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Dr Devi Shetty: Our philosophy is affordable healthcare

The Rs 613-crore initial public offer (IPO) for Narayana Health, a chain of hospitals promoted by renowned cardiac surgeon, opens today.

In an interview with CNBC-TV18, Dr Shetty explained the company’s business model, saying the company operates a chain of hospitals that offers healthcare to both well-off patients as well as offer packages to the poor at subsidized rates or for free. This, it does by working closely with various governments and philanthropic agencies.

Dr Shetty added that the group does not plan to increase its focus on only-for-profit hospitals, saying that it goes against its philosophy of affordable healthcare. “Good business principles are scalable but charity is not,” he said.

Below is the transcript of Devi Shetty’s interview with CNBC-TV18’s Reema Tendulkar, Ekta Batra and Nigel D’Souza.

Reema: If you could start off by giving us some details on the anchor investors, how much have you raised, who are the anchor investors?

A: Narayana Hrudalaya Initial Public Offering (IPO) is opening today and our anchor investors are GIC; GIC is from Singapore, the Morgan Stanley, Fidelity, Nomura and HDFC, State Bank of India (SBI), Unit Trust of India (UTI) and Reliance. In fact we had too many people interested in this. So, it was a bit difficult task for our team to choose. So, essentially we have raised Rs 180-190 crore. That is the maximum allowed from the anchor investors. This is what we have raised so far.

Ekta: When the company says it focuses on affordable healthcare then what does the company mean by it? Can you expand in terms of what your business model is?

A: I will just give an example of heart surgery. India requires close to 20 lakh heart surgeries a year. All the heart hospitals in the country put together perform about 120,000 to 130,000 heart surgeries per year and the rest of the patients suffer and unfortunately today when you are talking about tertiary level health care it is accessible only to rich people but our target is to reduce the cost and we work with various governments.

In Karnataka there is a scheme that is called Yashasvini which was conceptualised by us and similar schemes exist in most of the southern Indian states. These patients comprise about 20 percent of our total patient volume. Large number of corporate hospitals are not comfortable to deal with these category of people where you don’t get the real – say, heart surgery, you get Rs 80,000.

How many hospitals in India today want to perform a complex heart operation on a child for Rs 80,000 and that is all we get and we are comfortable with that. So, essentially 20 percent of our patients across the group are belonging to various government schemes. These are the poor people under the below poverty line (BPL) and other schemes. Then another 20 percent are operated by us at a subsidised rate.

So, essentially we have created a package for every pocket. We virtually never refuse patients if they have a financial difficulty and we are also working on large number of philanthropic agencies in India who pay some money for these operations. So, essentially it is a multi-pronged approach to offer tertiary healthcare at a price what patients can afford.

Ekta: But will the company look to continue with this subsidised revenue model or will it, say move towards more private beds where the charges are not subsidised and hence that will eventually improve your profits?

A: Our mature hospitals are profitable and they have a healthy margin and we want to maintain that and we do not want to go away from the philosophy of affordable healthcare. That is the purpose of creating the institution and that is going to be the heart of the institution and if we drift away from there the business model will collapse.

The business model is based on the fact that charity is not scalable. Good business principles are scalable and only sticking to this concept we can scale up our operation pan India and remain viable long term. So, we do not want to go away from our core philosophy which makes perfect business sense in the long term.

Nigel: Could you detail your capital expenditure (capex) for us and also how many hospitals does the company have coming up and how many are, say under the asset light model?

A: We have different models for expansion. One is a greenfield project like any other hospital but we also work with various governments, trusts and real estate developers where our capital outlay for a new project is much smaller. For example, within the next four years we have committed to develop four hospitals and these four hospitals will come up with an investment of Rs 100 crore because we are predominantly providing medical equipments and managing the hospital.

So, it is a different model altogether and we have a strategy of growth either starting greenfield or brownfield projects for acquiring or working with the governments on a public private partnership (PPP) model, we are exploring various options. On the whole our capital outlay is significantly less compared to the industry standards.

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