Letter to
Unitholders
Asset enhancement is integral to our
strategy to grow the portfolio. Through
asset enhancements, more sophisticated
and higher end medical programmes can
be offered by the operator, which will
increase their competitiveness and profile
in the industry.
In FY2016, management put in place a
number of asset enhancement initiatives
within the existing RHT portfolio. We are
carrying out work on some of the Clinical
Establishments which will increase the
ability of the operator to undertake higher
end surgeries such as transplants and
provide more specialty medical treatments
such as oncology, orthopaedics and
obstretics and gynaecology ("OB/GY"). The
push into higher end medical treatments
will help our operator to distinguish itself
from competitors, as well as increase its
average revenue per operating bed. Fortis
is also looking to reduce the length of stay
of a patient at the hospitals. Both of these
factors will lead to better utilisation of the
beds, which will result in increased revenue
for RHT, through a higher Variable Fee.
Similarly, our greenfield and brownfield
development projects at Ludhiana and BG
Road respectively, are progressing well. We
expect that the projects will be completed
by the end of March 2017. These are 2
projects that are developed as high end
medical facilities. Ludhiana is a city in the
state of Punjab, which is the fourth richest
state in India
1
. It is also the state with the
highest level of asset ownership in India
2
according to a research done by CRISIL
Research
3
, signifying its prosperity. The
Ludhiana Greenfield Clinical Establishment
is being developed to focus solely on the
provision of OB/GY medical programmes.
This is a sought after medical service in the
prosperous state of Punjab.
At the BG Road Clinical Establishment, we
have a brownfield development project
that will provide us with a new 200 bed
block that will be used for oncology medical
treatments. In Bengaluru where the BG
Road Clinical Establishment is located, there
is stiff competition with many other medical
facilities situated within close proximity.
By specialising in oncology, apart from
being a high margin revenue treatment, it
also helps Fortis distinguish itself from its
competitors with a particular specialisation.
We had also acquired land in Mohali
in August 2015, that is adjacent to our
current Mohali Clinical Establishment.
The Mohali Clinical Establishment is also
situated in the state of Punjab and is one
of the highest revenue generators among
Fortis’ operated hospitals. The acquisition
of this land will allow us to expand the
Mohali Clinical Establishment.
We believe that the activities which we
are undertaking now will place RHT
in a stronger position. As a healthcare
infrastructure provider, we are committed
to gearing up our existing portfolio to
provide more advanced, better quality
healthcare. We are also increasing capacity
at strategic locations, in order to provide
for expansion needs in the future.
Staying Focused
Amidst Challenges
Most of the competition in the Indian
healthcare industry stems from the private
players. The private sector accounts for
over 75% of total healthcare expenditure in
India, which is one of the highest globally
4
.
Furthermore, the Indian government is
also encouraging of investment into the
healthcare sector, be it foreign or local
investment. Since January 2000, foreign
direct investment (FDI) has been permitted
up to 100% under the automatic route
for the hospitals sector in India
5
. Approval
from the Foreign Investment Promotion
Board (FIPB) is required only for foreign
investors with prior technical collaboration,
but allowed up to 100%. The government
has also put in place encouraging policies,
including a reduction in import duties on
medical equipment, higher depreciation
on life-saving medical equipment (40%,
up from 25%), and a number of other tax
incentives
4
. All these have led to increased
competition within the industry in which
RHT and our operator, Fortis, operates.
According to a study done on foreign
investment in the hospital sector in India
by the Institute for Studies in Industrial
Development in New Delhi, it showed
that the FDI investment into hospitals and
diagnostic centres jumped from US$ 6.93
million in 2001–02 to US$ 684.58 million
in 2013–14. Such FDI are mainly from
the venture capitalists and private equity
players. The investment is also found to be
mostly in the form of collaboration with
local Indian partners, and the multi-speciality
and super-speciality hospitals segment
have attracted the maximum private
investments. Single specialty hospitals
for specific diseases/medical conditions
like cancer, ophthalmology, cardiology,
and trauma, too, attracted large foreign
investments. This could be due to the
changing nature of lifestyle disease, health
education, public awareness, and the change
in treatment-seeking behaviour which has
led to increased demand for such hospitals.
Furthermore, it was noted in the study that a
large percentage of FDI is equally distributed
among big hospitals. It is noteworthy that
the recent investments into the Indian
hospital sector are in the same space that
Fortis and RHT operates. With the increased
competition, the asset enhancements
by RHT, and increased medical offerings
by Fortis, will be even more important in
meeting patient demands.
While RHT TM continues to keep a lookout
for new acquisition opportunities, such
opportunities may come at increased
prices due to the heightened competition.
In parallel, management is also evaluating
assets which can be acquired for
redevelopment with the in-house expertise
present, such assets may enable us to
achieve better returns for Unitholders. We
believe in remaining committed and focused
on our strategy of increasing the value of
the existing portfolio, building in capacity
expansions, and scanning for yield accretive
acquisitions at reasonable prices.
1
Ministry of Statistics and Programme
Implementation
2
CRISIL Insight 2013
3
CRISIL Research is India’s largest independent and
integrated research house.
4
Foreign Investment in Hospital Sector in India:
Trends, Pattern and Issues. April 2015. Institute for
Studies in Industrial Development New Delhi.
5
Invest India website.
healthcare-sector/
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Religare Health Trust
