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No 'bulls'-eye for Healthcare

All major industries reaped profits from the recent bull run in the stock market. Nayantara Som considers why listed healthcare groups did not benefit much

The year 2007 will be etched in the history of the Indian stock market surpassing even the 1990 boom. It was deja vu all over again. The storming of the bulls, as experts dubbed it. First, the Sensex touched the 17,000 mark on September 26, 2007. The graph then reached fantastic heights within eight days to cross the 18,000 mark and 10 days later the graph skyrocketed over the magical 20,000 mark. There was no looking back. Business tycoons and conglomerates reaped enormous profits. Indian industrial czar Mukesh Ambani was proclaimed the world's richest man surpassing Microsoft chief Bill Gates and real estate giant DLF's chief KP Singh reaped a profit of Rs 13,00,000 crore in a single day! All this from the ripple effect of the large cut in interest rates in the US.

Says Jigar Shah, Investment Advisor, KR Choksey Securities, Mumbai, "The recent bullish trend of the market is a result of the unprecedented rise in global economic growth, longer boom cycle, lower interest rates, lower inflation and huge liquidity. In particular, emerging markets like India and China with their huge populations are growing very fast in double digits. This has strongly boosted purchasing power and helped in reduction of poverty." Moreover, foreign companies are now looking at safer havens for investing their finances and funds, with India and China topping the list. Above all, the nine per cent growth of the Indian economy is encouraging an automatic inflow from FIIs, leading to the sudden upsurge in the stock market.

"The bullish trend is a result of unprecedented rise in global economic growth and longer boom cycle" - Jigar Shah Investment Advisor KR Choksey Securities Mumbai

"Healthcare is defensive and highly regulated, so the effects of the Sensex did not percolate into the sector" - Suraj Saraogi Investment Advisor Keynote Capital Mumbai

Did Healthcare Benefit?

With IPO being the latest catchword in the industry, the million-dollar question is how did the listed healthcare groups benefit in the long run? Was it the same good news for healthcare? 'Not really' is the unanimous opinion of both investment advisors in tune with the market, and industry experts. Despite the enormous profits reaped by other sectors, healthcare remained in the background and did not participate much in the anxiety and excitement. Moreover, with the skyrocketing growth of the pharmaceutical and life sciences industry, only these two segments in healthcare benefited from the rise in points. Hospital groups lagged behind their pharmaceuticals counterparts. "The pharmaceutical industry's present growth rate is 12-17 per cent while healthcare is estimated to grow to 13 per cent after another couple of years," explains an analyst.

The healthcare industry is still getting organised. Additionally, just two groups and two standalone hospitals are listed. Compare this with the vast sea of listed IT, infrastructure and oil and petrochemical companies. Hence, the share of the pie is miniscule.

Experts opine that even in the near future, the stock market will not be a priority for healthcare groups as most prefer not to go the IPO way just yet. This leaves a limited number of healthcare players in the market. Says UK Ananthapadmanabhan, President, KMCH, Coimbatore, "Promoters are not aggressive, plus there is little trading of shares of these companies." Unlike Apollo Hospitals and Fortis Healthcare, Chennai's Devaki Hospital and KMCH preferred not to be aggressive. "We felt that our scale of operations was more than enough; besides, we did not have any intention of expanding beyond one place," justifies Ananthapadmanabhan.

Out of the four, market analysts also opine that only the Apollo Group, with a 40 per cent rise in its revenue, is doing well in the market. This is primarily because of its expansion plans, in both the domestic and international markets.

"Stock markets never had any effect on healthcare, and hence the bullish trend will not affect our IPO process" - Vishal Bali CEO and MD Wockhardt Hospitals Group

"Over time, going public will be the only option for hospitals whether trust or private, and every hospital should go for it" - UK Ananthapadmanabhan President KMCH Coimbatore

Differing Views

Ravi Anbil, CEO, Apollo Global Projects, explains, "Apollo has a brand image in both the international and domestic markets. We have a presence all over Asia and in countries like the Middle East, Fiji, Maldives, Mauritius and the Caribbean islands. Performing well in the share market is dependent upon a good company image, and in 24 years our growth history has instilled confidence in investors to invest in our company."

Fortis Healthcare did not benefit much, though. "Bulls and bears have no significant impact on healthcare," insists Daljit Singh, President, Strategy & Organisational Development, Fortis Healthcare.

Teething Problems

What deters some is the long gestation period of listing. An IPO would merely enable them to get some capital and visibility. Listed companies—except for Apollo, which is a very old hospital chain—have not been able to make inroads immediately and become profitable. So, a sudden escalation in points will not incur much benefit for healthcare.

Experts also point out that the neutral effect was only to be expected since healthcare is insignificant in comparison to the larger picture.

Says Sandeep Sinha, Programme Manager, Healthcare Practice, Frost and Sullivan, "The share of these hospital groups is Rs 200-1,000 crore, while the entire market amounts to millions of dollars."

According to Daljit Singh, "The bullish trend in the market had no effect on healthcare because it is not yet available to the public at large."

On April 16, 2007 Fortis Healthcare entered the capital market with an IPO of 45,996,439 equity shares of Rs 10 each with the prime intention of raising funds for its extensive projects. He adds, "The IPO trend is new in healthcare. It will take time to pick up in the market and have an effect."

Suraj Saraogi, Investment Advisor, Keynote Capital, Mumbai, gives another angle, "Healthcare is a defensive sector and a highly regulated one, so the effects did not percolate into the sector."

It must be remembered that healthcare has never been viewed as a profit making industry. The Government's role is almost insignificant in this arena. This, experts believe, can play a crucial role in expanding the share of the total market pie.

Keeping Choices Open

None of this is reason enough to prevent healthcare from exploring other possibilities. Industry analysts are still contemplating whether this might have a significant impact on those going in for an IPO. There are a number of aspiring hospital groups in the pipeline for the IPO bandwagon.

Wockhardt Hospitals Group has already come out with its red herring prospectus while Max Healthcare and Manipal Health Systems (MHS) will be venturing for an IPO in 2009 and there are talks that GNRC, Guwahati is going the IPO way too.

Will this bullish trend have any positive repercussions for these groups? Will it give an impetus to a better future? Vishal Bali, CEO and MD, Wockhardt Hospitals Group, is skeptical: "No, it will not affect our IPO process. Stock markets never had any effect on healthcare. Everything will be the same as before."

Will the recent upsurge of the bulls make the road smoother for future IPO prospects? "Yes, definitely these hospitals will increase their premium and with increase in premium, there will be more pumping of money and more hospitals will come up," opines Ananthapadmanabhan.

Should One Invest in Healthcare?

Despite the skepticism, market and industry analysts are convinced that the sudden upsurge in the market has opened up positive vistas and avenues for listed healthcare groups. This might not be the right time for investors to invest, but experts point out that the long-term outlook on the healthcare sector will be positive. "Industries like healthcare and food are stable and shareholders will invest in industries which are stable and not volatile," says Anbil.

"I agree that the gestation period and ROI are long in healthcare. Investors do not have that much patience, but hospital groups will find ways to reduce the gestation period and then it will be smooth going," predicts Ananthapadmanabhan.

In fact, there is a strong buzz in the market that healthcare has the potential for the same growth graph that the software industry showed in the 1990s. Says Shah, "Investors can benefit if they invest in healthcare from a five-year point of view, as no hospital chain can start making big profits initially. It is like IT industry in the early 1990s and retailing in early 2000."

Experts also believe that going public is the future of healthcare groups and this will boost the image of healthcare as well the confidence of the investors. "Over time, going public will be the only option for hospitals, whether trust or private every hospital should go for it. This will boost not only the image of the hospital, but will also bring in the much needed funds and finances,"Ananthapadmanabhan advises.

Unripe Time

One expert believes, "Hospitals have just ushered in the concept of corporate governance and some listed hospitals do not have it yet. This makes things difficult in the market, since all companies there need to have a corporate set-up before going in for an IPO. Secondly, the same companies do not believe in transparency within their company. So, how will they ever do well in a market which is based on sharing figures and statistics?"

Agreed, the bullish trend did not have an impact on healthcare. However, there is always room for hope. According to the RNCOS market report, healthcare is growing at a phenomenal pace, so much so that it will be the future growth driver for the economy. The report mentions, that the healthcare industry accounted for 5.2 per cent of India's GDP in 2002 and this figure could reach USD 47 billion or 6.2 per cent to 7.5 per cent of GDP by 2012. Given this, the day is not far when these healthcare groups will be the major drivers of the stock market. Perhaps another four or five years, and we shall be retelling a different story altogether!

nayantara.som@expressindia.com