Artemis Medicare Services Ltd Management Discussions

(a) industry structure & development

Overview

As India charts its course toward becoming the third largest economy globally in the next few years, the significance of the healthcare sector as a critical driver of national growth comes into focus. The landscape of Indian healthcare is undergoing rapid advancements, with notable changes anticipated in 2024. Among these changes, supply-side factors are ground-breaking developments in preventative care and wearable technologies, the transformative influence of IoT, ML, and AI in healthcare, and an increase in Electronic Health Records (EHR), along with demand- side factors including higher incidence of lifestyle diseases, demographic changes, improving insurance penetration and higher awareness.

Global

The size of the worlds healthcare sector is about US$10 trillion. Given that India is the most populous country in the world, its healthcare sector has tremendous potential to grow across various segments with a compounded annual growth rate (CAGR) of 22%, currently accounting for about US$372 billion. Despite an invincible growth rate, India continues to lag behind its global peers in infrastructure, doctors, and beds, with North America being the most significant healthcare market, followed by Asia-Pacific and Western Europe. To fill the infrastructural gap, India will need three million more beds to achieve the target of 3 beds for 1,000 people by 2025.

India

Post-COVID Pandemic, the Healthcare industry has become one of the most critical sectors for all the stakeholders involved - Government, investors, and the general masses. It has undergone rapid transformation in recent years and has become significantly more visible over the last decade, with a renewed emphasis from the government and increasing market demand for healthcare services and products. The healthcare sector in India is growing at a tremendous pace owing to its strengthening coverage, services, and increasing expenditure by public as well as private players, with the government focusing on healthcare by targeting broader coverage under Universal Healthcare Coverage Programmes and upholding the healthcare spending to around 2.5% of GDP. Growing incidence of lifestyle diseases, rising demand for affordable healthcare delivery systems, technological advancements, the emergence of telemedicine, rapid health insurance penetration, and government initiatives like e-health, together with tax benefits and incentives, are driving the healthcare market in India.

The government and private sector continue to serve, with a focus on a systematic shift in the development of the healthcare market. The government has launched several initiatives like Ayushman Bharat and establishing institutes of eminence by setting up new AIIMS, and the private sector is exploring the opportunities to set up secondary,

tertiary, and quaternary care institutes in major tier 2 and tier 3 cities. The Indian healthcare industry is expected to reach over US$610 billion by 2026, with a key focus on MedTech initiatives, including telemedicine, AI, robotic surgeries, and mobile & wearable devices.

With a population of over 1.4 billion, growing at a rate of 1.6% annually, and an elderly population of over 100 million, Industry players focus on maintaining cost competitiveness, advanced technology, and availability of skilled human resources. This tri-factor posits India as a medical value hub that attracts foreign visitors looking for quality and affordable healthcare abroad. Investors are also looking to diversify their geographic presence within Asia-Pacific, which has seen intensified deal activity lately. Buyouts increasingly occurred across the geography, from high-income economies like Australia and South Korea to budding middle-income nations such as India, illustrating it being transformed into a region with multiple engines of growth.

Market Size

The Indian healthcare market is estimated to record a three-fold rise, growing at a CAGR of 22% to reach over US$610 billion by 2026, with the Indian health-tech market to touch US$50 billion by 2033, recording a growth rate of over 39%, while generating over 5 Lakh jobs per year. The Indian medical tourism market was valued at US$2.89 billion in 2020 and is expected to reach US$13.42 billion by 2026. With a US$5-6 billion size of Medical value travel (MVT) and 500,000 International patients annually, India is among the global leading destinations for international patients seeking advanced treatment.

The hospital sector is witnessing vast investor demand from global and domestic investors. The government of India has already allowed 100% FDI in the hospital space for both greenfield and brownfield projects. Inflows in sectors such as hospitals & diagnostic centres and medical & surgical appliances stood at US$ 9.48 billion and US$ 3.22 billion, respectively, between April, 2000 and September, 2023.

(b) opportunities and threats

Opportunities

a. Increase in Healthcare Spending: There has been a shift in the mindset, and the population is more amenable to spending on health essentials, especially post- COVID, such as regular health check-ups, monitoring, nutrition, and medical insurance. Indias healthcare spending is 3.6% of GDP, including out-of-pocket and public expenditure, which is the least among BRICS countries: Brazil spends the most (9.2%), followed by South Africa (8.1%), Russia (5.3%), and China (5%).

b. Inorganic growth opportunities: Given the dearth of healthcare infrastructure in the country, there is a multidecadal opportunity for investment in the hospital sector. The healthcare sector is capital-intensive and requires continuous investment for operations and expansion. In addition to our brownfield developments,

we have been evaluating several opportunities to set up asset light and asset heavy healthcare facilities to expand our footprint geographically, serve a more significant number of patients, and deploy cash surplus from operations strategically.

c. improving Insurance Penetration: With the increasing incidences of health issues and the need for essential healthcare services, healthcare costs have surged in the last few years. In a populous country like India, lower insurance penetration is one of the foremost deterrents to the growth of the overall sector, as the affordability of quality healthcare facilities by the majority of the people remains an area of concern. According to the latest reports by IBEF, the health insurance segment accounts for a 33.3% share of the total gross written premiums earned in the country. Despite this, the penetration level stood at ~38%, presenting a vast opportunity for the growth of the healthcare delivery industry in India. With health insurance coverage in India on an upward trajectory, the healthcare industry is set to grow on a fast pace.

d. Great Potential for Medical Value Tourism: India has emerged as a popular destination for medical tourism due to its cost-effectiveness, skilled medical professionals, and world-class facilities. There is a renewed focus on Medical Value Travel, with the Government of India launching the Heal in India Program, expected to cross US$13 billion by 2026.

e. Government incentives: The Indian government has focused on providing Universal Health Coverage through schemes such as Ayushman Bharat, National Health Mission, and Digital India, providing opportunities for public-private partnerships and investment in healthcare infrastructure, technology, and services.

f. Home Healthcare: Given the rise of e-commerce and focus on personalized health-tech solutions, this segment has promising growth prospects. With an aging population and the increasing prevalence of chronic diseases, there is a growing demand for home healthcare services, including home nursing, elder care, and medical equipment rental.

g. Technology Adoption: With the rise of digital health, there are opportunities for technology adoption, such as electronic health records (EHR), telemedicine, health delivery systems, wearable devices, and AI- driven healthcare solutions to improve the efficiency, accessibility, and affordability of healthcare services.

h. Healthcare Analytics and Data Management: Data Analytics and Business Intelligence (BI) play a crucial role in modern healthcare management by leveraging vast amounts of data to enhance clinical decisionmaking, improve patient outcomes, and optimize operational efficiency. Using data to identify at-risk populations, analysing market trends, and strategic planning by investing in advanced technologies and data governance, leading to improve community health outcomes and optimize resource allocation.

i. Focus on Preventive Healthcare: Changes in

lifestyle patterns have augmented incidences of non-communicable diseases, such as Diabetes, Cardiovascular diseases, and Cancer, which will continue to drive demand for specialized services. While communicable disease still poses a significant threat and account for 33% of the disease burden, non-communicable diseases 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 over US$4.58 trillion by 2030. Thus, there is a growing emphasis on preventive healthcare initiatives, including awareness campaigns, vaccination drives, and screening programs, to address the burden of non-communicable diseases and improve overall health outcomes.

j. Regulatory Reforms: Streamline and simplification of regulatory processes to facilitate faster approval of drugs, medical devices, and healthcare technologies and ensure a transparent and efficient regulatory framework.

Threats

a. Challenges in Infrastructure: Indias healthcare

infrastructure needs to be improved, notably in rural areas. Despite growth, it has been struggling and facing challenges such as inadequate infrastructure, shortage of skilled healthcare professionals, and regional disparities in healthcare access.

b. Limited Access to Affordable Healthcare: Millions of Indians lack access to affordable healthcare services, primarily due to financial constraints. High out-ofpocket expenses for healthcare lead to financial burdens and often force people to forego necessary medical treatment.

c. Shortage of skilled healthcare professionals: India needs more skilled healthcare professionals, including doctors, nurses, and technicians. This shortage is further exacerbated by inevitable factors such as brain drain, uneven distribution of healthcare workers, and gaps in training and education, necessitating a higher focus on manpower retention through training, rewards, and recognition.

d. Increased Competition: The healthcare industry is witnessing strong demand, leading to increased competition and attracting multiple new entrants, including established business houses and private entrepreneurs. This influx of new players, coupled with other factors, may pose some challenges, including an adverse impact on profitability, concentrated market share, and growth potential of existing players. Consequently, there may be extended pressure on pricing strategies and added efforts to recruit and train competent medical professionals to maintain our competitive edge and market share for sustained growth and profitability of the Company.

e. Emergency Preparedness and Response: The

COVID-19 pandemic has highlighted the importance of emergency preparedness and response in healthcare systems. Strengthening healthcare infrastructure, enhancing surveillance systems, and improving stakeholder coordination are critical for effectively managing future health crises.

f. Regulatory Headwinds: Hospitals, being most critical in nature, always need to comply with multiple regulatory guidelines and often make challenging readjustments at the ground level. It is subject to complex regulatory frameworks and policies that sometimes hinder innovation, investment, and quality improvement initiatives.

(c) companys overview - segment-wise performance

Artemis Hospital (a unit of Artemis Medicare Services Limited), Sector- 51, Gurugram - 122001, founded in 2007, is a state-of-the-art multi-speciality hospital in Gurugram, India. It is the first hospital in Gurugram to be accredited with Joint Commission International, USA ("JCI") and National Accreditation Board for Hospitals ("NABH"). Designed as one of Indias most advanced hospitals, Artemis provides a depth of expertise in the spectrum of advanced medical & surgical interventions and a comprehensive mix of inpatient and outpatient services.

Segment-wise performance

During the year under review, the Company has steadily ramped up the operations of the 2^nd tower, bringing in operational and financial efficiencies. The Company has shown consistent growth in all metrics driven by better case and payer mix, economies of scale and improved operational efficiencies. Our industry-leading revenue share from international patients asserts our role and recognition as a prominent centre for Medical Value Travel. Further, the construction of the 3^rd tower is in full swing,

and the operations will be commenced as per plan, leading to a potential improvement in our economics.

In the past year, the Company has added a new centre under the Artemis Lite brand in the fast developing New Gurugram area. Additionally, the Company has inaugurated a ~80-bed facility in Mauritius under the name of Artemis Curepipe Hospital. This is the first of the two hospitals as part of the Operations and Management Agreement and will help strengthen our brand in international healthcare industry. This hospital has shown good progress already in its first year of operations.

In the beginning of FY25, the Company has signed definitive agreements with the International Finance Corporation to raise funds of ^ 330 Crores in the form of Compulsorily Convertible Debentures (CCDs) to explore growth opportunities in the quaternary care/super speciality hospital segment through brownfield/greenfield expansion.

As we move forward, we are confident to continue our robust performance and become the most well- regarded healthcare provider in India. We are also evaluating usage of AI in applications such as clinical decision support system, precision medicine, improved drug discovery & development and diagnostics support system to stay ahead of the technology curve. Further, we are exploring organic and inorganic growth opportunities to accelerate our growth prospects. We will focus on sustaining this growth trajectory through visionary strategies, expanding our geographical footprint with a combination of asset-heavy and asset-light models, while staying committed to the highest standards of clinical excellence and patient care.

Clinical excellence

Artemis Hospital diligently adheres to the highest standards of clinical outcomes in various specialties. It is the first hospital in Gurugram to be consecutively accredited with JCI, USA, for the fourth time. It is the first hospital in North India to be certified with the National Marrow Donor Program (NMDP), USA, and is equipped with North Indias first M6 Cyberknife, having successfully performed over 1000+ procedures. It is also the first hospital to introduce Masimo technology based on a Clinical Surveillance System, introduce the Robotic Knee Replacement Surgery Program in addition to our existing robotic technology, including the Da Vinci Robot, and upgrade the MRI facility in the hospital.

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

Training and Continuing Medical Education (CME)

Artemis focuses on keeping its medical professionals and other staff updated and trained on the newest possible techniques and procedures in the medical field on a periodic and continuous basis. Additionally, we endeavour to impart knowledge to the medical community through external CME programs led by our expert clinicians.

Accreditations

Artemis Hospital has received accreditations from JCI for meeting international healthcare quality standards for diligent patient care and hospital management. Artemis Hospital is also NABH & National Accreditation Board for Testing & Calibration of Laboratories ("NABL") accredited and has received Green OT certification from Bureau Veritas. These accreditations reiterate that Artemis operational protocols align with global best practices.

(d) industry outlook

The healthcare industry has started receiving special attention globally, especially after the COVID-19 pandemic, and rightly described the saying, "Health care is not a privilege. Its a right." India stands out as the leading force expanding Asia-Pacifics share of global deal activity, accounting for roughly 30% of the regions deal value at around US$4.6 billion in 2023, keeping itself at a leading position across the region. Resilient economic growth, a business-friendly government, a maturing pharmaceutical manufacturing landscape, and a burgeoning middle class eager to pay for quality healthcare have resulted in many investment opportunities for healthcare and ancillary industries.

(e) risks and concerns

Given the intensifying competition, favourable policies are one of the most critical factors required for the growth of any sector in the economy. Ease of regulatory policies will aid the countrys growth prospects, which are particularly driven by private sector players, given their issues are being addressed. It becomes even more critical as the sector faces competitive challenges from peer countries in positioning itself as the go-to destination for medical value travel. Additionally, the inherent difficulties of the industry, including high capital involvement, skilled workforce, updated technology, and data analytics, will continue to dominate the mind-set of the industry leaders going forward.

(f) internal control system and their adequacy

The Companys Internal Controls system is adequate and operating effectively, which led to have an impact on the financial statements and ultimately, stakeholders value. During the financial year under review, appropriate control systems are installed and tested for operating effectiveness through periodic monitoring and review processes. These are also independently validated by the Internal Audit Function, which didnt observe any reportable material flaw in the procedure or execution.

(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

Artemis human resource strategy is based on the firm belief that our people are our core strength and is focused on shaping our talent for a sustainable future. We aspire

to provide superior growth opportunities in the industry for our employees professional and personal growth and encourage collaboration, creativity, continuous learning, and a focused work environment. As of March 31, 2024, the total permanent employee strength of Artemis stood at 1991 employees.

(i) key financial ratios

Following are Key Financial Ratios computed on Standalone basis

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

CAUTIONARY STATEMENT:

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