Max India’s decision to exit the healthcare business flies in the face of conventional thinking that India’s private healthcare business is one with immense potential. The reality appears to be somewhat different.
A trend of consolidation has taken root in the sector, with institutional money funding entrepreneurial ambitions. While IHH Healthcare eventually got hold of Fortis Healthcare, let’s not forget that the TPG-Manipal Health combine was also interested.
They will continue to be on the lookout for targets. IHH Healthcare’s acquisition itself signals tougher competition, as the parent company has deep pockets and expertise in running hospitals.
Then there are the regulatory risks that Max faces. In its FY2018 annual report, it lists them out. It has cited mandatory cashless treatment of road accident cases that will be reimbursed at government-determined rates.
Then there’s the well-known issue of price capping of coronary stents and knee implants. Margins on syringes were capped after intervention by the National Pharmaceutical Pricing Authority. The guidelines for treating patients belonging to the economically weaker sections were also made more stringent. These affected its performance in FY18, and its revenue and Ebitda both declined.
The dust on many of these issues has settled down. But the fear that more regulatory risks may be waiting has not gone away. The industry feels threatened that the measures which were acceptable till some years ago are now being seen as extortionist. That may change the way the promoter, the majority shareholder in the business, perceives the business risk.
In fact, the September quarter results had shown Max Healthcare’s performance improve with its Ebitda margin recovering sequentially. In its conference call post-results, the company management had talked about a 5-7 year investment plan that would see its number of beds double to 5,000 in number. It said that the long-term trajectory was intact.
So, what changed their mind then? The group chairman Analjit Singh’s interviews to Mint and Business Standard have some answers. He talks about how the business has changed in two years (in September 2016 he had told Mint that this was a focus business for them with huge growth opportunities).
The concentration in the National Capital Region had become a risk for them. He talks about a 10-year timeframe in which to invest and scale up this business to make it viable. It appears that he did not have the appetite to invest that kind of capital and devote that kind of time to the business. And, he does not seem to have had anyone else he could depend on to do it too.
The owner’s decision to exit seems to be a mixture of personal and business reasons. But the regulatory risks in the business have played a bigger role in the decision, for certain. After acquiring Max Healthcare, Radiant Life Care and KKR will now attempt to prove that their business model can work despite the existing risks in the business and new ones that may be lying in wait.
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