Fortis Healthcare Ltd Management Discussions.

SECTION I - THE INDIAN HEALTHCARE ENVIRONMENT

THE NOVEL CORONOVIRUS (COVID - 19) OUTBREAK AND ROLE OF THE HEALTHCARE INDUSTRY

The year gone by has witnessed perhaps the worst global healthcare crisis in over a decade. The unexpected outbreak of COVID-19 has severely impacted countries across both the developed and the developing world and has challenged healthcare systems at a never seen before scale. The loss of human lives and the suffering of people have been overwhelming and deeply saddening. Lockdowns being witnessed in country after country and travel bans to break the chain of transmission of the virus impacted economies and industries forcing further economic hardships and turmoil. The pandemics rapid spread and the limited understanding of the virus and its various strains has altered the ways of both social and personal interactions as well as revised professional working styles.

Governments across the globe and their respective healthcare systems have worked in tandem with healthcare institutions such as the World Health Organisation (WHO) to mitigate this unfortunate human calamity.

Our country too has borne the brunt of the pandemic in FY 2020-21 and witnessed a second wave in early FY 2021-22 that has had a far worse impact in terms of COVID cases and resultant deaths. The pandemic in India, has seen ~29.4 Million patients being infected with the virus, the second largest number after the United States and ~3.9 Lakhs deaths (Source : Government: Arogya Setu App, data as on June 30, 2021). While challenges in healthcare infrastructure and lack of medical resources have been a severe constraint in controlling the pandemic, our healthcare institutions both public and private have acted on a war footing to scale up infrastructure across the healthcare value chain be it in terms of beds, isolation centers, medical equipment, medicines or testing capabilities. Clinicians, nurses and paramedics have and continue to work dedicatedly to ensure the best available care for COVID patients.

Some of the key measures undertaken to mitigate the pandemic were as follows:

• Ensuring accessibility and availability of beds and medical resources for COVID patients by the government and the private healthcare industry.

• Effective checks and regulations for making the treatment and related tests for COVID more affordable.

• Roll out of safety and isolation protocols, medical treatment nuances and infrastructure regulations in order to provide a standard set of practices governing COVID related matters.

• Leveraging information technology enablers such as mobile and COVID related apps, online test reporting and websites for information dissemination.

• New avenues to provide healthcare services in a faster and efficient manner such as mobile testing vans, home collection of samples, home healthcare and drive thru testing centers.

In the aftermath of the second wave seen in early FY 2021-22, the government and healthcare institutions in the country have scaled up their resource capabilities to be better prepared for the future were such a crisis to happen again. At the same time collective efforts are underway to accelerate the manufacturing of vaccines and ensuring that vaccination programs cover the entire population of the country as quickly as possible. This would go a long way in helping people see a relatively lesser impact due to COVID and protect lives and livelihood. As of June 22, 2021,289 million doses of COVID vaccines have been administered across the country (Source: WHO India Situation Report, COVID - 19 dated June 23,2021) and both government and private healthcare setups are further being scaled up to increase coverage.The government has earmarked a significant investment outlay for vaccination and allied resources required to mitigate the pandemic.

(A) Snapshot of The Indian Healthcare and Hospital Industry

Indias healthcare sector is one of the largest sectors both in terms of revenue as well as employment. Healthcare comprises hospitals, medical devices, pharmaceutical, clinical trials, telemedicine, medical tourism, health insurance and diagnostics. The size of the overall Indian Healthcare market was estimated at US$ 265 Billion in 2020. The hospital and the diagnostics segment forms a relatively large portion of the overall healthcare market and is estimated to contribute approximately 40-45% share in the overall healthcare market segment. Both the hospital and the diagnostics segment are highly fragmented with a majority of facilities being in the unorganised segment and only handful of hospital and diagnostics players forming the organised market. The Government i.e. public healthcare system comprises secondary and tertiary care hospitals in key cities and primary healthcare centres (PHCs) in rural areas. The private sector provides secondary, tertiary and quaternary care hospital facilities with a major concentration in metros, tier I and tier II cities. The hospital industry in India is also characterised by an unequitable balance between public and private hospital infrastructure in select major cities like New Delhi wherein public infrastructure outweighs private healthcare availability (Source: CDDEP - Centre for Disease Dynamics Economics and Policy); also providing a further potential for private healthcare to expand and grow in such locations.

The overall Indian healthcare sector is expected to record a three-fold rise, at a CAGR of 18% during 2017-2022 to reach US $372 Billion in 2022 from US$ 160 Billion in 2017 (Source: IBEF.org). Indias hospital industry stood at US$ 62 Billion in FY 2016-17 and is expected to grow at a CAGR of 16% to reach US$ 132 Billion by FY 2021-22.

(i) Characteristics of the Industry

• Growing health awareness and changing attitude towards preventive healthcare

• Low cost and better value driven outcomes driving the countrys medical tourism segment.

• Rising income levels and a higher per capita income resulting in increasing affordability and demand for quality healthcare services

• The pandemic catalysing long-term changes in attitudes towards personal health and hygiene, health insurance, fitness and nutrition.

• The relative lack of public healthcare infrastructure offering tertiary and quaternary healthcare services in a majority of states in the country as compared to private healthcare.

(ii) Government Initiatives

The Government of India has been taking a holistic approach to Health and is focusing on strengthening three areas: Preventive, Curative, and Wellbeing. Select key initiatives taken by the government to promote Indian Healthcare industry are as under. a. Launch of the PM AtmaNirbhar Swasth Bharat Yojana, with an outlay of about 64,180 Crores over 6 years. This will enable developing capacities of primary, secondary, and tertiary care health systems, strengthen existing national institutions, and create new healthcare institutions. This will be in addition to the National Health Mission.

b. To strengthen nutritional content, delivery, outreach, and outcome, the government plans to merge the Supplementary Nutrition Programme and the Poshan Abhiyan and launch the Mission Poshan 2.0. An intensified strategy to be adopted to improve nutritional outcomes across 112 Aspirational Districts.

c. Plans to increase the number of research and COVID-19 RT-PCR labs to strengthen COVID-19 testing services.

d. Providing an amount of 35,000 Crores for COVID-19 vaccination program for FY 2021-22.

The government has outlaid a budget of 2,23,846 Crores for Health and Wellbeing in FY 2021-22 as against previous years budget of 94,452 Crores, an increase of 137%. (Source: Budget2021-22, Government of India). Furthermore, as per the Union Health Ministry, the Government of India aims to increase the public healthcare expenditure to 2.5% of the Gross Domestic Product (GDP) by 2025.

(iii) Key Growth Drivers

The demand for healthcare services in India is likely to remain robust in the foreseeable future. The current pandemic will also see the need for healthcare services as being one of paramount importance in terms of coverage, preparedness and accessibility, providing a further impetus to growth and longer-term opportunity for the sector. Some of the key factors that are expected to drive demand for healthcare services are graphically depicted as follows.

Favorable demographics of India

(iv) Impact on healthcare sector due to COVID-19 during FY 2020-21

The pandemic has placed an enormous strain on the global healthcare sectors workforce, infrastructure and supply chain. COVID-19 is also accelerating change across the ecosystem and forcing public and private health systems to adapt and innovate in a short period of time.

India also faced a similar impact wherein almost all the sectors, including healthcare, were significantly impacted due to the nationwide lockdown. However, private Indian healthcare players have and continue to steadfastly provide all support that the government needs in terms of testing, isolation beds, medical staff and equipment, home healthcare support and other measures in order to control the impact of the pandemic.

The healthcare industry, along with the central and state governments, set up dedicated COVID-19 hospitals, isolation centres and tech-enabled mapping of resources. To effectively manage the outbreak, the Indian government also leveraged technology and developed various applications both at the central and state-levels. The Aarogya Setu mobile app which assisted in mapping, contact tracing and self-assessment was widely used throughout the country. COVID-19 Impact on the healthcare organizations during FY 2020-21:

• Restriction on movement and fear of contagion led to a significant decline in OPD volumes as well as bed occupancy which fell sharply during the lockdown.

• Restriction on global travels substantially impacted medical tourism segment as the flow of visiting patients from various neighbouring countries halted.

Pre-Covid During Lockdown

Source: PwC report - Impact of Covid-19 on Med Tech Industry in India

• Post Unlock 1, occupancy across the healthcare facilities witnessed traction primarily due to high occupancy related to COVID-19 beds and a marginal recovery in non-COVID occupancy. Specialties such as Oncology and Dialysis did not see any significant decline. Other specialties have been witnessing recovery but at a slow pace.

• The government continues to monitor and implement price control on COVID treatments in select geographies and price caps on COVID tests.

• Private healthcare players incurred significant capital expenditure in setting up isolation wards and quarantine centres, new equipment, separate patient flow areas and temporary structures to screen staff / patients, converting their premises into hybrid facilities for COVID-19 and non-COVID-19 treatment.

• Hospitals witnessed increase in their operational costs due to adoption of infection control measures for healthcare workers and patient (for example disposables usage, staff training, shift management, technology deployment, staff insurance coverage, disinfection procedures, lodging and transport of staff etc.).

• As a result of the lower footfalls and incremental pandemic related expenses the private healthcare industry witnessed a sharp decline in revenue and profitability.

Key Trends being observed in the Hospital business

a) Hospital recovery likely to be gradual

• While Q1 faced the maximum impact on occupancy, hospitals witnessed higher occupancy in Q2 & Q3 of FY 2020-21 with the ramp up primarily due to higher occupancy in

COVID beds. A slow recovery was also observed in Non COVID bed occupancy which gained traction towards end Q3 and in Q4.

• Hospitals witnessed varied recovery rate across various specialties beginning September 2020. Some of the trends being observed in medical specialties are enumerated below:

o Non-surgical revenue saw a faster recovery than the surgical segment.

o Oncology and Dialysis did not witness any significant decline.

o Under the surgical segment, Cardiac and Neuro surgeries recovered faster than other segments while elective surgeries (orthopaeidcs) took longer to reach normal levels.

• Given the intense second wave in early FY 2021-22, non-COVID occupancy declined once again in early Q1 of FY 2021-22 with a significant rise in COVID occupancy. From mid-May FY 2021-22, early and encouraging signs of declining COVID cases are being seen; traction is also being witnessed in non-COVID occupancy. With the same trend expected to continue, hospital occupancy could reach normal levels in the short to medium term.

b) Emerging Trends in the hospital and diagnostics space

• Home healthcare and Teleconsultations

o Home healthcare is likely to witness significant traction mainly driven by the geriatric population. Many private healthcare players are partnering with home healthcare firms or setting up a separate vertical to cater to this segment

o Most of the hospitals encouraged teleconsultations and even launched digital platforms to provide various healthcare services (telemedicine, digital test reports, etc) which can be offered through the virtual medium.

o Diagnostic players increased their focus on the home collection segment

• Patient and Staff Safety

o Various initiatives have been taken to ensure the patient and staff safety such as screening at entry, separate patient flow as well as setting up a separate wing for COVID patients, altering the visiting hours, etc o Rapid recovery protocols have been formed as most patients prefer home care overstaying at the hospital

o New medical protocols have been setup for surgical procedures

o Mandatory COVID tests for patients who will be undergoing any surgical procedure

(B) Indian Diagnostic Industry

Diagnosis is the first step to disease management. Globally ~80% of physician diagnoses are a result of laboratory tests. There are mainly 3 types of tests - (1) Routine tests: Common tests like sugar, cholesterol, HIV, pap, pregnancy, etc; (2) Clinical lab tests to monitor diseases and drug treatments and (3) Specialty tests: Genetics, immunology, oncology, endocrinology and other critical segments.

Market for diagnostic services has been growing in India over the past couple of years at a rate of approx. 15-20% and is estimated at ~ US$ 9 Billion in market size ( 675 Billion) (Source: Edelweiss Research). Pathology accounted for nearly 80% of the market while Radiology accounted for the remaining 20%. Future growth is likely to be driven by improving healthcare facilities, medical diagnostic and pathological laboratories, private- public projects and enhanced penetration of the health insurance sector.

Impact of COVID-19 on the diagnostic Industry

Though COVID-19 had a significant impact initially on the diagnostics sector with a steep fall in patient volumes, private labs ramped up COVID testing capacities and increased their focus on home collection services. With the gradual opening up of the economy along with new initiatives such as mobile testing vans and drive through sites / centers for conducting routine tests as well as COVID tests; a faster recovery was witnessed in the second half of the fiscal.

At present, almost all major organised players have witnessed a sharp rise in their revenues and profitability, benefiting from increased demand for COVID-19 testing as well as other tests related to COVID-19. The non-COVID business has achieved near normalcy and incrementally COVID tests contributed over 25%-30% of revenue during the year. Anticipating more workload in quarters to come, more COVID testing facilities are being created all over the country, to meet the demand that may rise due to prolonged pandemic.

COVID-19 has demonstrated how important it is to have access to fast, reliable tests. Technology- led diagnostics, home collection, on-line reports and the like shall play a critical role to improve customer experience. There is also a requirement to adopt a more analytical approach towards gathering health data to monitor public health and establish trends which can be made possible through digital means and advanced technologies like machine learning and Artificial Intelligence (AI).

(C) Outlook on Healthcare Sector

The COVID pandemic has exposed the inadequacy of the Indian healthcare sector, for both public as well as private organisations. It has showcased the requirement to significantly strengthen the sector to withstand such pandemics in the future. The Government would have to substantially improve upon its funding for healthcare infrastructure. Shortage of manpower in the sector needs to be addressed in an efficient manner which should also target the healthcare related vocational trainings. Given the existing high prevalence of non-communicable diseases and chronic ailments such as cardiovascular diseases, diabetes, respiratory ailments, mental health and neurological disorders, oncology related disorders, and musculoskeletal and urological disorders; the demand for preventive health care is expected to grow. Proliferation of life style diseases is already high in select states such as Punjab, Tamil Nadu, Kerala, Andhra Pradesh and Karnataka (Source: India: Health of the Nations States, The India State-Level Disease Burden Initiative: Disease Burden Trends in the States of India 1990 to 2016). In addition to the above, the pandemic is also expected to result in the shifting of healthcare focus from curative care to preventive care, bringing about changes in hygiene and social etiquettes and further adding to the demand for preventive healthcare.

Given the acute shortages of medical resources witnessed during the pandemic; opportunities for large private healthcare organisations to provide consultancy to smaller and medium scale hospitals and healthcare providers in tier - II cities could also emerge. Expertise and experience of large private healthcare players enabling smaller healthcare providers to ramp up facilities in terms of ICUs, ventilators and the like and respond to sudden epidemics in smaller cities could help mitigate the impact of such outbreaks to a considerable extent. Advance tie- ups and JVs between healthcare providers keeping overall feasibility in mind appear to be clear opportunities which could be explored.

Healthcare delivery is expected to witness a significant transition going forward with an emphasis on technology, digitisation and information systems. Virtual consultations by healthcare professionals could become the mainstream care delivery model post-pandemic. Home healthcare services have picked up during the last one year and expected to continue to gain traction given the current environment. In the diagnostics space, preventive care and the wellbeing testing segment is expected to grow at a higher pace compared to the industry growth rate. Integrated health tracking mobile applications, government initiatives, and online services such as booking appointment online for preventive healthcare check-ups, obtaining reports online, home collection of samples will further augment future growth in this industry.

While all these pose a challenge in the short to medium term, over the longer term these would result in a more robust and structured healthcare environment in terms of quality, affordability and accessibility.

SECTION II - THE COMPANY

COVID - 19 - Dedicated to serve responsibly.

Fortis, as amongst the largest healthcare organisations in the country, has spared no efforts to ensure the availability of hospital beds / ICU beds and other medical resources for its patients despite the challenging environment. Its doctors, nurses and para medic workforce have and continue to be at the forefront of the battle against the pandemic undertaking personal risks at the cost of saving lives. Fortis has been consistently working with various Central and State governments to ensure that treatment protocols, hospital beds / ICU beds and other medical resources are available for treating COVID patients. It has treated ~38,000 patients (as of June 3, 2021) in its network of hospitals while its diagnostics arm i.e., SRL has undertaken 6.4 Million COVID and COVID related tests till May 31, 2021. Given its expanse, Fortis is also accelerating its efforts towards vaccination at both onsite and offsite locations including doing corporate tie ups and arrangements with residential condominiums and colonies. Fortis reserved more than 40 percent of its total operational bed capacity for COVID patients in the first wave in FY 2020-21.

The Company has undertaken a series of measures to create the COVID necessary infrastructure for the safety of all its patient and staff including being amongst the first to establish Flu clinics for screening and management of patients. The Company, to safeguard its employees and to provide assistance in the case of any unfortunate incident in the line of duty, also increased the insurance cover for all its frontline workers both for life and medical insurance coverage. Fortis ensured that medical protocols and up-to-date new treatment and tests in COVID related aspects were quickly rolled out across its network. Safety guidelines for staff and patients, work from home measures and the like were also initiated to ensure a smooth and safe patient and hospital workflow environment. (A) Fortis Healthcare

Fortis Healthcare Limited is a leading integrated healthcare delivery service provider in India providing secondary, tertiary and quaternary care. The healthcare verticals of the Company primarily comprise hospitals, diagnostics and day care specialty facilities. Currently, the Company has 27 hospitals including JVs and O&M facilities. The Company network comprises over 4,100 operational beds as of 31 March 2021.

(i) Fortis - The Year Gone By for the Hospital business

In the wake of COVID-19 pandemic, FY 2020-21 started as a challenging year as the organisation had to ensure that it is well prepared to deal with the healthcare need arising due to sudden surge of infections across the country. Sustainability of operations, balance sheet focus in terms of cash generation and liquidity and continuing to build on the fundamental strengths of patient care and clinical excellence enabled the Company in building back business to near normal levels by end of FY 2020-21. The organisation rapidly re-prioritised some of the key strategic areas it had earlier defined in the beginning of the year. The entire focus of the management was on effective handling of COVID-19 crisis while at the same time sustaining operations that had taken a major hit especially during the first 2 quarters. A brief quarter on quarter progress of the business is provided below.

Q1 FY 2020-21 was severely impacted with the nationwide lockdown and travel restrictions resulting in a drastic fall in elective surgeries and occupancy reaching 37%. From the middle of Q2 FY 2020-21 as restrictions were eased, a gradual up-move was seen in elective procedures with COVID cases declining and patients starting to return for elective surgeries. Hospital OPDs were fully functional in Q2 and all efforts were made to ensure that patients coming to hospitals felt safe and secure in the environment. COVID areas, beds, ICUs, emergencies were separately earmarked. All necessary hygiene etiquettes and protocols were strictly adhered too including the use of PPE kits, masks and sanitisers. Tele and video consults also witnessed a surge as patients preferred doctor consultations remotely for both COVID and non- COVID related ailments. Q3 witnessed a further uptick in non-COVID cases with non-COVID occupancy increasing from 38% in Q2 to 46% in Q3. The trend continued in Q4 with the business returning to near normal levels and non-COVID occupancy reaching 57%. Nearly all specialties witnessed growth as compared to pre-COVID levels over the corresponding previous period as a result of which surgical contribution to revenues also increased to 55% in Q4 versus 44% and 48% in Q2 and Q3 respectively.

On the COVID front, ~33,000 patients were successfully treated and discharged during FY 2020-21. More than 1.1 Lakhs patients were treated in flu clinics, which were dedicated outpatient service areas designed to attend to suspected COVID patients across the Companys network hospitals. At the peak of this pandemic in FY 2020-21, the Company reserved ~1,600 beds for COVID patients. Fortis is also proactively partnering with the government in its vaccination drive across the country with 23 of its hospitals being designated as vaccination centers and having administered more than 67,000 doses so far.

In order to support its employees, the organisation ensured additional life insurance coverage for its doctors, nurses and paramedics and provided additional medical insurance coverage of 2 Lakhs free of cost for employees covered under the ESI scheme. Other employee incentives included additional incentives for frontline staff working for COVID patients and introduction of Work From Home rosters.

The cost transformation program that was started last year gained significance during the pandemic. The Company undertook an organisation-wide cost optimisation program to reduce fixed costs with initiatives comprising voluntary salary deduction by senior management and senior clinicians, headcount rationalisation, optimizing outsourcing contracts (medical services and hospital services), reduction in sales and marketing spend and procurement costs optimisation in supply chain and IT.

With the pandemic easing in H2 FY 2020-21, the Company also re-initiated its growth and expansion plans. The Company launched its new hospital at Vadapalani in Chennai, with an initial operational capacity of ~35 beds. The same was inaugurated by the former chief minister of Tamil Nadu Shri. Edappadi K. Palaniswami.

For FY 2020-21, the Company incurred a total capital expenditure across its hospitals to the tune of 180 Crores. The Capex incurred was largely for routine maintenance and growth purposes (capacity expansion and new medical equipment).

(ii) Business Strategy

While having successfully navigated the challenges in FY 2020-21, as the organisation enters into FY 2021-22, its focus would be on building back topline by undertaking several revenue growth initiatives including building upcountry market, enhancing engagement with key corporate clients, further strengthening its community connect in neighborhood areas, optimally leveraging its digital marketing to expand to a larger market and regaining international business with an emphasis on building direct business.

On Clinical front, the plan is to further strengthen the focused key specialties by adding and upgrading technology and onboarding clinicians of repute. As the business returns to normalisation, the focus would be on re-gaining lost business due to the pandemic in our two major specialties - Cardiac Sciences and Orthopedics - and at the same time continue to invest in and build strong talent in high growth specialties such as Oncology, Neurosciences, Gastro Sciences and Renal to improve margins.

The Company plans to add approximately 270 beds in FY 2021-22, with a significant ramp up planned for our new Vadapalani facility in Chennai. All the other new beds will be added in our facilities in our key geographic clusters - NCR, Mumbai and Bengaluru. The bed additions will largely be brownfield expansion in the existing facilities of the Company allowing for faster operationalisation of beds and relatively lower start-up costs as compared to greenfield beds.

The focus on cost transformation will continue with our endeavor being to retain and carry forward the efficiencies we brought about in the cost structure during COVID-19. Efforts are also underway to rationalise drugs and consumables cost, bring in efficiencies in capex process and optimise indirect spend.

Taking forward our portfolio strategy, we will continue to invest in our high performing facilities and at the same time put all efforts to transform and turn-around a few under-performing but high potential facilities.

While the country witnessed a severe second wave in early FY 2021-22, the higher number of COVID cases has led the Company to allocate almost 50% of its operational bed capacity for COVID treatment at the peak of the second wave in mid-April / early May FY 2021-22. The challenges and learnings of the past year during the first wave have also helped the Company managing the current COVID case load more effectively. While infrastructure challenges were severe this time round, the Company undertook all efforts to provide the best possible care to its patients. With standardisation in treatments, tests and improvisation in clinical care along with a much higher COVID bed occupancy, the second wave has had a relatively less impact on the Companys performance as compared to the first wave witnessed in FY 2021-21. With well- established and standardised protocols for safety, screening and isolation and the availability of faster avenues of reaching and treating patients such as mobile apps, vaccination outreach programs, tele / video consults, home healthcare, home collection of samples and capabilities for faster ramp up of medical resources; the Company expects to be relatively better placed to treat COVID patients going forward.

(iii) Digital Transformation

FY 2020-21 witnessed the Company achieving some key milestones in its journey to become a digital-first organisation.

• Resulting from the situation presented by spread of the pandemic across the country, the organisation put in significant amount of efforts to launch telemedicine and video-based consults quite rapidly across its network. During its peak, tele/video consults were at ~15% of total consults - one of the highest across the country.

• The roll-out of in-house, custom developed, Hospital Information System (HIS) platform - OneFortis was completed this year. All Fortis hospitals are now using a single platform with uniform processes and data definitions enabling a seamless experience for patients, employees, vendors and other stakeholders across the network.

• The Company is also focusing on creating a unified platform for customer lifecycle management - MyFortis. The solution will offer one stop shop for patients to book appointments for consultations/diagnostics, store and view medical records, conduct tele/ video consults, medicine delivery, etc. This will be fully integrated with other Fortis digital systems including HIS, Oracle and the feedback management system.

• Data analytics through a new Business Intelligence platform was rolled out during the year. The Company will continue to build the platform and launch several modules related to financial statements, clinical KPIs, SCM and operations in FY 2021-22.

Through all these key initiatives and several others in pipeline, the Company has embarked upon a journey to build an organisation that is technologically future ready and is able to meet the continuously increasing demands of 21st century patients, clinicians, employees and all other stakeholders.

(iv) Medical Strategy and Operations

The organisation constantly strives towards adopting a patient centric approach in all aspects of healthcare service delivery with stringent medical processes and protocols which are instrumental in achieving high standards in patient care and superior clinical outcomes. Our systems-based approach is continuously monitored, evaluated, and improved upon, enabling greater transparency and clinical success.

I. COVID-19 Pandemic Management

Fortis was among the first institutes in India to establish Flu clinics at its hospitals towards screening and management of patients. Indias first COVID-19 case was reported on January 29, 2020. Since then, prevention and management of the pandemic has been foremost priority for all healthcare service providers.

a) Clinical / Medical protocols

In strict adherence to Government/ Institutional (MoHFW, ICMR, NCDC and WHO) protocols, Fortis guidelines were released periodically to establish hospital and patient workflows, thereby ensuring safety of healthcare workers and patients. During the pandemic, over 30 Fortis Medical SOPs / guidelines / protocols were released for implementation at units which identify and emphasise on COVID-19 specifications and modalities. Few notable amongst them have been (1) Guidelines for PPE (2) COVID Testing Protocol (3) Chemoprophylaxis for Healthcare Workers (4) Post COVID rehabilitation and (5) Guidelines for Liver Transplantation, Hemodialysis; Oncology; OBG and Radiological Investigations.

b) Contactless delivery of services

To further enhance the safety of our staff and patients, Fortis Hospital, Bannerghatta Road, introduced Mitra robot for COVID-19 screening of patients, attendants and hospital staff entering the hospital. The robot used facial and speech recognition for screening visitors for COVID-19 symptoms i.e. fever, cough and cold. Basis the success or failure of the screening test, the person is able to enter hospital premises or is directed to the Flu clinic for further examination. This limits human interactions leading to a significant reduction in transmission of the virus.

c) Fortis Vaccination Plan

In anticipation and preparedness for the COVID-19 vaccine in India, the Fortis Vaccination Plan (based on the MoHFW, COVID-19 Vaccine Operational Guidelines) were released in January 2021. Focus areas included: Infrastructure, Workflow, Logistics, Manpower, Handling of Adverse Events Following Immunisation (AEFIs) & process for preventing misuse of Vaccines.

d) Improvising Clinical care during Pandemic comprised initiatives such as :

• Use of High-flow Nasal Cannula (HFNC)

- A novel technique of oxygen therapy that delivers heated and humidified oxygen via special devices at a rate of up to 70 L/min, improving oxygenation and carbon dioxide clearance providing better clinical efficacy together with easier application and better patient tolerance in critically ill.

• Use of Helmet Non-invasive Ventilator

- Although Helmet NIV is used extensively in parts of Europe especially Italy, its use in India is rare. It can be used to deliver airway pressure up to 40 cm H2O without leakage. Studies have shown that helmet as an interface is more comfortable for long term ventilation and has low chances of viral transmission and low intubation rates and complication rates.

II. Continuous pursuit of Clinical Excellence - Quality and Patient Safety

At Fortis, patient safety continues to remain the cornerstone of high-quality health care. While quality would "conform our services to requirements", patient safety practices lead to "prevention of harm".

i) Clinical Excellence Scorecard (CESC) - Quality and Patient safety indicators Fortis has been tracking Quality and Patient safety indicators across its network hospitals since 2013 through centrally designed Clinical Excellence Scorecard (CESC). The indicators have been chosen based on the following criteria of:

• Importance

• Scientific acceptability

• Feasibility

• Usability

• Minimal overlap with other quality indicators

Subsequently, as the process evolved, focus expanded to process analysis and identification of critical factors impacting quality and patient safety.

Fortis hospitals continue to perform well against the indicators, reiterating the high level of patient care standards. As a result of rigorous data collection over years, Fortis has been able to create Internal Benchmarks for 14 key CESC parameters, namely:

Catheter Associated Urinary Tract Infection (CAUTI) Venous Thromboembolism (VTE) Return to ICU within 48 hours
Central Line Associated Bloodstream Infection (CLABSI) Return to Emergency Room SSI Superficial
Ventilator Associated Pneumonia (VAP) Sharps Injury (Needle Stick Injury) SSI Deep (30 days)
Unplanned Return to OT within 48 hours Medication errors SSI Deep (90 days)
Hospital Associated Pressure Ulcers (HAPU) Patient Falls -

Accreditation and Certifications

Accreditation No. of Hospitals
JCI 4
NABH HCO/SHCO 21
NABH Entry Level 2
NABH Blood Bank 10
NABH Emergency 1
NABH Nursing Excellence 21
NABL 14
Green OT 1
Abott/ Bureau veritas Pharmacy 4
Total Accreditations / Certifications 78

ii) Clinical Outcomes

We were among the first private healthcare service delivery chains to measure and report outcomes for various clinical procedures.

As part of the steering committee at International Consortium for Health Outcomes Monitoring (ICHOM) for designing the Coronary Artery Disease (CAD) Standard Set, Fortis has been instrumental in promoting the evidence- based medicine. The Company is the first healthcare chain in India to publish its ICHOM CAD outcomes data on its website.

At present, 20 of our hospitals utilise the VitalHealth portal for reporting and tracking clinical outcomes for 11 procedures including Coronary Artery Disease ([Coronary Artery Bypass Graft (CABG), Percutaneous Coronary Interventions (PCI)], Transplant outcomes (Kidney, Heart and Liver), Total Knee Replacement (TKR), ERCP, Radiation oncology, Obstetrics and Gynecology (Hysterectomy, Cesarean section), Mental health (Depression and Anxiety).

Website link for clinical outcomes: http://www. fortishealthcare.com/clinical-outcomes

III. Medical Equipment

Despite economic challenges and social disruption, the Company continued to upgrade and expand its infrastructure. Significant investments were made in installing state-of-the-art equipment with latest technology such as Cath-labs, LINACs, MRIs, CT Scan machines etc. Amongst the noticeable additions to our medical equipment, the Company commissioned Central Mumbais first Tesla Advanced Biomatrix MRI. A Dual Source Dual Energy Somatom Drive CT scanner was also launched in Kolkata. Our medical offerings expanded to include a new endoscopy unit in BG road, Bengaluru and a pediatric solid tumour clinic in FMRI, Gurugram.

Post installation, the Medical Operations team continuously monitors the utilisation rates of the medical equipment to identify areas of sub-optimal performance and suggest appropriate remedy.

(iv) Launch of New Medical Programs and Clinical Services during the year

• FMRI, Gurugram in association with Healthcare at Home, launched a Home Isolation Support Programme for COVID -19 positive patients who are asymptomatic / with mild symptoms.

• Fortis Hospital, Noida, launched a first-of-its-kind drive-in clinic that helps patients to do all the necessary activities such as doctor consultation, providing samples, collecting medication etc. without entering hospital building.

• Fortis Anandapur, Kolkata, launched the citys only Dual Source Dual Energy Somatom Drive CT scanner, which is 24 times faster than any other CT scan machine, making it a fast and clinically superior means of diagnosis for geriatric, pediatric and trauma patients.

• Fortis Hospital, Mulund, introduced Central Mumbais first Tesla Advanced Biomatrix MRI to ramp up the Radiology offerings. The machine offers a combination of powerful magnet and advanced features, resulting in high resolution scanning at maximum speed.

• Fortis Hospital, BG Road, Bengaluru installed an advance Biplane Cath Lab on the occasion of world stroke day on October 29, 2020. This is the first state of the art Biplane Cath lab in the state of Karnataka. The facility will provide advanced care for neurovascular disorder.

(v) Update on the IHH Open Offer

Post the preferential allotment to IHH Healthcare Berhad of 31.1% equity stake for an investment consideration of 4,000 Crores in November 2018, IHH made an open offer to the public shareholders of the Company to acquire upto 26% shareholding at a price of 170 per share. The matter is currently sub-judice due to a Supreme Court order and hence the open offer stands in abeyance. Legal hearings by the court have concluded in May 2021 and the order stands reserved. Further details are mentioned in the Directors Report under the sub-heading of Significant Matters during the year under review.

(B) SRL (Fortiss diagnostics business subsidiary)

Overview and the impact of the COVID-19 pandemic The COVID-19 pandemic in 2020 created massive societal, economic and healthcare challenges. SRL Diagnostics took a number of initiatives to protect its customers, ensure business continuity and meet the needs and interests of its healthcare partners and stakeholders. These actions enabled SRL to navigate the pandemic and paved the way for future growth. The business was supported primarily through digital platforms also benefiting from increased demand and rising COVID cases. To support the high demand for COVID testing, SRL increased production capacity by opening 15 new RT PCR labs across the country in FY 2020-21.

As the nation underwent a lockdown in mid-March, the diagnostic industry faced multiple changes and developments. The industry faced a massive decline in the B2C business as the footfall of walk-ins fell drastically and combined with restrictions on elective and OPD services at hospitals and clinics, B2B business was also majorly affected in Q1. SRL was able to gain gradual momentum in Q2. Business recovered to 90% of pre-COVID levels towards beginning Q3 with a strong recovery witnessed in the non-COVID business which continued in the last quarter of the fiscal as well. SRL has weathered well the last year with a relatively stronger performance led by a faster than expected recovery in non-COVID business and incremental contribution from the huge demand of COVID and COVID related tests.

With operations returning to normal in Q4 of FY 2020-21 and the improving fundamentals of the business over the past year, SRL accelerated its growth and expansion initiatives. It undertook a significant and strategic step of acquiring the balance 50% stake in the existing DDRC-SRL Diagnostics Private Limited JV (DDRC-SRLJV).

Balance 50% acquisition in the existing DDRC- SRL JV by SRL Limited

In April 2021, SRL completed this acquisition for a total purchase consideration of 350 Crores inclusive of the ownership of the DDRC brand. DDRC-SRL is an existing 50:50 JV in Kerala between the DDRC group and SRL Diagnostics Private Limited (a wholly owned subsidiary of SRL Limited). The JV has a string of diagnostic laboratories in the state of Kerala and commands the majority market share in the organised diagnostics segment in the state. The acquisition provides SRL Limited an opportunity to consolidate its leadership position in Kerala. It further complements its strategy of growing the B2C business segment and expanding the product portfolio comprising lifestyle diseases tests, specialised tests and preventive packages. The JV from Q1 FY 2021-22 would be entirely consolidated with SRL as against being shown as Share in Associate in FY 2020-21 and previously for SRLs 50% stake.

As we look forward, three key trends will define the rules of the Diagnostics Industry.

(1) Movement towards molecular pathology and genetic-based test. Molecular diagnostics enables understanding of diseases at a much earlier stage and facilitates understanding of gene pattern and detection of cell behaviour.

(2) Increasing digitisation in diagnostics across the value chain. Data analytics and artificial intelligence via machine learning helped in reducing the diagnosis time significantly in certain areas like cytogenetic, histopathology and radiology. Telepathology along other new technologies such as AI and data analytics will enable us to further improve testing and reach a wider patient base.

(3) Increasing accessibility in terms of both consumer touchpoints and technology. Consumers now have the convenience to use mobile apps and web platforms to book their tests, as well as the opportunity to get the samples collected at home via Home Collection. Similarly, on the technology front, POCT devices will play a crucial role in making diagnostics accessible in time crunch situations with better and affordable technologies. From Smart/ synoptic reports to the use of chatbot to reduce waiting time to the use of QR codes in reports to prevent fake reporting, numerous efforts are underway to make the customer journey smooth and hassle-free.

Retail Network Expansion: Continuing to leverage the B2C model, SRL is consistently expanding its footprints across India with over 425+ labs servicing over 2250+ customer touch points providing a wide bandwidth and reach. In FY 2020-21, SRL has added 498 Collection Centers.

Quality & Compliance: In FY 2020-21, SRL worked towards the continuation of all current accreditation status - NABL (42 Labs & 240 Collection Centre), CAP (3 Labs National/International), and NABH (1) as per their cycle of assessment. SRL performed annual quality audits (Onsite / Virtual) of all laboratories (SRL / SRL Reach & SRLD), Radiology, Wellness Centre (184), and Collection Centres (Nos. 1252).

COVID-19 presented SRL an opportunity to introduce more tests. New tests like NIPS (Non-lnvasive Prenatal Screening), CMA (Chromosomal Microarray), eFTS (Enhanced First Trimester Screening), COVID-19 by RTPCR, COVID-19 Antigen, COVID-19 Antibody IgG and Total, High-Resolution HLA, ABPA, Biofire based tests continued gained recognition from clinicians. SRL successfully launched new Panels- Hep Screen, PCOS Advance, Myositis Panel, Thrombotic Risk Screen, RTI Panels, Infection Recovery Package, CCC Package and preventive panel like Immunity check panel in FY 2020-21.

SRL, conducted more than 4500 health camps, in which approximately 1.7 Lakhs consumers / patients were screened for various lifestyle disorders. As part of ethical marketing, to disseminate information about new diagnostic modalities and algorithms, SRL engaged with over 5,300 specialists and super-specialist doctors in 106 CMEs (Continuous Medical Education) / RTMs(Round Table Meets) through Webinars and over 2,500 clinicians through 62 e-Maitri meets.

Information Technology: The last year has seen several initiatives being undertaken. Amongst the noticeable ones, the launch of a completely new mobile app (B2C) with not only a new and better UI, but also new features including Upload Prescription, Customer Receipt, Repeat Order, and Vitals Tracker. In addition to the above, WhatsApp for Business was also launched wherein customer reports are now sent on WhatsApp (other than email and link in SMS).

(C) Financial and Operational Performance of the Company - Consolidated Performance, Hospitals and Diagnostics business

The financial and operational performance of the Company was impacted during the FY 2020-21 due to the COVID-19 pandemic which started in February 2020 and the subsequent countrywide lockdown which started on March 24, 2020 for over two months. Further, the slow recovery of the overall business during the rest of the year also impacted the performance of the Company when compared with the previous financial year.

For FY 2020-21, the Company reported a consolidated net revenue from operations of 4,030 Crores compared to 4,632 Crores reported for the FY 2019-20. Revenue from Hospital business stood at 3,124 Crores compared to 3,753 Crores reported during the corresponding year. SRL Limited, the diagnostic business of the Company, reported gross revenues of 1,035 Crores compared to 1,016 Crores in the previous financial year. The business witnessed an uptick in H2FY21 as the non-COVID business saw a significant recovery and the COVID business saw a declining trend. Considering elimination of inter-Company revenue, net revenue of SRL Limited was at 906 Crores compared to 879 Crores in 2019-20.

Revenue (? Crores) FY 2019-20 FY 2020-21 % Change
Total Consolidated Income* 4,685 4,077 (12.9%)
Revenues from operations 4,632 4,030 (13.0%)
Hospital Business 3,753 3,124 (16.8%)
Diagnostic Business (Gross) 1,016 1,035 1.8%
Diagnostic Business (Net) 879 906 3.1%

(*Total consolidated income is net of inter-co elimination and includes other income of f 46.5 Crores in FY 2020-21 and f 52.6 Crores in FY 2019-20)

The consolidated EBITDA of the Company stood at 451 Crores compared to 662 Crores for the previous corresponding year. EBITDA margin of the Company stood at 11.2% in FY 2020-21 versus 14.3% reported in FY 2019-20. The hospital business EBITDA for the fiscal year 2020-21 was at 281 Crores compared to 476 Crores reported for the fiscal year 2019-20. EBITDA margin of the hospital business stood at 9.0% in FY 2020-21 versus 12.7% in FY 2019-20. Excluding one off expenses during the year, the EBITDA margin of the hospital business stood at 9.8% for the year 2020-21.

International patient revenues were impacted significantly during the year due to COVID-19 pandemic and countrywide lockdown. For the hospital business, international business for the year stood at 131 Crores representing 4.2% of overall hospital business revenue, compared to 398 Crores (10.6% of overall hospital business revenue) reported in the previous financial year. The diagnostic business of the Company witnessed gross revenues of 1,035 Crores compared to 1,016 Crores The business reported an EBITDA of 200 Crores compared to 197 Crores reported in the previous corresponding year. EBITDA margin of the diagnostic business stood at 19.3% (basis gross revenue) for the year FY 2020-21 compared to 19.4% in FY 2019-20. Considering the inter-Company elimination, diagnostic business net EBITDA was at 188 Crores (20.7% margin) versus 187 Crores (21.3% margin) reported in FY 2019-20. The diagnostic business which was impacted by COVID-19 pandemic during the first half of the financial year, however, witnessed significant recovery in the second half due to increase in demand

Key Performance Indicators FY 2019-20 FY 2020-21
(Hospital Business)
Occupancy 68% 55%
Average revenue per occupied 1.59 1.58
bed (? Crores)
Average length of stay (days) 3.23 3.61
OPD Footfalls (in Million) 2.54 1.74
IPD Discharges (in Million) 0.30 0.23

for Non COVID tests as well as COVID and COVID related tests.

The consolidated EBlTDAfortheCompanyat? 451 Crores in FY 2020-21 also accounts for the operational and finance / forex costs related to certain non-operational international entities.

EBITDA (? Crores) FY 2019-20 FY 2020-21 % Change
Group EBITDA 662 451 (31.9%)
EBITDA Margin 14.3% 11.2%
Hospital Business 476 281 (41.0 %)
EBITDA Margin 12.7% 9.0%
Diagnostic Business 197 200 1.5%
EBITDA Margin (basis gross revenue) 19.4% 19.3%
Key Performance Indicators (Diagnostics Business) FY 2019-20 FY 2020-21
Lab med revenue contribution 93.3% 93.9%
No of Accessions (in Million) 12.69 11.03
Average real. per accession (?) 796 933
Tests performed (in Million) 30.38 23.53
Average real. per test (?) 333 437

The Companys depreciation and amortisation charges for the year stood at 291 Crores similar to FY 2019-20. Interest and Finance Charges witnessed a decline of 19% to 166 Crores for the year as a result of lower borrowing costs in the COVID environment as well as due to reduction of debt.

At the consolidated level, the Company reported PBT (before exceptional items) of 42 Crores versus PBT of 178 Crores in the previous corresponding FY 2019-20.

Profit after tax for FY 2020-21 stood at a loss of 56 Crores compared to a profit of 91 Crores in the previous financial year.

With respect to the Balance Sheet as on March 31,2021, the Company maintained a comfortable liquidity position with a net debt of 849 Crores as on March 31, 2021 versus 1,004 Crores as of March 31, 2020 (net debt to equity of 0.13x vs 0.14x, respectively). Gross debt of the Company stood at 1,271 Crores as on March 31, 2021 versus 1,354 Crores as of March 31, 2020. The Companys Net Debt / EBITDA (annualised) stood at healthy 1.04x in Q4 FY 2020-21, down from 1.52x in FY 2019-20.

During FY 2020-21, the Company entered into an amendment agreement with the existing Private Equity investors in SRL Limited (holding 31.2%). As a result of the amendment agreement entered into, the cash exit option liability of the Company which was also a part of the original agreement will be in abeyance for a period of 3 years during which the Company will make efforts to provide an exit to the private equity investors as per the mechanisms defined in the agreement. Consequent to this, the cash exit option liability of the Company which was previously reflected as short-term liability has been reclassified as a long-term liability further strengthening the Balance Sheet of the Company.

(D) Human Resources 2020-21 was a year of global solidarity against COVID-19 pandemic. Our Company adopted a holistic approach, to manage not only the patients but our employees and their families.

The following aspects were institutionalised in quick succession to ensure safety for our employees.

Putting People First: We continued to hold our commitment to job security despite industry and world at large seeing resource optimisation. A number of special schemes were initiated for the vulnerable groups, with key ones being -

a) Additional medical insurance coverage of INR 2 lakhs for around 5,000 employees otherwise covered under ESI scheme.

b) Introduction of addition Term Life coverage for frontline Doctors, Nurses & Paramedic on Covid duty

c) Introduction of Work From Home rosters, including providing tools to work from home

d) Hardship incentive to frontline health staff on Covid duty

e) Establishing family connect with relatives of employees admitted in our hospitals

f) Taking care of hospitalization expenses over and above Mediclaim limits for our employees

g) free covid vaccination for our employees

h) Wellbeing programs by "Mental health" experts

Training on COVID medical protocols

MSOG led the extensive training / awareness programs on each aspect of COVID management protocols set by the Government of India. Additional best practices were researched and adopted at across all hospitals.

Leveraging various digital learning platforms curated & contextualised digital solutions, virtual / online training programs addressing the emerging skill requirements such as working remotely, tele sales, handling calls during COVID-19, enhancing productivity & professional skills were deployed.

In collaboration with Fortis Mental Health Department, self-care strategies & managing stress virtual training programs were conducted for frontline health care workers a cross Fortis, reinforced by self-care micro learning modules and online courses.

Cost Optimisation: HR led a voluntary salary reduction scheme which was subscribed by senior members of all employee groups especially clinicians and senior executives.

While the above COVID related activities were being managed, the other HR initiatives continued in a slightly scaled down manner. Hiring of critical resources, working on ongoing critical projects like Project Fusion, manpower norms, productivity benchmarks, HR functional audit, wage code impact analysis were some of the key things undertaken during last year. To strengthen culture of performance, the Balance Score Card framework has been deployed across units, translating in better integration of qualitative aspects in addition to financial parameters as organisation strategic intent.

As on March 31, 2021, the Company had a total employee base in the hospitals & the diagnostics business of approximately 21,700 employees.

(E) Internal Control Systems and their Adequacy

The internal control system has been designed to commensurate with the nature of business, size and complexity of operations and is monitored by the management to provide reasonable assurance on the achievement of objectives, effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

The Company has institutionalised a robust process and internal control system commensurate with its size and

The internal control framework is supplemented with an internal audit program that provides an independent view of the efficacy and effectiveness of the process and control environment and through its observations provides an input to the management to support continuous improvement program. The internal audit program is managed by an Internal Audit function directly reporting to the Audit Committee of the Board.

FORWARD LOOKING STATEMENT

Except for the historical information contained herein, statements in this discussion which contain words or phrases such as will, would, indicating, expected to etc., and similar expressions or variations of such expressions may constitute forward-looking statements. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to successfully implement our strategy, future business plans, our growth and expansion in business, the impact of any acquisitions, our financial capabilities, technological implementation and changes, the actual growth in demand for our products and services, cash flow projections, our exposure to market risks as well as other general risks applicable to the business or industry. The Company undertakes no obligation to update forward looking statements to reflect events or circumstances after the date thereof, except as may be required by law. These discussions and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.

References

• Impact of COVID-19 on the Medtech Industry by PwC

• Indias Budget 2021-22

• FICCI Re-engineering-lndian-Healthcare-2.0

• An Assessment of Indias Laboratory Diagnostic Industry - NATHEALTH

• IBEF, Healthcare Update, November 2020

• Goldman Sachs - India: Healthcare Services (Seeking the Specialist)

• Jefferies Equity Research

• Market Research, Equity and Other Reports, Web Articles, Press & Media Reports and Others