To focus on cancer treatment, organ therapy: Fortis Health

Fortis Healthcare's focus will be entirely on India, and the company's topline is expected to grow in double digits going forward, CEO Bhavdeep Singh tells CNBC-TV18.He says Fortis can double its bed count without adding new hospitals, and that it will be focussing on cancer treatment and organ therapy.Singh says Fortis is targetting a 20 percent increase in bed count over the next four to five years, annually.He says the company is not looking to sell stake in SRL Diagnostics and that he expects margins to imporve for the diagnostics business.Singh says he has invested USD 2 million in a robotics system.Below is the verbatim transcript of Bhavdeep Singh’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: There is a lot of buzz now, a lot of interest in the hospital space as a whole because we have a new player that is getting listed very soon but can you just give me a sense of what the expectation is going ahead for Fortis Healthcare itself, what could the growth look like in FY17 and where will the trigger come from? A: It is a very interesting time to be in the healthcare industry. We have a nation where the disease burden continues to go up, we have more and more people that are getting diagnosed with various ailments and on the one hand it certainly presents many challenges for our country, many challenges for the citizens of India. However, at the same time I see Fortis playing a very significant role in helping build a healthier India as we go forward. So, two or three things that I probably share with respect to your question, I think that Fortis today operates 55 hospitals, we have about 4,500 beds. I think as I look forward, two or three things are going to happen. One is that, as you all are aware, over the last two or three years we spent some time building our overseas expansion. We spent a good bit of time, good bit of resources and we have made a decision to pull it back in, bring it back in. Our focus is on India today, exclusively India. Every bit of our interest is in India, we have one pathology lab that is in Dubai which at some point we hope to be exiting soon as well. However, beyond that our interest is strictly in India and serving India. With respect to what is happening in India, we see a good bit of growth coming from our existing hospitals. Our business continues to do well, our topline, we are growing at double digit and we expect to see that continue for the foreseeable future. We can actually double our size with respect to beds. Sonia: From 4,500 beds currently, in the next about one year or so, how much will your beds grow to? A: I see our bed size doubling. We can actually double our bed size without adding a single hospital. With respect to just existing hospitals, building towers, adding floors, just extending bed capacity. So, you can see our bed size growing anywhere between 10 and 20 percent over the next four to five years and doubling certainly without any issues at all, without adding any new hospitals. The other form of growth apart from adding beds, the other thing that from a growth perspective is clinical programs. The country’s disease burden dictates what you do, the kind of medical expertise you provide and the clinical solutions you provide and the clinical solutions you provide. So, if you think back to India 10-12 years ago where cardiac was the main stay and everybody was talking about heart disease and that was certainly a big challenge and after that came the neurosciences, after that came diabetes. Today, oncology, cancer presents a big challenge. 1 million new cancer patients are getting diagnosed in India every year. Organ transplant is a big opportunity and a big way to serve India as well. We have a half a million people that die in India every year because they don’t get an organ in time or get an organ made available to them at all. So, Fortis is moving forward quite significantly in these areas and certainly growth again from a bed perspective, from a clinical perspective and improve patient care. So, the growth picture continues to be very rosy and we are all quite optimistic about what is happening at Fortis with respect to that. Latha: The pathological labs are listing at such attractive valuations, should we hear something about SRL Diagnostics from you, listing of SRL?A: No. As you know, we are a joint entity today, Fortis and SRL work together as a financial structure, and we sit together as well. I don’t see us doing anything different right now. I think that in two or three different ways the collaboration sitting together makes sense. Financially we believe it is the right way to do it but beyond that from a business partnership, from a diagnostic relationship that we have with them. I think the structure works fine; we have a fantastic team led by Sanjeev Vashishta who runs SRL for us. We continue to do well, our returns there are exceptionally strong as well, we are seeing very strong growth numbers there as well whether from a revenue perspective, from an EBIT perspective. I am very happy with our structure, it works in every respect. It is good to see what is happening with respect to valuations, I think that is a great thing but quite honestly our focus is on let us continue to drive great patient care and the collaboration partnership works well; no need to separate it. Sonia: On that subject, one of the reasons why some of these pathology labs are getting lapped up on the exchanges as well is because of the way the margins are growing in this business. For example, Dr Lal PatLabs that will get listed has been seeing consistent margins of 24-25 percent over the last six years and so has SRL. Do you see the margin profile for the pathology labs business grow further in the next couple of years? A: I do, I think two or three things are going to happen. I think generally big business, all industries, all companies, SRL specifically, we are all becoming better at what we do. We are becoming more efficient, more reducing cost in our structure as we go forward. However, I think that is happening as complexity of tests. The disease burden, I keep talking about the disease burden but that is what we have to talk about as the innovation, the research, the trials that were running, the complexity is building out more and more, greater expertise is required. As a brand we are distinguishing our ourselves, we have distinguished ourselves so SRL stands as a very strong brand, very respected, well recognized. I do, I think the margins are fantastic, they are in the mid 20s as you just referenced and I don’t see any reason for them to go backwards. If anything, as we go forward you will see more of the same and potentially further and better numbers in fact as we go forward. Latha: Give us an idea of how the hospital business margins will pan out? What is your occupancy at this point in time?A: Our occupancy numbers are in the mid 70s right now and the hospital occupancy numbers as you probably recognized vary over the course of the year. So, at dengue season for example, it is a very high occupancy. We ran in the mid 80s, high 80s. Some hospitals are approaching full 95-98 percent. So, the occupancy numbers vary. At this time of the year with  Diwali with a holidays so much of what happens in healthcare is planned whether surgeries, whether procedures, they dip a little bit. Right after the New Year we expect them to go up as well. So, the hospital business, the prognosis is very healthy, very significant growth that we see. You have heard me talk about the number of beds that we have and the beds I think will continue to add. I think our expertise around the various medical specialties will continue to grow. The investments we are making – we just invested in our first robotics program in Gurgaon. We have invested over USD 2 million in building a brand new robotic system; I think that will continue to drive business as well. The brand continues to get stronger; I think that no matter where you are in India, where you see Fortis and you see the Fortis hands that represents healing. The occupancy will grow, the margins will grow, I think we are becoming better at what we do, our costs are going to continue to come down, I think the picture is very rosy. We are excited about what we are doing, we are excited about helping heal India and building a healthier nation as we go forward.Sonia: Just wanted to ask you specifically about this 100 percent stake that you are looking to buy or that you have bought in Religare Health Trustee Management. Can you just take us through the rationale behind this deal?A: The rationale is very simple. From a financial structure, every company, every organisation looks at the structure you have. You asked me earlier about the SRL piece for example, after an internal diagnostic, after an internal assessment, the decision we have made is it is sitting exactly the way it should. It makes perfect sense for us to be sitting as a joint entity. Similarly, we look at all financial structures and we assess what is the best way to go forward and there has to be a practical application. At the end of the day financial structures are just that. We are trying to maximize what happens inside the hospital so that moving and transitioning what we are doing there with respect to the structure over there of the trust piece, I think it makes eminent sense. I think the big story here and that is the one piece that I would love to share with all of you because while we are discussing the financial numbers, we are in the healthcare industry, we are in the business of healing people and helping people become healthy and all of our focus while all these questions are wonderful and I love answering questions about our finances and we have a great story to tell, the real story at Fortis is what we are doing for patients and the clinical environment that we have are driving fantastic outcomes. We are going to become the first organization that is actually starting to report clinical outcomes in India today. So great story, love to talk more about that. The financial structure, we have a great finance team that works on that.  Latha: Just a word on Fortis Malar, what are the kind of growth opportunities and margin numbers at this point in time, growth in margins, do they compare with the main Fortis? A: The Fortis Malar story is a fantastic story and I know you want to talk about numbers but I have to talk about the healthcare piece and the patient piece. We have become the largest heart transplant center in India and the second or third largest in Asia. Certainly that drives our brand; the Fortis Malar brand is becoming stronger and stronger. The city of Chennai has gone through some terrible times in the recent floods and the challenges we have had there but we have recuperated very well. We have done a lot of work in the community with free OPDs and taken care of patients. So, the numbers there are great. We have seen some rise in the stock with what is happening but the Fortis Malar story will continue to do well on a financial basis. We have reported good numbers, I think the story there is going to be just as strong as you see in the rest of Fortis.