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Published on: March 22, 2021, 5:56 a.m.
Max Healthcare's post-Covid growth plans
  • Soi: looking at metro-centric opportunities

By Sumit Ghoshal. Contributing Editor, Business India

Max Healthcare Institute, which was listed on the stock exchanges as recently as last August, has finalised aggressive expansion plans for the next four-to-six quarters and raised a war chest of Rs1,200 crore through a QIP (qualified institutional placement). For the QIP, the company made a fresh issue of 61.4 million shares at a price of Rs195.40, which is slightly higher than the SEBI-sanctioned floor price of Rs190. This closely matched the prevailing share price during the period of 4-9 March, when the issue was kept open. The share price in mid-March is hovering around Rs200, which is almost double of the listing price of Rs107. 

Of the freshly issued shares, 43.6 per cent was allotted to foreign institutional investors, while domestic investors, including mutual funds and others, subscribed to the remaining 56.4 per cent. After the issue, the subscribed equity share capital of Max Healthcare stands at 965.4 million shares of face value of Rs10, of which, about 29.54 per cent would constitute the public holding. As per BSE records of December 2020, Abhay Soi and his family owns about 210.7 million shares (23.30 per cent) and KKR group (through Kayak Investments) holds 469.8 million shares (51.94 per cent), while 24.8 per cent was with the public. Going by the current share price, the market cap of the company stood at about Rs20,000 crore, of which slightly below 30 per cent would be the free float.  

According to top management sources, the funds obtained through the QIP issue would largely be utilised for the expansion of bed capacity, retirement of some amount of debt and other miscellaneous requirements. At one level, the Max Health management has plans to add a sizeable number of beds to its existing hospitals in the Delhi-NCR region as well as Western India. The company owns large land banks in the vicinity of its existing hospitals in Delhi-NCR (7.2 acres in Saket) and in Mumbai (3.9 acres).

This offers the company the capability to add up to 2,100 beds in these premises. In the near future, it intends to utilise this to build about 650 beds in Delhi (with provisions to hike the capacity up to 900 beds). In the initial phase, of course, only 350 beds would be operational, while the rest would be built up and made ready soon. Similarly, the stage is set for an additional 500 beds in their Mumbai property, of which again 152 beds would start functioning in the initial stage.

Clear strategy

It is also open to acquisitions of large super-specialty hospitals in major cities in northern and western India. According to the company’s stated approach, they would be interested in hospitals of 400-500 beds in towns, where they are not already present. However, in Mumbai and the NCR, where Max Healthcare is an established brand, they are willing to consider taking over medical institutions of 250-300 beds as well. “We would look at Maharashtra for sure,” Soi told Business India in an e-mail interview.

One can thus anticipate acquisitions in the burgeoning Mumbai suburbs such as Thane, or even a presence in Pune, the second biggest urban conglomerate in the state. When these plans are implemented, the total bed strength of the network would grow from 3,371 at the end of 2019-20 to 5,456 at the end of two years. Of these, 385 additional beds would be created through extension in BLK Super-specialty Hospital, Max Hospital in Shalimar Bagh (Delhi) and Mohali.

Assuming an investment of Rs1.3 crore per bed in the brown-field projects, and ARPOB (average revenues per occupied bed) of Rs50,000 per day, the recovery of the investments should be faster than the industry standards. Going forward, as the hospitals complete five years of presence in the market, the ARPOB may be expected to increase to Rs64,-73,000 per day. By comparison, the ARPOB of the Apollo Hospitals group stood at Rs37,400 as of November 2020.

“We shall be looking at metro-centric opportunities or those in proven locations; however, we are not planning any greenfield projects and our brown-field projects would have to be of certain size and scale,” said Abhay Soi, CMD, Max Healthcare, while participating in an earnings call in February this year. The benefit of this clear strategy of avoiding greenfield projects would be to shorten the time to commissioning of a new property.

The other major component of allocation of the fresh funds would be for reducing the company’s total debt levels, which stood at Rs1,867 crore at the end of December 2020. This marks a paring of debt from Rs1,988 crore in the previous quarter. This includes a secured long-term debt of Rs1,077 crore in the December quarter (down from Rs1,127 crore in September). The remaining is unsecured long term debt of Rs479 crore (down from Rs644 crore) but this is guaranteed by KKR’s ‘bullet’ repayment due in 2022-23, with an option to repay earlier. 

At one level, the institution’s financial numbers have been rather muted because of having to cater to the Covid-19 patients. In Q3 2020-21, Max recorded revenues of Rs1,160 (EBIDTA: Rs253 crore), as against Rs1,094 (EBIDTA: Rs160 crore) in Q3 of the previous year. The Q3 figures are also substantially higher than the figures of Q2 of the current fiscal (topline: Rs932 crore, EBIDTA: Rs143 crore).

At one stage, as much as 33 per cent of the total beds in the Max Health network had to be set aside for Covid patients. The number of cases in the Delhi-NCR territory peaked in October and November, but waned to a large extent as December came along. A similar pattern was seen in Mumbai, where Nanavati Super-specialty Hospital is one of their main properties. By the end of 2020, the hospital network had served about 21,000 Covid patients and conducted Covid tests on about 320,000 ‘possible’ patients. 

Accordingly, by mid-January 2021, the reservation of beds for Corona patients was gradually reduced to 15-18 per cent. However, a number of these beds remained unoccupied for some time, thus impacting the quarterly revenues of the company. 

The impact of Covid-19

Further, the average revenues realised from the Covid patients was less than  what the usual quaternary care patients (who undergo complex medical procedures like organ transplants) would fetch for the hospitals. Hence, the bed occupancy in October-November 2020 was generally close to the pre-Covid levels that revenue earnings were not commensurate. This began to change in December, a trend that is expected to continue in January to March 2021. Many of the non-Covid patients have started coming back to the Max hospitals and, in the next two-three quarters, this should bring both revenues and ARPOB to nearly the pre-Covid levels.

The impact of the Covid-19 pandemic on the Max group of hospitals has been multi-fold. On the one hand, the proportion of non-Covid patients fell drastically on account of lockdowns across the country and severe restrictions on international travel because of which the revenues from medical value travel plummeted rapidly in the first and second quarters of 2020-21.

Thus, in Q3 2020-21, international patients fetched a mere 4.2 per cent of the company’s revenues, compared to 11.1 per cent brought in during the corresponding period of the previous year. Also, the self-paying patients brought in 41.8 per cent of total revenues in the third quarter of 2019-20, but this figure was reduced to 39.4 per cent in the December 2020 quarter. 

On the other hand, the proportion of patients coming through TPAs (that is the segment, which avails the benefits of cashless health insurance) and corporates went up from 24.9 per cent the previous year to as much as 34.4 per cent in the December 2020 quarter. The figures for the first nine months of 2020-21 for all the payer groups also exhibit a similar pattern.

This flies in the face of stated company policy of gradually bringing down the proportion of TPA patients, because these patients pay about 40 per cent less than the self-funded patients. In an interview with Business India in August 2020, Soi had said his target was to bring the TPA patients down to about 23 per cent. However, the relatively higher percentage of TPA patients in Q3 2020-21 is also an indirect impact of Covid-19.

However, the severest form of the pandemic seems to be behind us at least in India and some other parts of the world. Hence, there appears to be no plans to repeat the stringent lockdowns of last year. Besides, a number of vaccines are now available to combat the disease and, so, severe restrictions on international air travel may no longer be necessary. All these factors are bound to work in favour of major hospital chains, including Max Healthcare. Thus, the Q4 of the current financial year, as also 2021-22, are likely to be more encouraging.

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