Fortis Malar Hospitals Ltd Management Discussions

SECTION I

Indian Healthcare Sector

A. Overview

The healthcare industry in India continues to play a crucial role in the nations economic framework, making substantial contributions to growth and employment across diverse sectors such as hospitals, medical devices, clinical trials, telemedicine, medical tourism, health insurance and medical equipment.

In recent years, the sector has witnessed remarkable expansion, driven by factors such as improved coverage, service quality enhancements and substantial investments from both public and private entities. Government initiatives aimed at increasing healthcare spending and enhancing infrastructure have further propelled the industrys growth trajectory.

B. Current Landscape and Key Highlights

In recent years, the Indian healthcare sector has witnessed several trends fostering its expansion, elevating it to become one of the nations largest service sectors.

Indias healthcare industry comprises hospitals, medical devices and equipment, pharmaceuticals, health insurance, clinical trials, telemedicine and medical tourism.

The industrys expansion can be attributed to several factors including an aging population, a growing middle class, an increasing prevalence of lifestyle diseases, increasing insurance penetration, public-private partnerships and the adoption of digital technologies like telemedicine.

C. Government Policies and Key Initiatives

The government continues to play a critical role in the sector with its focus on creation of facilities in rural India for primary healthcare and ensuring availability of diagnostics, funding medical insurance to the low- income population (through Ayushman Bharat), driving penetration of generic medicines (through Jan Aushadhi centers) as well as funding R&D in medical technologies and diagnostics in various labs and through Indian Council of Medical Research (ICMR).

D. Key Growth Drivers of the Indian Healthcare Industry

a. Government Policies to Improve Healthcare

Coverage: The long-term goal of the government is to raise its public healthcare spending to 2.5% of GDP by 2025 under the National Health policy 2017 from the current 2% of the GDP.

b. Continuing demand supply gap for quality healthcare services and healthcare infrastructure:

India currently has 1.3 hospital beds per 1,000 population. There is also a shortage of skilled health workers, with 0.65 physicians per 1,000 people (the World Health Organisation standard is 1 per 1,000 people) and 1.3 nurses per 1,000 people.

c. Opportunity from Medical Tourism:

The government has set a target of achieving $12 billion in revenue from medical tourism by 2026 and has initiated several efforts through the Heal in India program to establish India as a hub for medical tourism.

d. Growing Health Insurance Penetration: Health insurance coverage has increased from 17% in FY12 to ~38% in FY22. As per the Insurance Regulatory and Development Authority, more than 520 million people have health insurance coverage in India (FY22), as against 212 million in FY12, but despite this growth, the penetration in FY22 stood at only 38%.

Exclude Personal Accident and Travel Insurance Source: IRDA 2020-21 Annual Report

e. Increasing burden of Non-Communicable Diseases: Non-communicable diseases (NCDs) such as cancer, diabetes & chronic respiratory diseases, contribute to around 38 million (68%) of all the deaths globally and to about 5.9 million (60%) of all deaths in India. The majority of NCD deaths occur in low and middle-income countries such as India, which is undergoing an epidemiological health transition owing to rapid urbanization, which in turn has led to an overall economic rise, but with certain associated flipsides.

E. Digital Transformation Trends

Remote health and virtual care becoming mainstream. Telemedicine accounted for 30% of all patient visits during the pandemic, and digital health platform transactions increased by three times.

Increased Focus on Big Data & Analytics: Healthcare organisations are putting resources and investment into clinical data analytics for analysing patient data.

Growth of Al/ML and analytics: Al and advanced analytics is enabled by digitalisation, which makes it easier to analyze things like predictive analytics, telemedicine, precision medicine, population health analytics and so on.

Robotics in healthcare: Robots aid healthcare professionals in completing routine tasks more efficiently, freeing up their time to concentrate on other crucial duties.

E-Pharmacies: E-pharmacies in India will serve 70 million households by FY 25, according to the industry body FICCI, as internet use and digital awareness rise.

F. Future Outlook

Healthcare continues to sustain its significant role in the economy in the upcoming years, driven by anticipated policy changes, governments resolve to increase access to its citizens to affordable good quality healthcare and further innovations and investments.

Healthcare delivery in India is anticipated to be driven by technological advancement and the increasing adoption of digital health by both providers and patients. This transformation will be shaped by a change in mindset, advancements in technology, the development of infrastructure, government incentives and other factors.

Please note that the company as on February 1st, 2024, had divested its business operations to MGM Healthcare Private Limited. Further details are available in the company section and the Directors report.

SECTION II

A. About Fortis Malar limited

a. About the Company

Malar Hospital was established in 1992 and over the years became a household name for tertiary care hospital services in Chennai. During 2007-08, Fortis Healthcare Limited (FHL) acquired a majority stake in Malar Hospital Limited.

Your Company in November 2023 announced the signing of definitive agreements for the sale of its business operations to MGM Healthcare Private Limited, a prominent healthcare delivery service provider in Chennai, for a consideration of 45.72 Crores (including Positive Net Current Asset adjustment of 0.22 Crores). The Boards guidance and oversight, the said transaction was successfully consummated on February 01, 2024, as per the terms and conditions contained in the Business Transfer Agreement entered into with MGM Healthcare and the Company in November 2023. Consequently, Malar Hospital is now owned and managed by MGM Healthcare, and neither Fortis Malar Hospitals Limited, nor any entity within its group or affiliated companies, retains ownership or control over the management or operations of Malar Hospital.

Additionally, the OPD and radio diagnostic business operations, along with the land and building of Malar

Hospital and adjacent land parcels, were divested to MGM by two wholly-owned subsidiaries of our holding Company i.e. Fortis Health Management Limited (FHML) and Hospitalia Eastern Private Limited (HEPL).

B. Clinical Excellence

Clinical Outcomes are the globally agreed upon, evidence- based measurable changes in health or quality of life resulting from patient care. Reporting of outcomes and their continuous monitoring provides an opportunity for both assessing and improving the quality of patient health and care.

1. Fortis Malar Hospitals, one of the trusted healthcare service provider in Chennai, is the first hospital to implement and monitor clinical outcomes in Chennai. This initiative further strengthens our commitment to PATIENT CENTRICITY by striving towards continuous clinical excellence through improvement and enhancement of our clinical care services. Further, the introduction of Patient-Reported Outcomes Measurement [PROM] lends the voice of the patient to the entire process and helps enhance patient engagement and experience. Constant evaluation of our clinical outcomes against best available global standards motivates our medical workforce to continuously improve all aspects of our practice.

2. Fortis clinical outcomes are based on measurement of disease course and progression, quality of clinical care being provided, the success of the procedures/ interventions carried out, and actual benefit perceived by the patient.

3. Details of individual procedure outcomes as measured using internationally accepted parameters and criteria, and further validated by our clinical experts.

4. We at Fortis Malar continuously monitor and evaluate our outcomes for the following procedures and specialities

a) Coronary Artery Bypass Graft (CABG)

b) Percutaneous Transluminal Coronary Angioplasty (PTCA)

c) Kidney Transplant

d) Caesarean Section

e) Total Knee Replacement

C. Operational and Financial Performance

Ratio	FY 2024	FY 2023	Change %
Debtors Turnover (x)	37.06	31.93	16.07%
Inventory Turnover (x)	15.90	8.54	86.19%
Interest Coverage Ratio (x)	5.33	0.25	2051.91%
Current Ratio (x)	17.68	2.66	564.76%
Debt Equity Ratio (x)	-	0.72	(100.00%)
Operating Profit Margin (%)	(2.04%)	5.32%	(138.32%)
Net Profit Margin (%)	76.81%	(18.1%)	(526.45%)
Return on Net worth (%)	41.40%	(24.12%)	(271.63%)

D. Human Resource

The primary objective of any human resource management is to ensure the availability of competent and willing workforce to the organisation as well as to meet the needs, aspirations, values and dignity of individuals/employees and having due concern for the socio-economic problems of the community and the country.

During the year under review the Company divested its business operations and as such the employees were also transferred to MGM Healthcare. There is one employee on the payroll of the Company as on March 31, 2024.

E. Internal Control Systems and Their Adequacy

The internal control system at Fortis Malar has been designed to commensurate with the nature of business and complexity of operations. It 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 a well-established internal controls framework comprising a set of policies, procedures and systems, instrumental in enhancing the efficiency and effectiveness of business operations, reducing risks and costs, and improving decision-making and accountability. The financial controls are evaluated for operating effectiveness through managements ongoing monitoring and review process

The internal audit program is managed by an Internal Audit function directly reporting to the Audit & Risk Management 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. These discussions and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.

References

• Investment Opportunities in Indias Healthcare Sector, NITI Aayog

• IRDA Annual Report - 2020-21

• Anand Rathi Research Report, April 2024

• CRISIL Report, September 2023

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