15% pre-IPO placement to Citigroup likely: Wockhardt Hosp

Speaking to CNBC-TV18, Habil F Khorakiwala, Chairman of Wockhardt Hospitals said that they are considering 15% pre-IPO placemen to Citigroup. The pre-IPO placement will be done at the upper end of price band, he said. The company’s board will meet later today to consider demerger of their R&D arm, he said.

Excerpts from the exclusive interview with Habil F Khorakiwala:

Q: I believe you are considering a pre-placement before the IPO?

A: Yes, we have already done a pre-placement of about 5 million shares, roughly 15% or so.

Q: To whom and at what price?

A: This is to the Citigroup partners and the price is within the band but on the higher side.

Q: What will it constitute by way of percentage stake that Citigroup will take and what is the plan for them, will they be a financial investor or they will be taking a strategic call in this equity stake?

A: Citigroup will mainly be a financial investor and percentage wise; it would rather be very small at around 2-3%. The size of the public issue is going to be roughly about USD 900 million depending upon the band in which finally it is placed. The promoters holding would be 68% or so.

Q: Can you just outline the current capacity for Wockhardt hospitals? What are you working at in terms of occupancy rates and what sort of growth target you have really over the next few quarters?

A: We currently have about 10 hospitals and 5 regional centers. We have two concepts; one is the Green Field project, which are in the metro cities and others are in the brown field areas. We intend to increase the capacity from of about current capacity of 1,500 beds in next 12-15 months to about 3,300 beds.

We are also entering the second tier cities with our tertiary care facility in cardiology, neuro sciences, orthopedics etc. in cities like Nasik, Rajkot, Nagpur and Surat. We have already started these hospitals.

Q: Where are the 5 next big hospitals coming up for Wockhardt hospitals and in which cities?

A: We are doubling our facility at Mumbai in Mulund, we are putting up another facility in South Mumbai, oppositie Niar Hospital, the second one which is coming up is in Kolkata which is going to be about 350 bed hospital and a large hospital is also coming up in Delhi. We are also increasing the bed capacity in Bangalore. We already have four hospitals in Bangalore and we are increasing capacity by 200 beds in our existing hospital.

Q: What typically is the gestation period for the profitability of the new facilities, which will come up? Would you continue to remain profitable in this investment phase?

A: Normally our Green Field project takes about 18-24 months breakeven cash. And then the third year onwards, it becomes profitable.  In the brown field projects, where we have the partnering and our kickoff is very fast because after we sign up, we can start a hospital in 9-12 months and there the breakeven is less than 1 year.

The second aspect of our hospital is that it is continuously innovating because of our relationship with Howard Medical International and we have done awake-heart surgeries and new other procedures in every hospital. So from the social point of view, it meets all the requirement but equally importantly from a commercial and a business point of view, since we go to the areas where there is hardly any competition or no competition or low competition, hardly in the second tier city, so from a business point of view, the models are very good and where ever we have gone so far, we have achieved these kind of numbers and breaking even within 6 months to 1 year.

Q: I believe there is a board meeting later this evening to discuss the de-merge of the R&D arm, can you confirm that for us and can you just talk a little bit about the pipeline you have for your R&D, division?

A:  Yes, we have a board meeting later in the day, for considering the De-merger of Wockhardt Ltd and Wockhardt Research Organisation. Our drug discovery portfolio currently has 2 drugs, 771 and 2349 in clinical trials and at least 4-5 other products which are at various stages of clinical trail, so the proposal before the board will be to consider the de-merger of our drug discovery program plus we have a lot of innovative technologies where the gestation period is longer than generic pharmaceutical or much shorter than a drug discovery and some of these products developed and intellectual property around it, we are considering to put also in the de-merged research organization.