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 Parkway, a unit of the world's second largest healthcare group by
market value IHH Healthcare Bhd, now intends to use acquisitions to
quickly expand in India, where the private hospitals market is
estimated to be worth $55 billion a year but where companies must
obtain as many as 70 clearances from federal and local authorities
to launch a new facility.
"Greenfield is off the agenda," Ramesh Krishnan, Parkway's head of
Middle East and South Asia operations, told Reuters by telephone
from Singapore. "It's a market you don't want to wait eternally to
tap into, so we've basically decided to do it inorganically. It's
just a question of a shorter runway."
In Mumbai, garbage festers around Parkway's already built Gleneagles
Khubchandani hospital, which had been expected to open in 2012.
Krishnan said it will now open next year.
Expanding through acquisitions has increasingly become the tactic of
choice for hospital operators seeking to speedily expand in India,
where the demand for private healthcare is booming thanks to an
overburdened public healthcare system.
Data from BofA-ML Global Research shows the private hospital market
is set to grow 16 percent a year to reach $120 billion by 2020,
almost double the size of the Chinese market.
This expansion strategy, however, does nothing to address a severe
shortage of hospital beds, or bring down the cost of healthcare,
issues that Prime Minister Narendra Modi's government has so far
failed to fix despite election promises to upgrade the entire
healthcare sector.
India has 7 hospital beds per 10,000 people, lower than Southeast
Asia's average of 10 beds and China's 38 beds, the World Health
Organisation said last year.
"Acquisitions are good for the industry, but can have worrying
long-term implications for infrastructure development in the
sector," said Rana Mehta, head of healthcare at consultants PwC
India.
BUY TRUMPS BUILD
Expanding through acquisitions is more lucrative for hospital firms
than starting from scratch: the BofA-ML data shows companies pay up
to $150,000 to set up a new bed in India, or more than double the
$60,000 they pay to buy an existing bed.
Acquisitions in India also remain cheaper than in many other
countries: in Singapore, it costs $1.5 million to buy a hospital
bed, and in South Africa, the cost is $100,000, the data shows.
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So far this year, IHH Healthcare has bought majority stakes in
India's Global Hospitals Group and Continental Hospitals for about
$240 million. The company already holds a 10.85 percent stake in
India's largest hospital chain Apollo Hospitals Enterprise.
"In India, strategic acquisitions help increase our speed to market
and meet the pent-up demand for quality private healthcare," IHH
Chief Executive Tan See Leng said via email.
Privately owned Cygnus Hospitals said it plans to add about 35
hospitals to its network by 2018 solely through acquisitions.
Manipal Hospitals has also ruled out building new facilities. "The
land permits and other clearances can take years," said Manipal's
Chief Operating Officer Gopal Devanahalli.
The cost of suitable real estate, especially in rapidly developing
cities, is also deterring hospital operators from building new
facilities. Property consultants Jones Lang LaSalle said land prices
in Ahmedabad, Pune and Hyderabad, among others, have risen by more
than a third since 2011.
In June, Apollo Hospitals acquired a 220-bed hospital in Guwahati
after it failed to find suitable land to build a new hospital in the
northeastern city.
"Cost of real estate and construction in some locations has become
so prohibitive that it makes sense for us to evaluate acquisitions,"
said Chief Financial Officer Krishnan Akhileswaran. Apollo was also
looking into possibly acquiring hospitals in Assam and Karnataka
states, he added.
(Additional reporting by Zeba Siddiqui and Shailesh Andrade in
MUMBAI, Tripti Kalro in BANGALORE, Yantoultra Ngui in KUALA LUMPUR
and Aradhana Aravindhan in SINGAPORE; Editing by Miral Fahmy)
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