ValuePickr Forum

Narayana Hrudayalaya Ltd IPO - Should we invest or let it pass?

Splendid analysis (not read anywhere else). Thanks for sharing. Last year I got a chance to hear Prof Bakshi talk at length about this wonderful company and he basically talked about the frugal nature of Dr Devi Shetty, sheer focus on profitabilty and his endeavour to run it like a commodity at scale. He also mentioned about the land he has got at reduced prices from various state governments like in Katra the land is literally free near Mata shrine. I was impressed so invested for the long run. I just read recently that ex CEO Raghuvanshi joined Fortis. And the share price also falling precipitously from 280 odd levels to 192… Hope everything is fine at NH. why did CEO join a rival company?



At the recent Investor meet at NDMC Center in C. P, Delhi had some discussions so that i could punch holes in my thesis above. Met a wonderful gentleman who mentioned about the USD 700m buyout plan of Medanta by Pai group. Medanta has overall about 1950 beds. So the per bed cost comes out to USD 358974 which is roughly INR 2.5Cr. What could be such value for NH? Mkt cap/ 6228?

Cost per bed…Wish it was so easy to find valuations :smile:

Its far more complex…its the entire ecosystem around the bed that matters more…number and quality and exp and reputation of docs, no of procedures, medicine cost, overheads, etc. etc…and area/city/country where hospital is…bed in wards or rooms…and a host of other things…there’s also a shift to day procedures where beds don’t get used…

So pls don’t fall for these easy looking metrics…they won’t help you unless u get the whole picture.


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@maijini10 This was absolutely insightful article about the Ayushman scheme and its impact on private hospitals… like NH… thanks for sharing. another great piece i read on Ken about hospital economics today, gestation period, PE culture, impact of asyushman… this is the most intriguing story for me so far this year…superbly written. Both the interviewer & interviewee seem to be corp hospital veterans…feel more educated now

free registration on site may be needed to read this

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A great report by CARE on The dynamics of healthcare services industry in India
It covers Both Hospital Chains and diagnostic chains

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My Notes from AR 2019 where I have focussed on story aspect of Narayana Harudalaya rather than numbers.

Affordable Healthcare

To provide high quality healthcare with care and compassion at an affordable cost on a large scale.

A 225-bed hospital in the year 2000, is today a 7,155 capacity-bed multi-specialty healthcare services chain that provides superior tertiary healthcare at affordable costs. Headquartered in Bengaluru, we have a network of 23 hospitals (multispeciality and super-speciality healthcare facilities) with 7 heart centres (super- speciality units) across 18 locations in India and 1 multispeciality hospital in Cayman Islands.

7,155 Capacity Beds

30+ Specialities

16,690 Full-time employees and associates including 3,644 Doctors as of March 2019

Chairman’s Message

We have been globally recognised as a disruptive innovator in the field of healthcare for proving a model that combines world-class healthcare delivery with a cost-conscious mindset

We recognise the power of digitisation

A few years ago, we took a decision to develop the capability to build software in-house and so we created the NH Software Development Centre. This team is building the next generation of hospital information systems, electronic records, and clinical decision support systems that will help us achieve high quality of clinical outcomes without putting a financial burden on our patients. I would like to highlight some of our ongoing projects:

We don’t have the luxury to sit still because the world is changing, and we must change to remain relevant in the 21st century. Just like AirBnB built the world’s largest hotel chain without building any rooms, and Uber built the world’s largest transport company without buying any cars, I believe that the world’s largest healthcare company of the future will not build any beds.

Online Diabetes Clinic

Digital health may have started in developed economies, but it is desperately required in India which is struggling with the shortage of medical specialists. India is the diabetic capital
of the world, with 7.2 million diabetes patients (International Diabetes Federation, 2017), yet it has only around 600 diabetologists to treat them. We believe that online diabetic care is the only way forward because a diabetologist sitting at home in front of a computer can treat 10 times more patients than seeing patients physically in clinic. NH has developed CURA diabetes outpatient application which treated over 34,000 patients in the last two years. Eight months ago,

we launched an online diabetes management system that treats more than 2,400 patients online.

NH-Atma, NH-Medha, and Kaizala

The entire NH network will transition to a home-grown Hospital Information System built by our team over the next couple
of years. This software, which we have affectionately named NH-Atma , will be the foundation upon which our digital infrastructure will be developed. NH-Atma is cloud-based, fully scalable, and can integrate with all the existing infrastructure in the hospital. It has taken us 2 years to develop the software, but it is the first and most important step in our digital transformation.

As a low-cost healthcare operator, NH relies on accurate and timely data to help us make important decisions. We have a large team that can analyse this data and help us to identify inefficiencies in the hospital. With developments in AI and predictive analytics, we will soon be able to identify problem areas before they become serious events. Our data analytics product, called NH-Medha , has been a valuable tool in helping hospital administrators cut down costs, and doctors to make better clinical decisions.

Kaizala is an application developed by Microsoft that NH
has adopted as an in-house messaging platform. We have developed multiple cards that run on top of Kaizala to help
our teams communicate better. Our e-ICU cards have made
a huge impact on care management for patients in the ICU. Our doctors can manage an ICU patient’s condition from any part of the world using only their mobile phones. This simple technology has led to better clinical outcomes, shorter patient stays, and lesser medicine consumption in our tech-enabled e-ICU. The digital assets we have invested in, will help us scale our operations to serve millions of patients across the world without building or owning hospital beds in the future.

Making a Shift in our Growth Metrics

Several years ago, I made a statement that NH will build 30,000 beds and become the world’s largest healthcare operator. Now we believe that hospital bed count as a growth indicator is quickly losing its relevance.With better systems to enable optimal usage of manpower and equipment, we can serve more patients with the same infrastructure. NH Average Length of Stay has decreased from 4.3 days in FY 2015-16 to 3.9 in FY 2018-19, while the number of discharges increased from 1.9 lakh to 2.6 lakh.

International Operations

Our Facility in the Cayman Islands was the first attempt by an Indian company to run a Joint Commission accredited hospital in the Western world. We prudently deployed a phased approach to this investment, wherein we started off as a minority partner with 28.6% stake and increased our stake to 100% in the fourth year of operations. We are very pleased with the performance of this hospital as it registered a 22.3% year-on-year revenue growth in FY 2018-19 and an EBITDA margin of 24.1% in Q4 of FY 2018-19 translating into an impressive EBITDA margin of 17.4% for the FY 2018-19.

Management Discussion and Analysis

Indian Healthcare Landscape Sector Outlook

  • Indian healthcare market is expected to grow at a CAGR of 23% over FY15-20E and reach US$280 bn by 2020
  • Hospital segment constitutes ~71% of the market
  • Medical tourism to contribute 15-20% to hospital revenue by FY20 from 5-10% currently
    Inadequate Infrastructure
  • Out-of-pocket expenditure on healthcare is ~61% - the highest in the world
  • 7 beds per 10,000 population vs global average of 26 beds
  • 3% specialist physicians cater to rural areas which comprises >70% of population
    Growth Prospects
  • India’s per capita income is expected to register a growth of 11% over FY16-21
  • Deaths due to NCDs are expected to be 74% of total deaths in 2030 compared with 60% in 2012
  • <20% population has health insurance, 20/day premiums for coverage of 0.5mn are available

Increased Prevalence of Non-Communicable Diseases

  • India’s disease profile has shifted towards chronic diseases (cardiovascular, diabetes and cancer)
  • Deaths due to Non-Communicable Diseases (NCD) is over 60% now and are expected to increase
  • Cardiovascular diseases dominate causes of death with 26% share
    Opportunities :
    Booming Medical Tourism Market
  • Indian medical tourism industry is US$3 bn having posted
    ~20% CAGR in 2009-15 and is expected to clock ~30% CAGR over the next 5 years
  • Indian hospitals treated 350K international patients in 2015 and the volume is expected to increase at 15-20% each year going forward
  • Cost arbitrage (30-70% cheaper) to play a major role in attracting international patients
    National Health Policy 2017 has set Ambitious Targets
    • Universal healthcare coverage - Increase health expenditure as a percentage of GDP from the existing 1.15 % to 2.50 % by 2025

    • The Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (PMJAY), the largest government funded healthcare program is targeting more than 500 million beneficiaries

    • Threats :

    • Increased regulation

    • Lack of infra and professionals

    • Capital intensive nature of business limits expansion

Disclosure:( I have >10% holding of my portfolio in Narayana Harudalaya & I am not Sebi registered advisor)


Value Quest Moat Fund & Mirae Asset fund exits completely from Narayana Hrudalaya. Prof Bakshi bought it at near about 300 levels & exited at about 230 odd level. Main reason could be the recievable days while dealing with the Govt. which he recently reflected in his tweets. He argued that any business where PSUs & ministries are customers. Its hell. Low margins & low capital turns combo. Now to the question as to Why do people sign up Government as customer? He answered - To utilize their spare capacity. Marginal pricing. Out of desperation. Hospital. Unoccupied beds. Almost all costs are fixed in this business. Govt sponsored schemes give at least some money and even if it comes late, it’s extra revenue…thats why they do it.

And if you have been over-confident about setting up a hospital in a location where there aren’t enough full-paying patients, you have no choice but to accept a lousy customer who pays you far less and pays you much later.

In-fact, you should see this in any industry which has spare capacity and high operating leverage. Govt can be large customer for airlines and hotels but if you really allocate full costs to that customer, it’s a very low ROCE business…Marginal pricing kills marginal ROCE.
Why do you think private hospitals are crying about Ayushman Bharat? The rates are too low and payments will come late, but what to do when you have a hospital in a location where there aren’t enough full-paying patients?

Source : Latest shareholding data by BSE for Q1 2019 & twitter handle of Prof (may 2019)

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Its no surprise that most hospital stocks are languishing. HCG and Shalby are making new lows everyday.
Problem is, apart from receivables and low payouts in government schemes, how to manage two different customer classes under the same roof ? And once you start offering your services to Government sponsored scheme customers, there is always a cannibalizing effect on self paying customers where ever the criteria for inclusion in Government sponsored schemes are porous and checks/ balances are not there?
Who would like to pay from one’s pocket when you can get same services FOC ?

Apart from Ayushman, there are state sponsored schemes offering similar benefits with wider eligibility criteria…So impact is much more.

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On one hand there is growing coverage of health insurance & so rising demand places NH in good position. On the other hand government regulations & capping of procedures will further weigh on profit margins as its already a low cost operator. So margin cap by government may see an impact on margins for some time.
Only silver lining seems to be the growth in average revenue per bed. Remains to be seen, how fast the utilization improves.

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