Manipal Hospitals: Big buys, big league

The summer of 2021 has been a busy one for the Manipal Education and Medical Group, which owns the eponymous Manipal Hospitals. In April, the government’s National Investment and Infrastructure Fund Ltd invested ₹2,100 crore in the hospitals chain. Soon after this, it acquired Vikram Hospitals, Bengaluru, for ₹350 crore. Earlier, in November 2020, it had bought Columbia Asia Hospitals for ₹2,100 crore.

The two acquisitions follow the unsuccessful bids that Manipal made for the Fortis and Medanta hospital chains in the past. But, with Columbia Asia’s takeover, the Manipal group, led by Ranjan Pai, a doctor himself, has become the second largest chain of hospitals in the country behind the Apollo group with 27 hospitals in 14 cities and 7,300 beds.

 

Expansionist goals

Dilip Jose, CEO, Manipal Hospitals, says that expansion plans, whether through acquisitions or greenfield projects, are to meet a two-pronged objective: First to enter a new territory of interest, and second to deepen its existing presence. “While there are synergies of scale in areas such as procurement of material or services when Columbia Asia, Vikram Hospital and Manipal Hospitals come together, the acquisitions were primarily about the people and processes of both that add significant value to the integrated entity and the geographical fit,” he says.

The integration process of acquisitions under the Manipal brand is well underway with a unified organisation structure in place, and the brand transition is expected to be completed by September.

A veteran industry analyst says consolidation effectively means that the consumer gets better quality of services and a wider group of services. He points out that consolidation in the hospital industry has been going on since 2009, when Fortis acquired Wockhardt. On the Manipal Hospitals’ acquisitions, he said the challenge is going to be how they are going to integrate in Bengaluru as both Columbia Asia and Manipal have got many hospitals in the city. How they combine forces together is going to be key.

Sriram Rathi, analyst at ICICI Securities, explains that consolidation is good in a way as larger groups generally acquire and then improve the service levels in-line with the acquirer’s standards. “However, this is a fragmented industry and brand does matter to an extent, whether a chain or stand-alone, from the quality of doctors and service perspective. This may have an impact on pricing as larger hospitals have better service levels and doctor profiles.” Manipal’s eagerness to expand would be obvious, given the opportunities. A recent report by NITI Aayog says the hospital industry accounts for 80 per cent of the total healthcare market in the country, and the annual revenues are likely to grow robustly over the next few years. It says that India offers nearly 600 investment opportunities worth ₹2.3 lakh crore in the hospital/medical infrastructure sub-sector.

Returns and revenue

Jose is confident that the big buys will not end up becoming a burden and returns will be commensurate. “Investments are always made after thorough diligence and there are no concerns about such assets not delivering. Funding will not be a constraint for Manipal to meet its strategic objectives,” he says.

Revenues too have been growing for hospitals and they have recovered after the major adverse impact in the last year, he says adding: “We have grown ahead of the pre-Covid-19 levels and would expect to continue on this path in the period ahead,” says a gung-ho Jose. The benefits of a combined entity too have been kicking in for Manipal. In an interview to BusinessLine in June, he had said: “We exited FY2021 with integrated revenue of ₹3,600 crore between Manipal and Columbia Asia hospitals.”

He estimates that the two acquisitions with Columbia Asia Hospitals and Vikram Hospital would contribute about a third of the revenue in FY 22.

Manipal Hospitals is also restless to expand to other parts of the country, especially to eastern India. Jose says a large number of patients from the east travel to other parts of the country to access treatment even today. “We believe that eastern India is under-served in healthcare and presents an opportunity to plug that gap. Kerala, or a city like Hyderabad, is an adjacent geography for us. Therefore, it makes sense to explore options there as well,” he explains.

Apart from acquisitions, Manipal Hospitals is also targeting to grow organically through greenfield projects. Jose says that while buying an existing hospital would be a good route for a faster entry to a fresh territory, new builds would deepen the presence in an existing location. A ground-up construction gives the opportunity to design the facility exactly as Manipal Hospitals needs it, with all the flexibilities required in the future, while it has to settle for available configurations in the case of a buyout.

This expansion plan can be seen in the context of the NITI Aayog report which says that around 65 per cent of hospital beds in India cater to almost 50 per cent of the population concentrated in seven states. The other 50 per cent living in the remaining 21 states and 8 Union Territories has access to only 35 per cent of hospital beds. It’s an imbalance that creates an opportunity for hospital chains such as Manipal.

Brand equity

Manipal Hospitals has a storied history tracing its roots to Kasturba Medical College (KMC) set up by Dr TMA Pai in 1953 on a barren hill in Manipal, near Udupi. It was his son Ramdas Pai, who expanded into healthcare and research, setting up Manipal Hospitals at Old Airport Road in Bengaluru in 1991. In 2005, his son Dr Ranjan Pai charted the ambitious expansion plans inviting private equity investment in the Manipal group companies

Ask Jose why Manipal has not managed to build as much of a brand equity as other high profile players such as Apollo or Medanta despite being in the business for so long, and he says he disagrees with the assessment.

He says that Manipal Hospitals is comfortable with its brand position and the response it has from the public. “If at all any validation of that was required, our reputation as the hospital of choice during the pandemic provides that, not only in Bengaluru, but also across our network. We do not think there is anything that needs to be done differently with respect to our brand.”

An industry analyst says that Manipal Hospitals will need a lot more capital if it intends to tread the path of Apollo or Fortis. Just acquisition of Columbia Asia or Vikram Hospitals will not be enough if it wants to create a deep-rooted pan-India presence, he says. He adds that the recent acquisitions by Manipal Hospitals take it to a considerable size and scale in the hospital industry, which, in turn, may help it to tap the equity market. That could put it on an even healthier growth path.