artemis medicare services ltd share price Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS

(A) INDUSTRY STRUCTURE & DEVELOPMENT

Overview

FY23 was one of the most pivotal years for the healthcare sector. As we finally started moving out from the shadow of Covid-19, healthcare sector continued to show strong growth prospects. Indias population demographics, growing middle class, rising incomes, improving insurance penetration, higher incidence of lifestyle diseases and increased awareness continue to be the main drivers of improving demand.

Global

North America continues to be the largest healthcare market followed by Asia-Pacific and Western Europe, however, the growth of Indian healthcare industry continues to be unrivalled. India continues to lag its global peers in terms of number of doctors (0.65) and hospital beds (1.3) per thousand population but the resolute public and private sector response to the pandemic as well as the successful vaccination programme have earned India wide-spread recognition. Ageing population, improving economic conditions, better insurance penetration, universal health coverage, shift to lifestyle diseases are some of the common themes that continue to drive global markets.

India

Healthcare continues to be one of the largest employers and revenue generators for the country. The public and private spending on healthcare infra has improved in the wake of pandemic but continues to be low when compared to global leaders. The Government continues to increase its focus on healthcare by targeting wider coverage under Universal Healthcare Coverage Programmes and increasing the healthcare spend to 3% of GDP. However, most of the hospital beds and infrastructure continues to be provided by private sector. The lack of quality beds both in public and private sectors is a concern and at the same time an opportunity for growth.

While the private sector has increased its focus on establishing secondary, tertiary and quaternary care institutes in major Indian cities, there has been a systemic shift in the development of healthcare infrastructure. The government has stepped up its efforts in establishing institutes of eminence by setting up multiple AIIMS throughout the country. The private sector has also started exploring set-ups in Tier 2 and Tier 3 cities. Primary healthcare market, expected to be US$ 13 billion in size, continues to be highly fragmented apart from the public health centres.

Along with the common themes mentioned above, Indias unique advantage lies in cost competitiveness, availability of advanced technology and availability of skilled manpower. The trifactor advantage provides a unique positioning to Indian healthcare sector for attracting foreign tourists who are looking for quality healthcare abroad.

Market Size

The Indian healthcare market has been growing at 22% CAGR since 2016. Driven by factors such as demography, socio-economic status and changing disease profile, the healthcare delivery market is expected to reach Rs.6.4-6.6 trillion by 2024. The market is expected to continue the double-digit growth in the near future. The hospital sector is currently witnessing a huge investor demand from both global and domestic investors. The Government of India has already allowed 100% FDI in the hospital space, in both greenfield and brownfield projects.

(B) OPPORTUNITIES AND THREATS

Opportunities

a. Rising Income Levels: As per the Government reports, 8% of the Indians will earn more than US$ 12,000 per annum by 2026. 73 million households are expected to move to middle class in next ten years boosting their purchasing power. This will translate to better affordability and greater spending power when it comes to healthcare decisions.

b. Demographics: India is one of the most populous countries of the world with the total population count expected to touch 1.45 billion by 2028. The increase in average life expectancy is also adding to the increased proportion of ageing population with senior citizens expected to constitute 14% of the population by 2041. This increase in population combined with increase in average age of the population will lead to higher demand for quality healthcare services.

c. Increase in NCDs: The rising incidence of noncommunicable diseases such as Diabetes, Cardiovascular diseases, and Cancer because of the changing lifestyle pattern of majority of the population will continue to drive demand for specialised services. While communicable disease still poses a significant threat and account for 33% of the disease burden, non-communicable disease now account for 55% of the disease burden of the country. As per government sources, India will have 90 million diabetics by 2025, one out of every four adults will have hypertension and the NCD burden will cost India US$ 4.58 trillion by 2030.

d. Improving Insurance Penetration: According to the latest reports by IBEF, health insurance premiums underwritten by insurance companies increased to Rs.73,582 billion (US$ 9.21 billion) in FY22. Health insurance is now the second largest contributor to the non-life insurance business accounting for 20% of the total value. Increased awareness post-pandemic and improving economic conditions of the population are the primary drivers behind this.

e. Increase in Healthcare Spending: Covid-19 has acted as a catalyst for the change in the attitude towards healthcare specially pivoting preventive healthcare to the mainstream. There is a shift in mindset and the population is more amenable towards spending on health essentials such as regular health check-ups, monitoring, nutrition and medical insurance.

f. Disparity between Urban and Non-urban areas: 60% of the healthcare facilities continue to be concentrated in the major cities of the country creating a huge demand-supply gap. Healthcare players are trying to bridge this gap through out-reach programmes in the semi urban and rural areas. Additionally, many healthcare service providers are planning to expand their presence to Tier 2 and Tier 3 cities by setting up new facilities there.

g. Government incentives: While the government has been focussed on providing Universal Health Coverage through schemes such as Ayushman Bharat, it has also paid heed to the demands of the private sector and recently revised the prices for the key central health schemes. It has also launched multiple programmes for enhancing education, digitalisation and investments in the field of healthcare.

h. Great Potential for Medical Value Travel: There is a renewed focus on Medical Value Travel with the Government of India launching Heal in India Program targeted at making the country a global healthcare hub. Indian medical value tourism market is expected to cross US$ 13 billion by 2026. This will benefit players who have a proven track record in this segment through relationships that have been fostered over the past many years.

i. Increase in FDI: As per Invest Indias Investment grid, there are approximately 600 investment opportunities worth US$ 32 billion in the hospital/medical infrastructure domains. There are a lot of foreign investors who are showing interest in investing in the Indian Healthcare sector which has boosted the pace of growth in the sector.

j. Home healthcare: Covid-19 was a shot in the arm for the home healthcare segment. Given the rise of e-commerce and focus on personalised health- tech solutions, this segment is just coming out of nascency. In a country witnessing rising elderly population, increasing incidence of chronic diseases and a population that demands personalisation, there is a huge latent demand in this segment. Healthcare players have risen to this occasion and many old and new players have entered this segment.

Threats

a. Increase in Competitive intensity: Despite high barriers to entry, the hospital sector has been ripe with new opportunities as evidenced by the expansion spree of the established players and increase in M&A activities in the sector. Given this aggressive expansion by multiple hospital chains, there is a need for continuous evaluation of the competitive scenario and for taking necessary measures.

b. Regulatory Headwinds: While the Government has been incrementally supporting the healthcare sector specially after the pandemic, the regulatory environment keeps creating challenges for the hospitals, both small and large. Apart from price capping, hospitals are subject to multiple regulatory guidelines and compliances often needing challenging readjustments at the ground level.

c. Pandemics: Despite the undaunted response that the healthcare system mounted against Covid-19, the threat of future pandemics is not a highly remote possibility. Any such black swan event may impact patient footfalls and medical value travel while at the same time putting stress on the healthcare system.

d. Shortage of skilled Manpower: Given the niche vertical, specialised and well-trained manpower remains a challenge which is further being compounded by the inevitable brain-drain specially targeting the nursing resources. This necessitates higher focus on manpower retention through trainings, rewards, and recognitions. At the same time this requires diversification of recruitment channels and finding innovative ways of attracting talent.

e. High Capital Investments: Healthcare being a highly capital-intensive sector there is always a need of substantial amount of funds for any greenfield or brownfield projects. Additionally, the continuous improvement in technology necessitates investment in upgrading the medical equipment.

f. Potential loss of Medical travel Opportunity: While the Medical Value Travel industry is getting particular attention from the Indian Government and the easing of Covid-19 pandemic has helped in the recovery of the patient flow from International locations, there is increased competition from other countries in the Asia Pacific region. Also, post-pandemic, many of the governments have started understanding the need for developing healthcare infrastructure locally and are taking steps towards that.

(C) COMPANYS OVERVIEW

Artemis Hospital (a unit of Artemis Medicare Services Limited), Sector- 51, Gurugram- 122001 established in 2007, is a state-of-the-art multi-speciality hospital located in Gurugram, India. It is the first hospital in Gurugram which was accredited with JCI and NABH. Designed as one of the most advanced hospitals in India, Artemis provides a depth of expertise in the spectrum of advanced medical & surgical interventions, comprehensive mix of inpatient and outpatient services.

Segment-wise performance

During the year, we have steadily ramped up occupancy in the 2^nd Tower which was commissioned in FY22 and the construction of the 3^rd Tower with ~200 beds is going on in full swing with 22 new OPDs in the ground floor of the 3^rd Tower already inaugurated. Additionally, two new centres under the Daffodils by Artemis banner, one each in Jaipur and South Delhi (East of Kailash), were inaugurated. The hospital also introduced a new concept of hospitals under the banner Artemis Lite. These smaller size hospitals will be positioned as friendly, neighbourhood multispeciality hospitals focussing on personalised care and secondary/ tertiary services. The first such unit has been opened in South Delhi (New Friends Colony). Another unit will be inaugurated in Gurugram during the first quarter of FY24. The first of two hospitals in Mauritius as part of the Operations and Management Agreement is ready to be commissioned. This ~80 bed facility under the name of Artemis Curepipe Hospital is expected to be operational in the first half of FY24.

The Companys subsidiary, Artemis Cardiac Care - a joint venture with Philips Medical Systems Nederland BV, has also opened five new cardiac-care centres during the year. Additionally, the Company has launched comprehensive homecare services under the brand of Solace by Artemis during the year, catering to all home healthcare needs of patients. The Company has plans in place to continue increasing its footprint and reach through an asset-light strategy in the coming year.

Clinical excellence

Artemis Hospital diligently adheres to meet the highest standards of clinical outcomes which it has set for itself in various specialities. It is the first Hospital in Gurugram to receive JCI, USA accreditation consecutively for the fourth time. The Hospital is the first hospital in North India to be accredited with National Marrow Donor Program (NMDP), USA. It is also the first hospital to introduce Masimo technology based on Clinical Surveillance System and is equipped with North Indias first M6 Cyber knife having successfully performed over 1000+ procedures. In addition to our existing robotic technology including the Da Vinci Robot, we have recently introduced Robotic Knee Replacement Surgery Program and updated the MRI facility in the hospital.

The hospital has an impeccable track record and high success rates even in surgeries of high complexity such as transplants, cardiac care and oncology. This unwavering focus on clinical excellence drives Artemis Hospitals to continuously assess the quality of care provided to patients and objectively measure the consistency and success of healthcare delivery services.

Training and Continuing Medical Education (CME)

In addition to the focus on clinical excellence, Artemis ensures that its medical professionals and other staff are periodically trained on the newest techniques and procedures in the medical field on a periodic and continuous basis. Additionally, we also endeavour to impart knowledge to the medical community at large through external CME programs led by our expert clinicians.

Accreditations

Artemis Hospital has received accreditations from the Joint Commission International, USA ("JCI") for meeting international healthcare quality standards for patient care and management. Artemis Hospital is NABH & NABL accredited. Our hospital has also received Green OT certification from Bureau Veritas. These accreditations reiterate that Artemis operational protocols are in line with global best practices.

(D) INDUSTRY OUTLOOK

The healthcare industry in India is rightly described as the Sunshine sector given the potential for growth. The recent listings, stock performances, PE interest, M&A activity and FDI inflow is an indicator of the intrinsic value of the sector. Artemis Hospital has the brand recognition and geographical advantage backed by the best-in-class technology and well-qualified human resources to reap the benefits of this growth.

(E) RISKS AND CONCERNS

In view of the intensifying competition, policy support is one of the most critical factors for the growth of any sector of the economy. Regulatory headwinds will pose a threat to the country dominated by private healthcare players unless their constraints are taken care of. This becomes even more important given the challenges the sector is facing from other countries specially in terms of becoming the go-to destination for medical value travel. At the same time, the inherent challenges of the sector such as high capex and skilled manpower will continue to dominate the mind- share of the industry anchors going forward.

(F) INTERNAL FINANCIAL CONTROLS AND THEIR ADEQUACY

In our view, our Companys Internal Financial Controls affecting the financial statements are adequate and are operating effectively. During the financial year under review, adequate financial controls are established and tested for operating effectiveness through ongoing management monitoring and review process. These are also independently validated by the Internal Audit Function and no reportable material weakness in the design or operation was observed.

(G) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance of the Company is given separately in Boards Report.

(H) MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT INCLUDING NUMBER OF PEOPLE EMPLOYED

The Human Resource strategy of Artemis is based on the firm belief that our people are our core strength and is focused on shaping our talent for tomorrow. We aspire to provide excellent opportunities for professional and personal growth of our employees and encourage collaboration, creativity continuous learning and fun based work environment. As on March 31, 2023, the total employee strength of Artemis stood at 1937 full-time employees.

(I) KEY FINANCIAL RATIOS

Following are Key Financial Ratios computed on Standalone basis

Particulars	FY 2022-23	FY 2021-22	Movement (%)
Current Ratio	0.80	0.92	-13.10
Interest Coverage Ratio	3.84	4.48	-14.11
Debt-Equity Ratio	0.66	0.59	12.65
Debt Service Coverage Ratio	2.20	1.90	15.66
Inventory Turnover Ratio	15.09	14.53	3.87
Debtors Turnover Ratio	3.89	3.72	4.41
Creditors Turnover Ratio	7.14	6.60	8.25

 

Particulars	FY 2022-23	FY 2021-22	Movement (%)
Net Capital Turnover Ratio	(28.67)	(53.32)	-46.23
Operating Profit Margin (%)	14.13	13.04	8.31
Net Profit Margin %	5.56%	5.98%	-7.10
Return on Equity Ratio	12.52%	11.85%	5.71
Return on Capital Employed	12.02%	10.11%	18.95

Significant changes in Ratios (i.e. 25% or more as compared to the immediately previous financial year)

Particulars	Explanation for change
Net Capital Turnover Ratio	The change in ratio has been due to increase in business operations during the year.

(J) DETAILS OF ANY CHANGE IN RETURN ON NET WORTH AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR ALONG WITH A DETAILED EXPLANATION THEREOF

Particulars	FY 2022-23	FY 2021-22	Explanation for change
Return on Net Worth	12.52%	11.85%	Incremental profit

CAUTIONARY STATEMENT:

The above statements are perceived by the Directors based on the current scenario and the input available. Any extraneous developments and force majeure conditions may have an impact on the above perceptions.