Medical tourists could rise to 3 million by 2030

The hospital sector is abuzz with deals. From Singapore PE fund Temasek becoming majority stakeholder in Manipal Hospitals after buying an additional 41 percent stake for around Rs 16,400 crore to smaller deals such as Fortis picking up a 350-bed hospital near Delhi for Rs 225 crore.

Other deals in the offing could be Abhay Soi promoted Max Healthcare picking TPG run Care Hospitals. An Economic Times report is pegging valuations for the deal at Rs 5,500-6,500 crore. Others include Manipal buying the hospital chain of Emami Group AMRI for Rs 2,400 crore and picking up Kerala based private hospital chain KIMS for Rs 3,500-4,000 crore.

Acquisitions are done for various reasons. From increasing geographic presence to accessing pan India multi-speciality bed capacities quickly. For example Fortis with the acquisition of Medeor Hospitals will be propelled to become the second largest hospital with bed capacity in Gurugram. It will fulfill its strategic approach of expanding in the Delhi NCR geographic cluster.

On the other hand, Manipal could surpass Apollo Hospitals by increasing their bed capacity to over 10,000 beds in case the said acquisitions goes through, and Max which has over 3,400 bed capacity will access 2,400 beds from Care Hospitals helping it achieve targets of increasing its bed capacity by over 2x in the next 3-4 years.

The common thread amongst all the acquisitions is cashing in on the structural growth drivers. hence many are ready to pay top dollar for these acquisitions. Valuations for the hospital space have risen as much as 8x in the past 5 years with deals such as Manipal Temasek done at 10x MCAP to sales, a premium for 5 -6x versus peers.

These structural growth drivers include increased health awareness and insurance penetration post Covid-19 and increased inflow from international patients as India positions itself as a medical tourism hub.

All this will help aid the operations of the hospitals. For example, average occupancies in the hospital space are expected to go from the current range of 65-69 percent to over 75 percent, average occupied bed rates could rise by around 10 percent.

As far as medical tourism goes, it has risen 30 percent from 2014 to 2019, with many of the large hospitals chains seeing business revert back to pre-Covid-19 levels currently. Estimates are that the number of medical tourists could rise to 3 million by 2030.

Lastly, why acquire? Today building a hospital requires a capex of Rs 1 to 1.2 crore per bed over and above land acquisition costs and other costs resulting in a timeframe of upto 3 to 4 years to come on stream.

Acquisitions are cheaper and more cost effective. Acquisitions, hospital owners and analysts say, is cash accretive from day one without capital to invest and build. Hence, all this is aiding cash management and possibly justifying valuations. CNBCTV18