Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

Father, Daughters & Co.

Photo Credit :

With all that he has achieved in the past 27 years, and with four competent daughters all set to take his legacy forward, Prathap C. Reddy should have been happy. But the 78-year-old creator of the Rs 2,600-crore Apollo Hospitals group is suffering from a fair degree of discontent. He feels he has been too conservative and too slow. "Since 1984, we have been growing at the speed of a petrol-driven TVS 50 moped. Now, we want to grow at the speed of an aviation fuel-driven rocket," says Reddy.

Though he refuses to admit it, Reddy's unhappiness stems from the fact that the Singh brothers — Malvinder and Shivinder — of Fortis Hospitals have built up a hospital empire rivalling his own in a mere decade. It took Reddy 27 years to build a chain of 54 hospitals with a combined capacity of 8,717 beds. He has built painstakingly — not bought — almost all the hospitals that sport the Apollo badge today.

Starting a good 17 years after him, the Singh brothers have built up a chain of 56 hospitals with 8,237 beds already. They have built several of these, and acquired the others to grow fast. In the past three years, they have been particularly aggressive — snapping up the Wockhardt hospitals chain, the Escorts Heart Institute in Delhi, and several other independent hospitals. They narrowly missed out on acquiring the Parkway hospital chain in Singapore in a bitterly fought bidding war. And if they do not stumble, they will move well beyond Apollo in terms of capacity and revenues by the end of this year.











Daughters (from top left)
Shobana Kamineni, executive director (new initiatives), Apollo Hospitals
Heads the 1,200-plus Apollo pharmacies.
Spearheaded the group's foray into health insurance.

Vice-chairperson of the KEI Group

Preetha Reddy, managing director, Apollo Hospitals
The successor. Steers overall operations of the group.

Post-graduate in public administration. The first woman healthcare advisor to the government of India.

The brain behind Apollo's charity programmes

Suneeta Reddy, joint MD, Apollo Hospitals
Chairperson of Cellular Operators Association of India and chairperson of Aircel Cellular. Has been with the
group for more than 27 years

Sangita Reddy, executive director
(operations), Apollo Hospitals
Heads Apollo Health City, Hyderabad. Leads the group's HR and IT functions. Managing director of Apollo Health Street, Apollo's offshore healthcare services firm

For the man who created the whole concept of corporate hospitals in India, the prospect of being relegated to the No. 2 position is galling. Before Reddy, there were no for-profit, corporate hospitals in India. The country had only government hospitals and those run by charitable trusts. And even five years ago, Apollo was the undisputed king with a pan-India presence — Fortis was barely half its size with presence mostly in north India. Since then, it is not only Fortis that has grown aggressively. There are a host of other chains displaying naked ambition — Manipal Hospitals (over 3,700 beds), CARE Hospitals (over 1,400 beds) and Global Hospitals (over 2,000 beds), not to mention Max (800 beds) and the others.

Reddy is also aware that the Singh brothers have age on their side. Reddy has tremendous drive for a man of 78, but Malvinder is not even 40. But Reddy is hoping his four daughters will be more than able to handle the Singhs. Though Reddy remains the executive chairman of the group, his eldest daughter Preetha has taken over as the managing director of the hospitals business. Second daughter Suneeta, the finance whiz in the group, has just been promoted to joint managing director of the hospitals. Sangita, the third daughter, focuses on operations and fourth daughter Shobana is in charge of the new projects and initiatives. It is this quartet that Reddy banks on to move out of the moped speed range and move into the rocket-speed growth trajectory.

Indeed, rocket is Reddy's new favourite word. The plan to speed up Apollo's growth is also dubbed ‘Rocket 14'. The number comes from the year 2014, by which time Reddy hopes to add 10-15 new hospitals, increase the number of beds he operates by 30 per cent, and improve cash flows from the current 15 per cent to about 23 per cent. He wants to do both — grow in size rapidly and improve operational efficiencies dramatically, and all within a space of three years. And that is why he has given specific responsibilities to each of his four daughters to see that everything goes according to plan.

But will Prathap Reddy and his daughters remain the top guns of the healthcare industry?

Different Styles, Differing Philosophies
It is not that Apollo has been growing all that slowly. In the past two years, Apollo has built seven hospitals and added 1,500 beds. In the next two, it plans to build another six hospitals and add 1,500 beds. That is no small achievement. The problem is that Fortis has been growing even faster — both organically and inorganically. Even without its high-profile acquisitions, a Fortis spokesperson points out, the chain added 2,000 beds in the past couple of years, of which 850 beds were in last September alone. It has eight greenfield projects underway, which will add another 2,200 beds in two and a half years time. And it is also looking for suitable targets to acquire all the time.

Malvinder and Shivinder Singh are clear what they want to build — a hospital chain capable of standing up to the best in the world. They want to be the numero uno in the healthcare business in India, and a contender worldwide. They see a lot of opportunity in India, but also plenty of good pickings abroad. Apart from their hospitals here, Fortis has also bought a hospital in Sri Lanka, a cancer hospital in Singapore, a dental chain in Australia, and the Hong Kong-based Quality Healthcare Asia with a network of over 60 medical centres, 500 affiliated clinics, 40 dental and physiotherapy centres, and a private nursing agency with a database of over 3,000 nurses in Hong Kong. The Singh brothers have plenty of money to meet their goals. A few years ago, they sold Ranbaxy — the pharmaceutical company they had inherited from their father — for $2 billion. They have not spent most of that cash yet. Though they could not buy Parkway, they are on the prowl for chains ready to sell out.











DIFFERENT WAYS: While Fortis (right) follows an asset-light model and stays away from primary care, Apollo Hospitals wants to play a crucial role in bridging India's healthcare divide (BW pic by Bivash Banerjee and Sanjay Sakaria)

break-page-break
Reddy and his daughters, on the other hand, see themselves as not merely building a hospital empire. They see themselves as people helping India bridge its healthcare gap by building new hospitals in all areas. "They (Malvinder and Shivinder who own Fortis) are smart and young and are aggressive to acquire hospitals. That's fine. I view my business with national commitment and India needs to have more hospitals to meet demand," explains Reddy.

Reddy is proud of the fact that he builds almost all his hospitals instead of taking over existing hospitals, which will add nothing more to India's healthcare facilities. An executive in the group points out that Apollo does not believe in buying hospitals. Sangita, executive director (operations) of Apollo, takes a moderate view. She says the Reddy family is not against the concept of acquisition per se. "We will do it only if we feel the target is a perfect strategic fit for us," she says. So far, they have not found any strategic fit.

Apollo also sees itself largely as a player in India. Compared to Fortis, its overseas presence is negligible. Many years ago, it built a hospital in Colombo, which it had to exit later. Currently, its overseas presence is restricted to the Apollo Bramwell Hospital in Mauritius, a 220-bed
facility started two years ago, and two spine-and-liver clinics in Oman.

More importantly, the Reddys have much less cash than the Singhs to play around with. Apollo Hospital Enterprises has shareholders' approval for raising Rs 900 crore through qualified institutional placement (QIP). Promoters will also pump in over Rs 150 crore. There are also some reserves in the balance sheet and some money can be raised as debt. "Money is not a constraint and one investor offered to buy the entire portion of the QIP," says Reddy bravely. But his war chest for expansion is hardly anything compared to the Rs 10,000 crore ($2 billion) the Singh brothers netted by selling Ranbaxy and which they can bring to play for expansions. Or for that matter the debt they can raise.

Complex Surgeries Vs Better Returns
But differences between the two rivals go beyond northern aggressiveness versus southern conservatism, global ambitions versus national duty. The Reddys and the Singhs differ on almost everything from overall vision to micro details. Part of the issue is that Reddy still sees himself as a doctor first — and that colours a lot of his decisions. He takes great pride in making Apollo the leader in complex transplant surgeries — liver, kidney, heart, bone marrow, etc. He also takes immense pride in his new plan to take healthcare to smaller towns through low-cost, low-charge hospitals dubbed the Apollo Reach.











 
 



The Apollo Reach hospitals are 150-250 bed multi-specialty hospitals built with great control of costs. These are very different from both the big, tertiary care hospitals that have been Apollo's signature offerings in big cities as well as the Apollo Clinics, which form its experiments in the primary care hospitals. The Reach hospitals cost less to build — Rs 30 lakh odd per bed compared to Rs 80 lakh plus in big city hospitals — and are expected to break even much faster. They focus on a few specialities — cardio, emergency care, etc. — and charge less.

"While the cost of setting it up is a third of a hospital in Mumbai, revenues could be one half," says an analyst. "Our chairman wants to set up 50 Apollo Reach hospitals," says Sangita. But the possible target is 15 in two years.

Meanwhile in the big cities, Apollo is focusing on ramping up specialty clinics such as liver transplant clinics, Apollo Cosmetic Clinic (now in Chennai and Hyderabad), diabetes clinics and childcare clinics branded The Cradle (now in Bangalore, Gurgaon and Calicut). Reddy's immediate goal, apart from ramping up the Reach hospitals, is also to make Apollo the world's busiest hospital group in solid organ — heart, liver, kidney and pancreas — transplants and complex surgeries. Apollo did more than 775 solid organ transplants in 2010, one of the largest by any hospital chain in the world. Indraprastha Apollo Hospitals, Delhi, which performed its first successful liver transplant in 1998, has so far done over 500 liver transplants. Currently, Apollo Hospitals has five centres for liver transplant, in Delhi, Chennai, Ahmedabad, Bangalore and Kolkata. The group plans to set up six liver centres and 14 kidney transplant centres in the next 12 months. But others are catching up as well. Hyderabad-based Global Hospitals plans to do 250-300 liver transplants a year. Hyderabad is one of the cities where Apollo held complete sway till recently.

Fortis, on the other hand, stays away from primary care altogether. It also stays away from specialties and surgeries, which require a patient to spend many days in hospitals. It believes in an asset-light model to bring costs down — keeping cost per bed at no more than Rs 50 lakh and spending more money on specialised equipment that can be used to monetise its services better. "We conduct day-care procedures and surgeries at all our hospitals to curtail cost of treatment, which helps optimise bed utilisation," says a Fortis spokesperson. Fortis focuses on specialties that have a huge market — cardiac care, bone- and knee-replacement, neuro surgery, dialysis, gynaecology, etc. It has recently added a new vertical, Fortis C-DOC (Centre of Excellence for Diabetes, Metabolic Diseases & Endocrinology) and has board approval to start another for free standing dialysis units.

break-page-break
The different approaches lead to different cost and revenue structures. Because so many of the Apollo hospitals are focused on complex surgeries, patients need more post-operative care in the hospital and occupy beds longer. But post-operative care is not particularly lucrative compared to surgeries. And therefore, Fortis's approach to getting its patients out of the door fast after surgeries fetches better financial returns. The average length of stay of the Apollo patient is 5.25 days, while the same for Fortis is 3.8 days. This, in turn, impacts the average revenue per bed — the key measure by which all hospitals measure their efficiencies. For Apollo, the average revenue per bed is Rs 10,750. Fortis counts it slightly differently and measures average revenue per operating bed, but an analyst says the chain's established hospitals enjoy about twice the average revenue per bed that Apollo does.

Now, Apollo is trying to improve its efficiency measures as well. It tries to cut average length of stay and improve average revenue per bed. It is also trying to improve all important financial ratios — from cash flows to return on capital employed. "Within the next 24 months, we are looking at improving our Ebitda margins by 5-6 per cent to 20-23 per cent," says Preetha. Project Rocket-14 will focus on improving efficiencies, operational excellence and asset utilisation across the group, she adds.

It is not an impossible task, say analysts. A slightly improved revenue per bed, a slightly lower cost per bed and a few percentage points improvement in capacity utilisation can easily improve the Ebitda at Apollo, says Muralidharan Nair, partner of health sciences practice at Ernst & Young. But, as another analyst says, there are challenges. Finding good doctors, surgeons and nurses who want to stay on in smaller towns and work for Reach hospitals is one. Also, in Apollo's most famous areas —cardiac surgery, liver transplants, kidney transplants, etc. — a host of superstar doctors are building single, superspecialty hospitals that will compete with the leader for patients.

The Family Business
Ultimately, will the four daughters of Reddy be able to speed up the pace of the conservative business? To keep up with the challenge of Fortis and the new hospital chains, Apollo will need to relook many of its original beliefs. The problem is that Reddy has always been such a larger-than-life figure that it is hard to assess how well his daughters will do when he steps away from the business. Even though they handle significant responsibilities in the group, Reddy retains executive control over the group.

Reddy says his daughters are more than capable of  handling everything. "All of them are well-networked, informed of the sector and are passionate about Apollo's growth. We have an understanding on responsibilities of each one of them," says Reddy. He is also creating a family council that will put rules and expectations in place so that there is no clash even in the future.

On paper, all four siblings have excellent credentials. Preetha, a graduate in chemistry and a post-graduate in public administration, is the first woman healthcare advisor to the government of India, and a member of the National Quality Council, which lays down quality standards for Indian hospitals. She was the brain behind Apollo's charity programmes such as SACH (Save a Child's Heart), say sources.

Sangita leads the human resources and IT functions across the group. She is educated at Women's Christian College in Chennai and with post-graduate and executive courses in hospital administration from Rutgers and Harvard Universities in the US and the National Singapore University. Sangita has been working with the group for over 20 years. She is also the managing director of Apollo Health Street, an offshore health services consultancy.

Suneeta, the financial wizard, will play an increasingly crucial role as Apollo raises more money for expansions. That was why on 26 May, Apollo announced to re-designate Suneeta Reddy as joint managing director of the company with effect from 1 June. She holds a bachelor of arts degree in public relations and a diploma in financial management from the Institute of Financial Management and Research in Chennai. Suneeta has also studied Owner/President Management Program at Harvard Business School in the US. Apart from working with the group for more than 27 years, she is also the chairperson of Cellular Operators Association of India and the chairperson of mobile services provider Aircel Cellular, in which the Reddy family owns about 26 per cent stake through an indirect step-down subsidiary. (This was the subject of a controversy in the 2G case, but that is another story.)

Shobana Kamineni, executive director of new initiatives, heads the 1,200-plus Apollo pharmacies. She spearheaded the group's foray into health insurance (Apollo Munich Health Insurance in collaboration with Germany's Munich Re) four years ago. A former national level squash player, Shobana has other business interests as well — she is vice-chairperson of the KEI Group, which is into development of leisure facilities and theme parks (TRAC India), port management services (KEI-RSOS), power (KEI Energy and Apollo Energy) and pharma.

Reddy says he is also searching for a group executive president, who will oversee functions of the various businesses of the group in future. On paper, it is a perfect team. Will they be able to pull off Rocket 14? The results will be apparent in three short years.

p(dot)jayakumar(at)abp(dot)in