
With a focus on strategic investments and expanding into new markets especially into Caribbean countries, Narayana Health is also all set to foray into the health insurance sector. In an exclusive interview with BT, Viren Prasad Shetty, Executive Vice-Chairman of Narayana Health, talked about future investment plans, target markets, private equity trends, Tier-2 and -3 market growth, and the company’s growth drivers. Edited excerpts from the interview:
BT: How much have you invested in the last five years, and what are the plans for the next five years?
VS: Over the last five years, including the two or three years of the Covid-19 pandemic when there was minimal investment, our expenditure amounts to a few hundred crores. Specifically, for this year (FY24), we have allocated approximately Rs 500 crore. Looking ahead, we have plans to invest Rs 1,000 crore in India and the Cayman Islands. As for the next five years, we have yet to finalise our decision and will reveal the outcomes in due course. However, we are actively pursuing the consolidation of our existing hospitals with great determination.
BT: As a dominant player in India, what specific markets are you targeting? Could you outline your plans and future strategies for both these markets and the Indian market?
VS: We are the leading healthcare provider in the Cayman Islands, renowned for our brand called Health City Cayman Islands. We intend to capitalise on this success to establish hospitals in other Caribbean countries. Currently, we are engaged in discussions with several nations and exploring various opportunities in the region. Meanwhile, in Cayman, we are undertaking a significant expansion within the city. Specifically, we are developing a daycare-focused onco-surgery hospital. Furthermore, we are considering the establishment of retail clinics in the Cayman Islands and exploring potential opportunities in other Caribbean locations as they arise.
BT: What is your perspective on the recent trend of global private equity firms showing interest in the Indian healthcare sector?
VS: India represents one of the largest untapped healthcare markets globally, with significant demand and requirements for healthcare services. Global firms recognize India as a promising destination for improving healthcare infrastructure. Although investments were temporarily paused during the COVID-19 pandemic, as healthcare awareness grows and people seek better access to healthcare and longer lives, the demand for hospitals and investments in the sector is expected to rise. Hospitals, however, typically have a long break-even period and generate returns on capital over time. Private equity investments can help expedite this process and unlock potential in the healthcare space. Consequently, numerous large global funds have invested in Indian hospitals, capitalizing on the great opportunities available.
BT: What is your viewpoint on tier 2 and tier 3 market growth with expanding hospitals and Public-Private Partnership (PPP) models?
VS: There is significant demand for healthcare services in Tier-2 and -3 cities, as the healthcare needs of individuals remain consistent regardless of their wealth or location. However, there are challenges in Tier-2 cities, such as lower ability to pay, limited willingness of doctors to relocate, and similar healthcare service costs. Consequently, operating profitability in Tier-2 towns is lower compared to Tier-1 metro towns. To seize this opportunity, we aim to optimise our cost structure by investing time and effort in enhancing standards, leveraging digitization to reduce costs and improve efficiency. This way, we can establish hospitals in Tier-2 towns without compromising quality. We recognise a huge potential in this approach.
In terms of working with the government on PPP projects, we were among the early healthcare groups to collaborate with the Indian government in Jammu, Assam, and Mysuru (Karnataka). We continuously evaluate upcoming opportunities. The three hospital projects we currently operate are in partnership with the government.
BT: What factors are currently driving the growth of your company, and what do you anticipate will be the key growth drivers in the next 5–10 years?
VS: The primary catalyst for growth in healthcare services is the increasing prevalence of diseases. Lifestyle-related illnesses and longer life spans contribute to a higher incidence of end-of-life conditions and complex medical issues. Initially, one of the major challenges we faced when establishing this group, 23 years ago, was the reluctance of people to undergo any surgery. As incomes rise and individuals value their health and longevity more, the demand for healthcare services, medications, tests, and procedures will increase. Ultimately, it is the mindset and attitude of Indians towards healthcare that will be the primary driving force for growth in the sector. All other efforts are in response to the needs and preferences of patients.
BT: Can you provide an overview of the revenue performance and growth achieved in the last fiscal year? Additionally, what are your plans for the upcoming year in terms of revenue generation and margin expansion?
VS: In FY23, our revenue reached approximately 4,500 crores, marking our highest performance to date. We are striving to bridge the remaining 20% gap. Notably, this is the highest level of achievement thus far. Our primary focus for growth lies in volume-driven expansion, as many individuals postponed necessary procedures during the pandemic and are now seeking medical attention. In the current year, our plans involve enhancing our existing systems, investing in the refurbishment of our infrastructure, and reconfiguring bed categories to align with patient needs.
There is a significant demand for semi-private and private rooms, while the demand for general ward beds is relatively low. Consequently, we are upgrading our room categories accordingly. We are also heavily investing in emerging fields, such as robotic surgery and orthopedics, by allocating substantial funds towards acquiring clinical teams and surgical robots to meet these needs.
Additionally, we have observed a rising influx of patients requiring cancer treatments, prompting us to transform all our hospitals into comprehensive cancer centres. These strategic investments amount to a significant sum of 1,000 crores, as we aim to address the considerable demand for healthcare services.