With this move of acquiring 10 hospitals from Habil Khorakiwala-promoted Wockhardt Hospitals for Rs 909 crore, Fortis has now become a national healthcare player in a truly geographical sense by strengthening its presence in western and southern India and marking its entry into the eastern part of the country. Not only has the company achieved its goal of a pan-India presence in one go but it actually has managed a huge advantage in form of getting its hands on fully functional established reputed hospitals, eventually erasing one of the most dreaded aspects in the healthcare sectorgestation lags, the period that it takes a new hospital to convert into an earning asset. These hospitals, which are estimated to have a turnover of over Rs 300 crore and an EBITDA margin between 15% to 20%, would translate into an annual cash flow in the range of Rs 40 to Rs 60 crore to FHL, which is a huge bonus compared to a scenario in which the private healthcare player had to start off in these areas from the point scratch or with green field projects.
Had FHL not acted on the opportunity, and taken the Greenfield route to create the pan Indian presence, it would have taken it a minimum of two to three years, according to experts to get the venture up and running. This is conservative estimate, considering studies that show that it takes hospitals about seven to eleven years to break even after they are set up. Considering that India has only five to six corporate hospital chains worth the name, FHL has smartly done away with competition by digging its hands into one of the most aggressive rivals pockets. Now, FHL has access to one the best medical management team in the country, headed by Vishal Bali and a pool of very talented doctors, both elements being a scarce resource in the $34 billion domestic private healthcare market. Post-acquisition, FHL will have a talent pool of 9,250 personnel including 1,575 doctors and 5,000 nurses and paramedics.
By 2012, when the size of domestic sector is expected to touch $38 billion, FHL aims to reach a target of 40 hospitals, 6,000 beds and create global presence. By striking one deal with Wockhardt, it would increase its hospital count to 38 from 28 and bed count to 5,180 beds from 3,278 beds. The silver lining is very near to achieving its targets, two to three years in advance at a cost lower than their own expectation (FHL had a capital expenditure plan of Rs 1,500-1,600 crore to attain its 2012 goals). On the strategic synergy, both companies had more than 50% of their services dedicated to cardiac care, orthopedics and neurosciences, three growing verticals in which FHL would become the undisputed leader. Although, still around 3,000 beds shorter than the leading player Apollo Hospitals, FHL has consolidated its position as a strong second leading player and the market leader in several important regional markets like Delhi, Maharashtra, Karnataka, Punjab, Haryana, Rajasthan and Uttar Pradesh.
The deal has been unanimously hailed as win-win for FHL by experts. The deal in one stroke has tremendously increased footprint, reduced competition and allowed access to a great medical team and operational hospitals for Fortis. Had Wockhardt not needed the money to repay its debts, it would not have sold the hospitals like this at this point of time, said Monika Sood, head, healthcare practice, Feedback Ventures. Her feelings were echoed by Pradeep Kanakia, head, healthcare services, KPMG who said, This landmark acquisition marks Fortis well thought-out expansion in the healthcare market space, which is now shifting towards an oligopolistic market with Apollo and Fortis emerging as the major players building pan-India presence. It is hoped that Fortis will make this acquisition a win-win deal for all stakeholders - profitable growth for itself by leveraging the advantage of size and scale and a better quality of healthcare delivery at more affordable cost to patients on a pan India basis.