Wockhardt Hospitals is a leading private healthcare services provider in India with core focus on cardiology and cardiac surgery, orthopedics, neurology and neurosurgery, urology and nephrology and critical care, and specialisation in minimally invasive surgery. It has a network of 10 super-speciality hospitals and five regional speciality intensive care units (ICU) spread across western, eastern, and southern India. Of these, six are greenfield properties, while nine represent brownfield expansion. The company also owns and operates ten pharmacies located at its facilities.

Plans

Wockhardt Hospitals is adding three greenfield hospitals (Kolkata, Mumbai, and New Delhi) and is expanding the bed capacity at Wockhardt Heart Hospital, Mumbai. In addition, it would also add six brownfield hospitals at Goa, Bhavnagar, Nasik, Bhopal, Ludhiana, and Jabalpur.

On completion, the expansion would add 2,127 beds, raising the capacity from 1,374 beds end December 2007 to 3,501 beds end December 2009.

The expansion plan would require a capital expenditure of Rs 636.35 crore and this would result in a pan-India presence for Wockhardt Hospitals.

It had spent Rs 66.88 crore on the expansion plan end December 2007 and intends to fund the balance requirement of Rs 569.47 crore through this issue. In addition, the company would also utilise around Rs 285 crore of the IPO proceeds to pre-pay short-term loans.

Wockhardt Hospitals has entered into an MOU with Bateen Investment Co, an Abu Dhabi-based company, to provide expertise in setting up, managing, and operating hospitals to a special purpose vehicle (SPV) that would pursue healthcare initiatives in Abu Dhabi.

The company would begin with a greenfiled hospital specialising in women and children’s care. The SPV would also explore brownfield opportunities in Abu Dhabi.

Investonomics

It is estimated that, healthcare industry, which is growing at a CAGR of 12%, would increase to around $ 60 billion by 2009. The growth would be fuelled by the changing demographic profile, rising incidences of lifestyle diseases, and increasing medical expenses. Also, growth in health insurance and medical tourism would also contribute to the health industry growth.

As private players are expected to continue to control a majority of the healthcare spend, players such as Wockhardt Hospitals would be major beneficiaries of the boom.

The company’s three hospitals (one in Mumbai and two in Bangalore) accounted for around 71% and 68% of total income in the year ended March 2007 (FY 2007) and in the nine months ended December 2007. These three hospitals collectively comprised around 35% of the total bed capacity.

Valuation

There are very few listed major players with multi-location presence such as Apollo Hospitals, Fortis Healthcare, and Wockhardt Hospitals in the healthcare sector.

Among the three, the bed capacity of Wockhardt Hospitals is more or less at par with Fortis Healthcare (around 1,400 beds) but is much lower compared with Apollo Hospitals (around 7000 beds). Also, the occupancy rate for Wockhardt Hospitals was the lowest among all in FY 2007: Apollo Hospitals (77%); Fortis Healthcare (72%); and Wockhardt Hospitals (68%).

The company’s net sales jumped 49% to Rs 236.48 crore, but its profit grew at a meagre 8% to Rs 15.54 crore. The company’s revenues were around Rs 259.48 crore in the nine months ended December 2007.

Also the company’s P/E at the lower and higher end of the price band comes at around 278(x) and 240(x) respectively. This looks to be rather steep.