INDUSTRY ANALYSIS ON APOLLO HOSPITAL AN ASSIGNMENT ON CORPORATE STRATEGY

SUBMITTED BY--- GROUP 2. G-02

SUDEEP SHAURYA SHORABH BHATTACAHRJEE GAGANDEEP SINGH VINAY KUMAR BHARDWAJ VIJAYVARGIA RAJOJYOTI BANIK

2009

SUBMITTED TO --- Prf. RAJESH VERMA

12/8/2009

Industry analysis of Apollo hospital

Health care Industry in India

In India, the Healthcare system is split into a public sector, a private sector and a wide network of informal

healthcare providers operating together in a large and unregulated network. This irregularity has caused wide

disparities in access, especially in regional and rural distribution of healthcare infrastructure. Currently, the

Indian healthcare sector is valued at Rs.1, 360 (US $34) billion roughly 6 per cent of GDP. The healthcare

business is projected to grow to over Rs.1, 600 (US $40) billion or 8.5 per cent of GDP by 2012, according to

Price Waterhouse Coopers (PwC) report, 'Healthcare in India: Emerging market report 2007'.

The Hospital Industry

Some Facts

• India‟s healthcare industry is currently worth Rs 73,000 crore which is roughly 4 percent of the GDP.

The industry is expected to grow at the rate of 13 percent for the next six years which amounts to an addition of

Rs 9,000 crores each year.

• The national average of proportion of households in the middle and higher middle income group has

increased from 14% in 1990 to 20 % in 1999.

• The population to bed ratio in India is 1 bed per 1000, in relation to the WHO norm of 1 bed per 300.

• In India, there exists space for 75000 to 100000 hospital beds.

• Private insurance will drive the healthcare revenues. Considering the rising middle and higher middle

income group we get a conservative estimate of 200 million insurable lives

• Over the last five years, there has been an attitudinal change amongst a section of Indians who are

spending more on healthcare.

Corporate hospitals mushroomed in the late eighties. The boom remained short-lived and out of the 22 listed

hospital scrips, most are being trading below par. An increasingly fragmented market, lack of statistics, capital

intensive operations and a long gestation period are all wise reasons to shy away from investing in the

healthcare industry. Government and trust hospitals dominate the scene. Many of the trust hospitals suffer from

poor management. Good corporate hospitals are still too few to amount to a critical mass.

Corporate hospitals failed a decade ago because they emerged in isolation and weren‟t part of a larger

phenomenon. However, now, there are the insurance companies, the hospital hardware and the software

companies that have come together to create the boom.

Factors Attracting Corporate In the Healthcare Sector

Recognition as an industry: In the mid 80‟s, the healthcare sector was recognized as an industry. Hence it

became possible to get long term funding from the Financial Institutions. The government also reduced the

import duty on medical equipment‟s and technology, thus opening up the sector.

Since the National Health Policy (the policy‟s main objective was „Health For All‟ by the Year 2000) was

approved in 1983, little has been done to update or amend the policy even as the country changes and the new

health problems arise from ecological degradation. The focus has been on epidemiological profile of the

medical care and not on comprehensive healthcare.

Socio-Economic Changes: The rise of literacy rate , higher levels of income and increasing awareness through

deep penetration of media channels, contributed to greater attention being paid to health. With the rise in the

system of nuclear families, it became necessary for regular health check-ups and increase in health expenses for

the bread-earner of the family.

Brand Development: Many family run business houses, have set-up charity hospitals. By lending their name to

the hospital, they develop a good image in the markets which further improves the brand image of products

from their other businesses.

Extension To Related Business: Some pharmaceutical companies like Wockhardt and Max India, have

ventured into this sector as it is a direct extension to their line of business.

Opening Of The Insurance Sector: In India, approx. 60% of the total health expenditure comes from self paid

category as against governments contribution of 25-30 %. A majority of private hospitals are expensive for a

normal middle class family. The opening up of the insurance sector to private players is expected to give a shot

in the arms of the healthcare industry. Health Insurance will make healthcare affordable to a large number of

people. Currently, in India only 2 million people ( 0.2 % of total population of 1 billion), are covered under

Mediclaim, whereas in developed nations like USA about 75 % of the total population are covered under some

insurance scheme. General Insurance Company, has never aggressively marketed health insurance. Moreover,

GIC takes upto 6 months to process a claim and reimburses customers after they have paid for treatment out of

their own pockets. This will give a great advantage to private players like Cigna which is planning to launch

Smart Cards that can be used in hospitals, patient guidance facilities, travel insurance, etc.

The Consultants, Financiers and Insurance Agencies are to benefit from this boom. The insurers will use PPOs,

that will grow into HMOs, to assume insurance risks on clients behalf. Medical Equipments, Medical Software

and Hospitals will see the biggest boom.

SOME PLAYERS

- Fortis Healthcare

Fortis is the late Ranbaxy‟s Parvinder Singh‟s privately owned company. The company is a 250 crore, 200 bed

cardiac hospital, located in the town of Mohali. The company also has 12 cardiac and information centers in and

around the town, to arrange travel and stay for patients and family. The company has plans of increasing the

capacity to around 375 beds and also plans to tie up with an overseas partner.

Max India

After selling of his stake in Hutchison Max Telecom, Analjit Singh has decided to invest around 200 crores, for

setting up worldclass healthcare services in India. Max India plans a three tier structure of medical services –

Max Consultation and Diagnostic Clinics, MaxMed, a 150 bed multispeciality hospital and Max General, a 400

bed hospital. The company has already tied up with Harvard Medical International, to undertake clinical trials

for drugs, under research abroad and setting up of Max University, for education and research.

Escorts

EHIRC located in New Delhi has more than 220 beds. The hospital has a total 77 Critical Care beds to provide

intensive care to patients after surgery or angioplasty, emergency admissions or other patients needing highly

specialized management including Telecardiology (ECG transmission through telephone). The EHIRC is

unique in the field of Preventive Cardiology with a fully developed programme of Monitored Exercise, Yoga

and Meditation for Life style management.

WOCKHARDT and DUNCANS GLENEAGLES INTERNATIONAL

also have major expansion plans.

Chairman's Profile

Dr. Prathap C Reddy, Chairman

Apollo Hospitals Group

His dream is to make India the Healthcare Destination of the World.

Two decades ago, Dr. Reddy lost a patient who couldn't make it to Texas for an open heart surgery. This was

the milestone in the Indian Healthcare Industry. Today people have the opportunity in India to receive the best

that healthcare has to offer worldwide.

Driven by a deep urge to create world-class medical infrastructure in India and make it more accessible and

affordable to a large cross section of our people, Dr. Prathap Reddy opted to give up his successful practice in

the US to return to India in the early eighties.

Thus, Dr. Reddy began what was truly the process of revolutionizing the path of the Indian Healthcare Industry.

Undeterred by initial constraints Dr. Reddy succeeded in setting up the first center of the Apollo Hospitals

Group in Chennai in 1983.

Apollo Hospitals Enterprise Limited

Apollo Hospitals Enterprise Limited (AHEL) is a leading private sector healthcare provider in

Asia. It was incorporated as a Public Limited Company in the year 1979, a comprehensive 250-bed hospital

with an emphasis on speciality and super specialties in over fifty departments at Chennai. Dr. Prathap C Reddy

promoted it. Apollo Hospitals Enterprise Limited (AHEL) owns and operates a network of leading primary,

secondary and tertiary hospitals and clinics across India. The Company also has a pan India footprint of 873

standalone pharmacies. The Apollo Hospitals group today includes over 7500 beds across 43 hospitals in India

and overseas, neighbourhood diagnostic clinics, an extensive chain of Apollo Pharmacies, medical BPO and

health insurance services and clinical research divisions that are working on the cutting edge of medical science.

In India, Apollo hospitals can be grouped into the following categories based on their stage of maturity and

occupancy levels: Mature hospitals at Chennai, Hyderabad, Madurai, Bilaspur, Mysore, and Visakhapatnam

have occupancy levels exceeding 75%. New hospitals at Bangalore, Ahmedabad, have occupancy levels of

60%. Two Hospitals were commissioned during the year, Apollo Loga Hospital at Karur, Tamil Nadu, having

70 beds and a Hospital at Karim Nagar, Andhra Pradesh with 120 beds. As per the Accounting Standard 17

issued by The Institute of Chartered Accountants of India, AHEL has two reportable segments, healthcare

services and Standalone Pharmacies, Healthcare services segment comprises hospitals, hospital-based

pharmacies and Consultancy Division. The other segment comprises standalone pharmacies.

The Apollo Group of Hospitals

Driven by its line of being the “architect of healthcare” in

India, the Apollo Hospitals Group, comprising of one of the

largest networks of 26 hospitals, 10 clinics and over 10,000

employees across the country, represents the changing face

of healthcare in India contemporary and corporatized.

It has been the first private company to administer health

insurance in the country and Indraprastha Apollo Hospital in

Delhi is the fourth largest corporate hospital in the world.

The Apollo group is India‟s first corporate hospital, the first to set-up hospital outside the country and the first

to attract foreign investment. With 2600 beds, Apollo is one of Asia‟s largest healthcare players. The recent

merger between its 3 group companies, Indian Hospitals Corporation Ltd., Deccan hospitals Corporation

Limited and Om Sindoori Hospitals Limited, will help the group raise money at a better rate and by

consolidating inventory, it will save around 10% of the material cost. The group is planning to invest Rs. 2000

crore , to bulid around 15 new hospitals, in India, Sri Lanka, Nepal and Malaysia.

Apollo claims to maintain the best of medical standards with a record of over 7.4 million treated patients,

3,15,000 preventive health checks done, 98.5 percent success rate in 45,000 cardiac surgeries, etc. And helping

the company maintain a balance between the corporate culture and rigorous medical excellence is recognition of

IT as intrinsic to every process, whether it is day-to-day running of hospitals, education or telemedicine.

The application of IT in the day-to-day working of the largest hospital of the group, Indraprastha Apollo, throws

light on the extent of the automation drive within the company. The management realised the fact that in order

to have a modern hospital in place all the work processes had to be related to IT. Hence, the need for an end-to-

end integrated solution. This led to the implementation of the Hospital Information System (HIS), which was an

integral part of the hospital inception project.

The hospital today boasts of an integrated HIS, which provides for end-to-end integration of the various

processes and functional areas within the hospital to make for a seamless workflow. The work processes of the

hospital are primarily divided into two areas the patient (comprising of in-patient and out-patient) and the non-

patient all the back-end departments like housekeeping, engineering, finance, materials, purchase and HRD.

The workflow process starts with the patient seeking an appointment with the doctor. HIS contains all the

information relating to appointment schedules of the doctors. Depending on the availability of the doctor, the

patient is given the date and time of appointment. This information is then fed into the system and the updated

information is available to the doctor in real-time.

On the date of his appointment, the patient registers himself at the counter by filling up of a form, which

contains all the basic information related to the patient. This data is feeded into the system with a Unique

Hospital Identifier (UHI) number allotted to the patient so that by the time the patient meets the doctor, he

already has all the required basic information. This is followed by 15 minutes of consultation with the doctor

after which the doctor gives his prescription, the data is again keyed into the system as a patient record under

his UHI and is accessible for quick reference.

One of the biggest advantages of HIS is that any medically relevant information related to the patient is

available at the click of a button, thereby saving precious time, which means a lot when it comes to saving a

life. HIS also acts as a kind of ERP for the hospital with its automation of various back-end areas like financial,

accounting and inventory, which are integrated with the patient areas wherever required.

The hospital has also developed a very effective mailing system for its employees, which is based on Microsoft

Exchange. The company‟s Intranet is being used to run mailing applications as well as information relating to

company policies, leave information and basic information relating to the company.

Other business units

Apollo Hospitals

Apollo Hospitals Enterprise Limited has over 8065 beds across 46 hospitals in India, rest of Asia and Africa.

The hospitals are multi specialty tertiary care facilities with centres-of-excellence in medical disciplines

including cardiology, cardio-thoracic surgery, gastroenterology, orthopedics & joint replacement surgery,

neurology, critical care medicine, nephrology, oncology, hand & micro surgery and reproductive medicine.

Apollo Global Projects Consultancy

Apollo offers project and operations management consultancy services with the support of operational and

functional specialists. The pre & post commissioning consultancy services include feasibility studies, strategic

planning, infrastructure consultation, human resource recruitment, training and medical equipment consultancy,

management contracts, establishment of medical and administrative protocols etc.

Apollo Health and Lifestyle Limited

Apollo Health and Lifestyle Limited, has established over 100 Apollo Clinics across the country, is an

integrated model and offers facilities for specialist consultations, diagnostics, preventive health checks and 24-

hour Pharmacy, all under one roof.

Apollo Pharmacy

Apollo Pharmacy is India's first and largest branded pharmacy network; with over 750 retail outlets in key

locations across the country. The group adds one pharmacy every 23 hours.

Apollo Hospitals Education and Research Foundation

AHERF was set up to establish, maintain and support educational institutions in promoting medical,

paramedical and hospital management courses. The Institute offers over 18 post graduate teaching programmes,

including ones certified by the Royal College of Edinburgh. MedVarsity Online Limited is backed by two

giants; Apollo in medicine and NIIT Limited in the field of electronic-education. MedVarsity has developed in-

house, over 1500 hours of medical content that is accessible to the medical community, anytime and anywhere.

The research division currently undertakes diverse projects from clinical trials in multiple locations to molecular

biology, stem cell transplants, epidemiological studies, and in the future identification of genetic Biomarkers.

Apollo Telemedicine Networking Foundation

In 1999, Apollo launched its first model Telemedicine Unit at Aragonda village in the Chittoor district. Since

then, Apollo has witnessed a steady growth in terms of delivering quality healthcare and reaching out to the

masses. Telemedicine is a potent means of harnessing telecommunication technology to deliver healthcare and

education to patients in regions that are geographically less accessible. It also saves time and the cost of travel

to access quality care. Apollo has pioneered the concept of telemedicine in India and Asia, and has over 100

telemedicine centres in India and overseas.

Apollo Insurance Company Limited

Apollo DKV is a joint venture of the Apollo Hospitals Group and DKV AG, Europe's largest private health

insurer and a Munich Re Group company. The company offers innovative health insurance, wellness solutions

and disease management to meet customer needs.

Apollo Wellness Plus

Apollo Hospitals launched the first Wellness Centre at Apollo Hospitals Chennai in Feb 2005. Wellness Plus is

the perfect blend of modern and complementary medicine like aromatherapy, pranic healing, yoga, and

meditation that fits the modern lifestyle.

Apollo Reach Hospitals

An endeavor to bring world class healthcare to semiurban and rural India - every Apollo Reach Hospitals will

be a specialty hospital, designed to complement existing private and public healthcare facilities in the proposed

towns and villages. Construction of hospitals, procurement of land and identification of cities are underway to

set up the first phase of 25 Apollo Reach Hospitals over the next two years across India. With an initial bed

strength of 100 - 150 beds, each Apollo Reach Hospital can be ramped up to a 200 bedded specialty hospital

Other Services offered by Apollo:

-Apollo Pharmacy

Apollo Pharmacy operates round the clock catering to all your medicine needs.

-Café Apollo

Café Apollo is a sit down dining facility of the hospital. It offers a wide selection of snacks and a variety of

meals.

-Apollo Food Plaza

There is food facility located in the atrium of the hospital serving a delightful array of delicacies.

Timings : 8.00am - 9:00pm

-Fast Food Cafe

For the convenience of ICU attendants there is a 24 hours cafe in the ICU lobby.

-Gift Shop

The Gift Shop carries a wide range of gifts including Confectionery, Cards, Books, Newspapers, Magazines and

other novelties.

-Bank Facilities

-The Oriental Bank of Commerce

The Indraprastha Apollo Branch of the Oriental Bank of Commerce is located at one of the Gates.

Bank Hours

Monday to Friday : 10:00am - 2:00pm

Saturday : 10:00am - 12:00pm

The bank remains closed on Sundays and National Holidays.

-The ICICI ATM Counter

The ICICI ATM counter is also located in the hospital.

Operations:

The hospital has recorded a significant growth within a short span of five years. During the

financial year 2000-01, the performance highlights are:

Average daily bed occupancy increased by 8 % from 295 last year to 319 this year

Number of in-patients increased by 28 % from 18066 last year to 23114 this year.

Total income increased by 23 % from Rs. 11267.13 lakhs last year to Rs. 13842.97 lakhs

this year.

Profit increased by 85 % from Rs. 648.77 lakhs to Rs. 1197.51 lakhs this year.

The hospital has performed 1507 open-heart surgeries with growth of 09 % over the

previous year.

The hospital has performed 903 Neuro surgeries with growth of 46% over the previous

year.

The hospital has performed 224 Transplant surgeries with growth of 35% over the

previous year.

The hospital continued to show rising trend during first quarter of current financial year.

With the total net profit after tax 401.70 lakhs which is higher by 54 % over the

corresponding quarter of previous year.

At present, 520 beds have been commissioned.

Medical Milestones

Employs over 4000 specialists and super-specialists and 3000 medical officers spanning 53 clinical

departments in patient care.

Achieved a 99.6% success rate in cardiac bypass surgeries, over 91% of these were beating heart

surgeries.

Conducted over 55,000 cardiac surgeries - one of only 10 hospitals in the world to achieve these

volumes.

First Indian hospital group to introduce new techniques in Coronary Angioplasty, Stereotactic

Radiotherapy and Radiosurgery.

Performed over 7,50,000 major surgeries and over 10,00,000 minor surgical procedures with

exceptional clinical outcomes.

Pioneered orthopaedic procedures like hip and knee replacements, the Illizarov procedure and the

Birmingham hip re-surfacing technique.

Pioneered the concept of preventive healthcare in India successfully completed over 700,000

Preventive Health Checks.

First hospital group to bring the 64 Slice CT-Angio scan system.

First hospital group in South-East Asia to introduce the 16 Slice PET-CT Scan.

First to perform liver, multi-organ and cord blood transplants in India.

Equipped with the largest and most sophisticated sleep laboratory in the world.

The Apollo Expertise

One of the most respected hospitals in the world, Apollo hospitals specializes in cutting-edge medical

procedures. With the evident boom in Medical tourism, we have a lot of health tourists choosing us as their

ultimate Health Tourism destination for medical services.They have pioneered many revolutionary procedures

and technologies in India, and a whole lot of health tourists come to opting either for medical care or elective

procedures. Some of the health procedures are-

Cardiac Surgeries

Total Knee /Hip Surgery Replacements

Birmingham Hip Resurfacing Procedure

Liver, Multi-Organ, and Cord Blood Transplants

Coronary Angioplasty

Stereotactic Radiotherapy and Radio surgery

Cosmetic Surgery

Bariatric Surgery - laparoscopic

Laparoscopic Hernia Repair

Laparoscopic Adrenalectomy

Group Companies

The Apollo Hospitals Group today is not only an acknowledged leader in the world of super-specialty based

quality healthcare delivery in Asia, but is also considered as the largest integrated healthcare delivery company,

complete in every sense of the term.

» Apollo Hospitals Enterprise Limited » AHEL Pharmacies Business

» Keimed.com Limited » Online Hospital Equipment Services

Private Limited (Equipment World)

» Apollo Health & Lifestyle Limited » Apollo Health Street Limited

» Med Varsity Online Limited » Apollo Telemedicine Enterprises Limited

» Apollo Hospitals Education and

Research Foundation » Family Health Plan Limited

Revenue Analysis

In this economic slowdown, health care industry has got least affected. Apollo Hospitals limited has also

increased its revenue from Rs. 1123.81 crores to 1457.98 crores. Yearly sales growth

rate has increased by 29.74 % which was 26.13% in the year ended 200803. Revenue from

healthcare services increased by 22% to Rs 1123.80 crore and pharmacy business went up by

65% to Rs 334.33 crore. This revenue growth rate is quite higher than the industry standard

growth rate.

Yearly sales growth rate has increased during the year 2008-09 due to the result of an increase in

occupancy and revenue per bed day (RPBD) for hospitals and higher number of SAPs (Stand

Alone Pharmacies). In most of the pharmacies have nursing stations attached. The Nursing

stations provide basic medical services like measuring blood pressure, dressing, etc.

RPBD increased from Rs. 8,767 to Rs. 9,667. The increase in RPBD is largely a result of

changes in the acuity of the patients as well as better price realizations.

Balance sheet Audited Financial Results for the quarter and year ended 31.03.2008

Amount ( Rs. In Lacs )

PARTICULARS Nine

Months

ended

Quarter ended Financial Financial

S. year

ended

year ended

No. (Audited) (Audited)

31.12.2007 31.03.2008 31.03.2007 31.03.2008 31.03.2007

1 Income from operations 23503.48 7967.25 5803.26 31470.73 23271.35

2 Other Income 1959.58 796.88 553.50 2756.46 2103.76

3 Total Income 25463.06 8764.13 6356.76 34227.19 25375.11

4 Expenditure

a) Increase/decrease in stock in trade and wip - - - - -

b) Consumption of stores & spares 7110.27 2371.94 1641.15 9482.21 6690.90

c) Purchase of traded goods - - - - -

d) Staff cost 4617.87 1748.79 1225.42 6366.66 4591.91

e) Consultation fee paid to Doctors 6408.60 2234.66 1533.67 8643.26 6225.38

f) Depreciation 1193.89 423.22 175.86 1617.11 1183.73

g) Other expenditure 3696.58 1211.50 998.91 4908.08 3876.53

Total 23027.21 7990.11 5575.01 31017.32 22568.45

5 Interest 447.39 180.12 134.33 627.51 509.49

6 Exceptional items - - - - -

7 Profit from ordinary activity before tax (PBT) 1988.46 593.90 647.42 2582.36 2297.17

8 Provision for taxation 729.66 237.92 232.53 967.58 824.83

9 Profit from ordinary activity after tax (PAT) 1258.80 355.98 414.89 1614.78 1472.34

10 Extraordinary items ( Net of tax expense) - - - - -

11 Net profit for the period 1258.80 355.98 414.89 1614.78 1472.34

12 Paid-up Equity share capital 9167.30 9167.30 9167.30 9167.30 9167.30

(Face value Rs. 10/- each)

13 Reserves excluding revaluation reserves - - - 2,232.86 2176.40

14 EPS-Basic and Diluted (Rs.) 1.37 0.39 0.46 1.76 1.61

15 Aggregate of Non-Promoter shareholding:

Number of shares 45281993 45314709 45007683 45314709 45007683

Percentage of Shareholding 49.40 49.43 49.10 49.43 49.10

Porter’s five force model for industry analysis

Supplier Power, eg:

1brand reputation.

2geographical coverage.

3product/service level

quality.

4relationships with

customers

bidding processes/capabilities

Product and Technology Development,

eg:

alternatives

price/quality market

distribution changes

fashion and

trends legislative

effects

Buyer Power, eg:

. buyer choice

buyers size/number

change cost/frequency

product/service importance

volumes, JIT scheduling

New Market

Entrants, eg:

entry ease/barriers geographical factors

incumbents resistance

new entrant strategy

routes to market Competitive Rivalry, eg: number and size of

firms

industry size and trends fixed v variable cost

bases product/service ranges

differentiation, strategy

worries Apollo hospital.

• The threat of new entry is quite high: if anyone looks as if they‟re making a sustained profit, new competitors can

come into the industry easily, reducing profits;

Ex.- Fortis , Max, Escort , WOCKHARDT and DUNCANS GLENEAGLES INTERNATIONAL

• Competitive rivalry is extremely high: if someone raises prices, they‟ll be quickly undercut. Intense competition

puts strong downward pressure on prices;

• Buyer Power is strong, again implying strong downward pressure on prices; and

• There is some threat of substitution.

Ex Telemedicine or shifting to other medicine like ayuraveda or natural care

Unless it is difficult to find some way of changing this situation, this looks like a very tough industry to survive in. Maybe

he'll need to specialize in a sector of the market that's protected from some of these forces, or find a related business that's

in a stronger position.

Key points:

Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an industry. With a little

adaptation, it is also useful as a way of assessing the balance of power in more general situations.

It works by looking at the strength of five important forces that affect competition:

• Supplier Power: The power of suppliers to drive up the prices of your inputs;

• Buyer Power: The power of your customers to drive down your prices;

• Competitive Rivalry: The strength of competition in the industry;

• The Threat of Substitution: The extent to which different products and services can be used in place of your own;

and

• The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are

making good profits (and then drive your prices down).

By thinking through how each force affects you, and by identifying the strength and direction of each force, you can

quickly assess the strength of the position and your ability to make a sustained profit in the industry.

Opportunities in hospital

With global revenues of approximately US$ 2.8 trillion, the healthcare industry is the world‟s largest industry

and India is emerging as a major player in this industry, because of its high population. As per the Insurance

Regulatory and Development Authority (IRDA), the Indian healthcare industry has the potential to show the

same exponential growth that the software and pharmaceutical industries have shown in the past decade.

Further, as per the IRDA, only 10 percent of the market potential has been tapped till date and market studies

indicate a 35 percent growth in the coming years.

A big opportunity for the industry emerges from the privatization 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 Med claim. According to a recent study,

there are 315 million potentially insurable lives in the country. First, there are economic factors that make India

an exciting market. Since healthcare is dependent on the people served, India‟s huge population of a billion

people represents a big opportunity. Today, people are spending more on healthcare and preferring private

services to government ones. Hospitals in India are running at 80-90% occupancy. With the demand for

healthcare far exceeding supply, India‟s health care industry is expected to grow by around 15% a year for the

next six years. Hospitals in India conduct the latest surgeries at very low cost. Corporate entities entering the

healthcare sector, introducing managerial practices and tools are showing a marked preference for professionals,

leading to the expansion of the hospital management education industry.

Threats

The cost burden is set to increase due to the limited resources, and rising incomes will translate to higher wages, supply

and capital costs. Real estate prices have become prohibitively high and a deterrent to take on new projects. This will add

to higher costs of Healthcare delivery which has to be borne by the consumer. Medical equipment accounts for 40-45% of

the total expenditure in hospitals. Any change in technology will make existing medical equipments obsolete. High rate of

advancement in medical technology is leading to shorter lifespan, obsolescence of medical equipment, requiring medical

professionals to upgrade their skills on a constant basis. The density of doctors per 10,000 population in India is 6 while

the world average is 13. There could be a shortfall of over 450,000 doctors in the year 2012.Density of nurses per 10,000

population is 13 in India while world average is 28. The migration of skilled technicians and nursing personnel to

developed countries due to higher compensation levels leaves behind a void in quality of personnel at the disposal of

hospitals. Apollo is one of the strongest brands with minimal threats in the near time. This means, easier access to capital,

continuing with the current leadership position in the market and comprehensive services with relatively greater margin.

Apollo‟s success has been drawn from the fact that it has added a number of synergic revenue streams to its business. As a

result, its multi-income inflow has helped it cover its fixed investments faster than the other companies in the sector.

Strengths

Apollo is an integrated healthcare organization with a comprehensive span of healthcare capabilities, enabling us to

provide end-to-end services to patients. We provide seamless delivery of services at every level of care – primary,

secondary and tertiary. Being the largest purchaser and consumer of medical consumables in the private sector, we are

able to leverage on cost and benefit from our group bargaining position to obtain better terms from our suppliers and

service providers. Our quality consciousness and patient-centric approach has improved our operational and clinical

efficiency, and led to numerous accolades in the medical arena in India. We have implemented clinical governance

measures that have gone a long way in ensuring and improving the quality of clinical care at all levels of healthcare

provision in Apollo Hospitals. We have obtained 4 JCI accreditations across all specialties, the first in the country to do

so. Also, our quality programmes are registered by the Indian Council of Medical Research, ISO 9002, from Bureau of

Indian Standards & British Standards of India. We have focused on the provision of high-quality healthcare at affordable

rates. Our brand name has helped us to expand our operations in India and overseas, besides extending our range of

services. High-quality medical facilities and services are offered at cost competitive rates when compared to the Western

and European regions making India the preferred choice for medical travel. We have consistently invested in medical

technology and equipment so as to offer the highest quality healthcare services to our patients. The availability of

sophisticated medical equipment, such as the PET-CT scan, 320 Slice CT Scanner, Cyber knife ensures that we are among

the few healthcare providers in India capable of offering advanced healthcare procedures such as stereo tactic radio

surgery and bone marrow transplants to our patients. The major strength contribution to the success of Apollo Hospitals

has been the clinical excellence governed by strong medical value system and ethics. Our Medical success rates have been

world class. Apollo stands unique among the few providers of quaternary care for complicated medical conditions, and is

saving more and more lives every day. We have a professional management team with a strong performance culture. We

maintain strong, enduring relationships with doctors and medical professionals. This has attracted medical professionals

returning from abroad to work with us. We believe one of the pillars of our success is our huge talent of approximately

811 doctors across 50 specialties. We are among the largest networks of doctors in India, and have approximately 3,130

nurses, 1,104 paramedical personnel and 513 executives.

Weakness

We have added 297 Stand-alone pharmacies during the year, since most of the pharmacies are in the incubation

stage which can depress the margins. High attrition rates among the nursing workforce to Western countries and

competitors due to higher salaries and perks being offered necessitates higher investment in training to ensure

that the clinical staff is equipped with the right skills, competencies and expertise needed to deliver quality

healthcare. The rising costs of healthcare delivery makes majority of the private hospitals expensive for a

normal middle-class family. Internal control systems and their adequacy The company deploys a robust system

of internal controls to allow optimal use and protection of assets, facilitate accurate and timely compilation of

financial statements and management reports, and ensure compliance with statutory laws,

Business strategy

Apollo‟s business model has been a successful as it is able to generate profit even in the face of being capital

intensive in nature. Our mission is to continuously keep improving the quality of healthcare services provided to

the communities we serve and strive to bring healthcare services of international standards within the reach of

every individual. At the same time, we seek to generate strong financial performance and appropriate returns to

our investors through disciplined and balanced execution of a comprehensive business strategy that reinforces

both quality of care and financial strength. We seek to further strengthen our position as a leading healthcare

service company by successfully differentiating our service offerings and increasing the scale of operations. We

would be looking to dominate the healthcare space by increasing bed strength in the cities where we are already

present in addition to commissioning of new hospitals in Tier 2 and Tier 3 cities through the “Reach initiative”.

The Reach model is expected to be a “no-frills” model, providing cost-effective quality healthcare. The

facilities shall be of the level of higher secondary and acute care, capable of developing into a tertiary care

centre. Each facility will be conceptualized to cater to the shortage in nursing infrastructure in the country, by

providing for nursing colleges. Leverage our intellectual property and domain knowledge to create “Centres of

Excellence” of high-end medical care services at the new and existing facilities. Share best practices across all

the locations to enable increase occupancies at newly launched hospitals. Improve asset utilization across all the

hospitals. We have also made significant investment in our human capital to meet both our in-house needs and

our consultancy services business through the establishment of nursing schools and colleges and hospital

administration colleges. Growth in Standalone Pharmacies revenues would be driven by new store rollouts as

well as maturity of existing stores. We also believe that growth can also be achieved as we add new service

lines in our existing markets, invest in new technologies desired by physicians and patients, and demonstrate the

quality of the care provided in our facilities. Given the non-availability of adequate health care facilities in most

parts of India, we believe that high-growth opportunities remain in our existing markets as well as new

geographies that we are seeking to enter.

Competitive and Regulatory Environment

In the healthcare services segment, we face competition from other acute care hospitals, including tertiary

hospitals located in larger markets; specialty hospitals that focus on one or a small number of lucrative service

lines; standalone centres at which surgeries or diagnostic tests can be performed; and physicians on the medical

staffs of our hospitals. The shortage of bed supply in India continues to be high, although several healthcare

service providers have aggressive organic growth plans. In addition, our competitors are also expanding

presence by acquiring/ partnering with existing smaller hospitals. Going forward, pricing could come under

pressure in our key markets and competition for medical staff could intensify both of which may have an

adverse effect on our operations. It is widely recognized that India has a shortage of physicians in certain

practice areas, including specialists such as cardiologists and orthopedists, in various areas of the country.

Healthcare insurance penetration is Increasing rapidly, which may lead to a scenario where the costs of

providing care rise faster than reimbursement rates. We are putting in place systems and procedures to increase

cost efficiency and transfer best practices across our hospital network. Our standalone pharmacies (SAPs)

compete primarily with the unorganised sector. Organised sector penetration in the pharmacy sector is currently

only 2%, and unorganised players are able to offer similar services as the organized players. We differentiate

ourselves by ensuring high quality of the drugs supplied through SAPs, ensuring convenience for and building

deeper relationships with the end-customer and creating linkages between our hospitals and SAPs. The

pharmacy supply chain in India has multiple layers of suppliers, middlemen and retailers. Apart from

distribution, costs are another important element in this price-sensitive market.

Some Suggestions for improving the position of the Apollo hospitals

1. The general perception that large hospitals, with high bed-occupancy rate, are profitable, is misleading.

Global experience shows that hospital with more than 250 beds don‟t do well. Many Indian hospitals are

following the US healthcare industry, by decreasing the average length of stay of patients and increasing patient

turnover. US research shows that 80% of the revenues form a patient comes in the first 72 hours post-

admission. Hospitals generate a lot of revenues from General Inspection, because the patient turnover is very

high.

A large percent of revenues come from specialized services like operations and surgeries. It is because of these

reasons that many corporates are planning for a small 100 beds specialized hospitals, which caters to specific

diseases like cardiac, cosmetic surgery, neurology etc. Research shows that there exist a lot of space for super-

specialized hospitals with 100-150 beds, which generate revenues equivalent to large 500 bed general hospital.

Typically large hospitals with approximately 500 bed capacity takes about 9-10 years to break even whereas

super-specialty hospitals with about 100 beds take about 6-7 years to break even. Therefore, going in for super-

speciality hospitals seems to be a more viable option today.

2. Hospitals could also generate revenues from medicines if they are supplying them in-house. Some

hospitals make it mandatory for the patients to buy medicines from the hospital‟s chemist shop. A margin of 15-

20 % can be charged for such medicinal supplies. Though many hospitals run by Trusts do not earn this way,

but new entrants or corporates for whom private healthcare sector is a direct extension of their line of business (

eg. Pharma companies), can generate good returns from medicine supply.

3. Health Plan packages can be provided by hospitals to family and corporate. For example Family Health

Plan Services (FHP), a subsidiary of Apollo Hospitals does health management of employees of its clients.With

a wide net work of Hospitals and Healthcare providers countrywide, and a tie -up with General Insurance

Corporation of India, FHP offers a range of services to employees and dependants, such as Preventive

Healthcare, Corporate Counseling, welfare Programmes, Claims Administration, Patient-care Coordination and

so on. So FHP's healthcare packages, optimize the benefits while keeping the cost under control.

4. Apart from preventive healthcare, stress management programs could be provided. For example

„Effective Stress Management Programme‟ offered by Wockhardt Hospital. This programme provides a

medical perspective of stress and is conducted by a medical professional. The programme includes a series of

one-to-one sessions, with a clinical Psychologist highlighting the factors responsible for inducing stress, and the

methodologies, which can be adopted to cope with this phenomenon practically.

5. Hospitals can become integrated healthcare systems i.e. when medicines, food services, laundry and

linen etc will become "purchased" services. These third-party operations will increase the profit margins.

6. Mergers could be used for synergy of skills - i.e. to help the merged organisations benefit from one

another's individual strengths by applying them across the board. It also helps them to make joint investments in

branding or information technology and also to react effectively to the changed market forces.

Alternatively hospitals can go in for Group Purchases, as in USA. The buying power of large GPOs in USA like

Premier, VHA / UHC and AmeriNet gives them the clout to exert price pressure on suppliers, particularly for

products in lower demand. And as GPOs have consolidated, manufacturers have offered bigger discounts to

hang on to their contracts. So there exists a lot of supply management opportunity, which will affect spending

productivity.

SWOT analysis based upon industry analysis