In India, accessories such as bags, watches and belts dominate luxury retail. Apparels tend to be much lower in demand than their foreign
contemporaries, as Indians prefer traditional clothes.

Reaching sales targets is a far cry for these luxury brands. Different brands have different objectives- some come aiming at making quick
money and capitalizing on the booming market, while others are focused on long-term objectives. To survive the Indian markets, these brands
frequently take their products to avenues such as off-site trunk shows and boost sales by organising exhibition-cum-sales, which are open
exclusively to invitees. This exercise is commonly conducted in cities such as Chandigarh, Kolkata, Ludhiana and Hyderabad.
 
Several brands are reworking their strategy to incorporate for the increasingly brand-conscious Indian upper middle class. The promotional
strategies for Brioni, the Italian luxury brand, for instance, focuses on in-store events, PR activities, fashion oriented magazines etc.

Despite the growth the luxury goods industry is witnessing, barriers to growth remain. India is low on awareness about luxury products and
there is much scope for emergence of a more organized luxury goods retail space. High import duties make luxury goods expensive.
Moreover, rich Indians tend to travel widely and may simply buy elsewhere.

Given such a scenario, it would be interesting to wait and observe how this industry develops over the course of the next few years.