Max Healthcare is stepping up its expansion even as the hospital sector faces growing scrutiny over pricing and profitability. The company plans to invest around Rs 6,000 crore to add 2,800 beds, while maintaining that tighter margins could slow fresh investment in a capital-intensive sector. Chairman and Managing Director Abhay Soi, in an interview with Manu Kaushik, spoke about the expansion, pricing, revenue growth and returns. Excerpts:
The hospital sector is facing calls for price regulation, margin caps and mandatory allocation of beds. What is your response?
The simple point is that the country needs more hospital beds. The median net profit of large listed hospital players is around 8-9%, with the outlier at about 12%. This is a capital-intensive sector. At these levels of net profit, it is not even a major dividend-paying sector. We are investing around Rs 6,000 crore to get to 10,000 beds. If we reduce prices or margins, net profits will fall. Take it below a certain point and companies will start making losses. That will retard the capital cycle and investment cycle. Affordability and pricing are two different things. Affordability is a function of purchasing power and per-capita income. Pricing is a function of cost and the required return on capital. If land and construction costs rise, healthcare cannot simply become cheaper.
Max has said average revenue per occupied bed (ARPOB) should grow faster than inflation. How much of ARPOB growth comes from tariff increases and how much from treating more complex cases?
Tariff hikes account for only 2.5-3% of annual growth; the rest is clinical. Tomorrow, there will be AI-led robotics, then immunotherapy and other novel therapies. It is our job to offer and introduce these therapies. We don’t know which technologies will be adopted or which therapies will get regulatory approvals. Historically, mature facilities have seen growth of around 7-8%, helped by clinical advances.
In the first quarter of FY27, Max maintained occupancy above 75%, higher than the industry average. What is the company’s competitive advantage in maintaining that level?
Ultimately, it is patient care and outcomes. Patient care starts with the facility and extends to the services we provide. It is difficult to do all of this at high occupancy. Lower occupancy allows better services, but better services create higher occupancy, which then makes maintaining service levels more challenging. The outcomes depend on better clinicians and clinical progress.
Clinician costs have been going up across the industry. Is the sector entering a period where doctors capture a larger share of hospital economics?
Not really. Salaries and capacity increase in steps, while demand increases in a linear fashion. As demand increases, salary costs as a percentage of revenue come down. Clinician costs have increased by only around 1-1.5 percentage points as a percentage of sales.
With private equity and private credit showing increasing interest in healthcare, are hospital valuations becoming too high for strategic players like Max?
It does make acquisitions more expensive, but we have to live with what we buy. We have to make a certain return on capital. A PE investor can have a four-five-year horizon and make money through multiple arbitrage. We cannot make that bet. Our focus is return on capital. We look for roughly 20-25% returns in rupee terms over a longer period.
The recently launched 400-bed tower at Max Smart Super Speciality Hospital, Saket takes the facility’s total capacity to about 1,200 beds. How quickly do you expect the new capacity to ramp up?
We opened the hospital in May and have currently opened a little over 200 beds. Occupancy is already above 80%. The remaining beds will open over the next one-two months, and my belief is that they will ramp up quickly as well.