FE Editorial : Healthy consolidation

Written by The Financial Express | Updated: Aug 27 2009, 02:34am hrs
Indias healthcare sector has just seen its largest deal to date, with Fortis Healthcare saying it will shell out Rs 909 crore to acquire ten hospitals from Wockhardt. The latter has been undergoing intensive debt restructuring following huge losses on derivatives. A public issue to that end failed spectacularly last year. If the deal will enable Wockhardt to retire Rs 500 crore in debt, it will gain Fortis hospitals (the first of which opened as recently as in 2001 in Chandigarh) in Bangalore, Mumbai and Kolkata metros. Trying to build such capacity from scratch would have taken Fortis years. Wockhardt, meanwhile, still retains some key facilities and now even has enough money in the kitty to expand. Expansion is indeed the name of the game for all major corporate players in Indian healthcare. The countrys largest hospital chain, Apollo (which also made a play for the Wockhardt facilities), is even looking to expand beyond national borders into West Asia and north Africa, for example. Its already followed Fortis into Mauritius. As per plans, scale translates into profits. Had Wockhardt pulled off its public issue last year, it would have used that to prowl for more hospitals, too. Whats behind this impulse Healths share of the Indian wallet is fast growing; public facilities just cant deliver to satisfaction and, therefore, private providers can safely bet on hearty returns. The more they consolidate and expand, the more their professional managers can ensure that standardised practices and bulk buys drive down costsand drive up revenues.

One commentator has called this a happy collision of need and greed. The need is indisputable: India only has 0.6 physicians per 1,000 people compared with Chinas 1.4, only 0.9 hospital beds per 1,000 people compared with the global average of 3.0, only 1.3 midwives and nurses per 1,000 people compared with Brazils 3.8, and so on. Perhaps corporates have hitherto focused on affluent Indiastridently demanding better services than the government facilities dish out. But the future is as clear to them as to the agencies that specialise in projectionsthat future growth will come as much from emerging towns and cities as from the established ones. On the greed front, one report estimates that healthcare in India will grow from $40 billion in 2008 to $323 billion in 2023. These odds are better than good; both Fortis and Wockhardt know this. Beyond the immediate context, both players are reasonably confident that Indias future lies with them, rather than with its many standalone vents. This ought to drive them towards more innovation and more economies of scale. That should only translate into good things for the consumer.