Indraprastha Medical Corporation Ltd Management Discussions.

Healthcare is more than medicine and doctors—it is being aware of ones body and pursuing wellness. It means preventive medicine, health checks, and assured, equitable access to basic healthcare facilities. All of these in some measure, contribute to a better quality of life for a nations people.

Regardless of economic strata or geographical location, nothing is more important to a person than his health. For this reason, people interact with the local healthcare system in various ways and to differing degrees throughout ones life. Until recently healthcare consumers have interacted with the health system only when they were sick or injured. But the future of health is going to usher significant changes to that norm. It is going to focus on well-being and prevention rather than treatment. According to Deloitte Centre for Health Solutions, by 2040, more health spends will be devoted to sustaining well-being and preventing illness while less will be tied to treating illness. Greater emphasis on identifying health risks earlier will result in fewer and less severe diseases, which will reduce healthcare spending and allow the reinvestment of this well-being dividend towards expanding the benefits to the broader population.

The use of actionable health insights will be driven by interoperable data and smart AI. This will help identify illness early, enable proactive intervention and improve the understanding of disease progression. Technology will also help break down barriers such as cost and geography and democratize healthcare. Data and technology will empower the consumer to such an extent that the consumer rather than health plans or providers, will determine when, where, and with whom they will engage to sustain well-being or to seek care.

UNDERSTANDING INDIAS

HEALTHCARE SERVICES LANDSCAPE

Many studies have shown that health can be a leading factor that affects a countrys aggregate level of economic growth. A comparison of the basic health indicators clearly reveals that the developed nations of the world fare far better on healthcare provision and utilization, when compared to developing nations. The allocation of resources—money, infrastructure, people, education, and products, one of the biggest differences between developed and developing countries, is the main reason for this. Countries with low human development have made lower allocations to healthcare infrastructure and as a result, the sector as a whole remains largely untapped and neglected. The primary challenge then for a developing country today, is ensuring universal healthcare — how can access to healthcare be improved, both in terms of reach and affordability; how can the needs of the vulnerable and under-privileged populations be addressed rather than overlooked?

Indias basic and limited healthcare infrastructure is starkly inadequate for meeting the demands of her large and diverse population. The unmet opportunity combined with strong fundamentals in the market, has led to the emergence of private healthcare service providers, giving a fillip to the countrys healthcare system. Today, India has one of the largest private health sectors in the world, mainly because the countrys Public Healthcare facilities have neither been able to meet the needs of the population adequately nor reach the interiors of the country. Additionally, several of these facilities are understaffed, poorly equipped in terms of basic infrastructure and equipment, and severely lack even basic quality standards. In contrast, private healthcare institutions provide world class facilities, employ highly skilled and globally recognized professionals, leverage advanced technology in treatments, and maintain high standards of quality. Admittedly, this is a phenomenon in the Tier I urban areas of the country, but nevertheless, the private sector has done a commendable job in creating these pockets of excellence while simultaneously generating significant value. The enduring success of the early movers has encouraged the emergence of multiple players in this space and spawned industry diversification and in-depth specialization. The Indian healthcare industry has today become a preferred sector for strategic and financial investments.

Private sector players occupy a major share of nearly 80% of the countrys total healthcare market. They also account for almost 74% of the countrys total healthcare expenditure. Their share in hospitals alone is estimated at 74% while the share of hospital beds is estimated at 40%.

Some other important Government of Indias initiatives in healthcare sector can be summed up as below:

Based on the success and breadth of services offered by the private sector hospitals, rural populations are increasingly seeking care from this sector. Of all the levels of care mentioned in the chart below, treatment by a private doctor/clinic is the single most important point of contact for treatment of ailments for rural areas (50.7%) and urban areas (49.3%). This is followed by treatments at private hospitals, public hospitals and Health Sub Centres (HSC) , Primary Health Centres (PHC) & others.

Note: Public sector includes HSCs, PHCs & others*, and public hospitals. Private sector includes private doctors/clinics and hospitals.

* Others include Auxillary Nurse Midwives (ANM), Accredited Social Health Activists (ASHA), Anganwadi Workers (AWW), Dispensaries, Continuing Health Care (CHC), and Mobile Medical Units (MMU)

GOVERNMENT INITIATIVES THAT SUPPORT SECTIONAL GROWTH

It is important to mention that the Countrys healthcare sector is strongly supported by the Indian Government which has been undertaking commendable work to develop India as a global healthcare hub. The Government has a goal of raising its healthcare spending to 2.5% of GDP from the current level of 1.1% of the GDP by 2025 under the National Health Policy 2017.

Over the years, several initiatives to drive the growth of the healthcare sector in the country have been yielding positive results. These initiatives have gone a long way in not only improving the overall healthcare access for the general population but have also enhanced the quality of healthcare in the country.

Some important healthcare initiatives undertaken in the Union Budget 2019-20 are as follows:

1. The allocation to the Ministry of Health and Family Welfare has increased by 16.28% year-on-year to USD 8.51 billion.

2. The Government of India has allocated a sum of USD 4.40 billion under the National Health Mission.

3. The Government has announced setting up of 24 new Government medical colleges and hospitals by upgrading existing district hospitals in the country.

4. The Ayushman Bharat - Pradhan Mantri Yojana (PMJAY), the largest Government funded healthcare programme targeting more than 500 million beneficiaries, has been allocated a sum of USD 887.04 million.

Additionally, the Government of India has launched a registry with standardized, authentic and updated geospatial data of all public and private healthcare facilities called the National Health Resource Repository (NHRR) in June 2018.

India had bilateral trade relations with 53 countries in the healthcare sector, as of August 2018. These relationships will potentially encourage joint initiatives in health manpower development, training, exchange of experts, exchange of information, capacity building, and technical support in establishing laboratories/hospitals and research.

GROWING MARKET SIZE

As per a report from the Ministry of Commerce and Industry, the Indian healthcare sector, which stood at a size of USD 110 billion in 2016, is expected to reach a size of over USD 372 billion by 2022, registering a CAGR of 22%. The hospital industry in India stood at USD 61.79 billion in 2017 and is expected to increase at a 16-17% CAGR to reach a size of USD 132.84 billion by 2023. The Country ranks 145 among 195 countries in terms of quality and accessibility of healthcare. These statistics indicate that there is tremendous scope for enhancing healthcare services penetration in India and ample opportunity for the development of the healthcare industry as a whole. Conducive policies for encouraging FDI, tax benefits, and favourable Government policies coupled with promising growth prospects are helping the industry attract private equity, venture capital and foreign players. Today, Indian companies are entering into alliances with domestic and foreign companies to drive growth and gain new markets. Going ahead, strong fundamental factors such as rising income levels, ageing population, growing health awareness and changing attitude towards preventive healthcare are expected to boost healthcare services demand.

The Indian healthcare sector was ranked as the 4th largest employer with a total employee base of 319,780 people in FY17. By 2020, the sector is expected to generate 40 million jobs in India. The Country is also expected to rank amongst the top 3 healthcare markets in terms of incremental growth by 2020.

THE HEALTHCARE SERVICE DELIVERY LANDSCAPE IN INDIA

The Healthcare sector in India broadly includes Hospitals, Pharmaceutical Companies & Standalone Pharmacies, Diagnostic Services, Medical Equipment and Supplies, Medical Insurance, Telemedicine Companies, Medical Tourism and Retail Healthcare.

STRUCTURE OF HEALTHCARE DELIVERY LANDSCAPE IN INDIA

The Healthcare sector is primarily divided into three categories: primary, secondary and tertiary. The primary sector which mainly operates at the grass-root level has minimal involvement of private players. However, a major portion of the secondary and tertiary healthcare institutions which are concentrated in the metros, Tier II and Tier I cities, are run by the private sector.

HOW DOES INDIAS HEALTHCARE INFRASTRUCTURE COMPARE WITH GLOBAL BENCHMARKS?

The Government of Indias expenditure on healthcare stood at 1.5% of GDP in FY17. In comparison to other countries, this figure not only falls behind those of developed countries such as the US and UK, but also developing countries such as Brazil and Malaysia

Economically weaker States in India are particularly susceptible to low public health investments. The continued disparity of healthcare spends between urban and rural areas has resulted in sharp disparity in healthcare availability across the country. The Government of India is planning to increase public health spending to 2.5% of the Countrys GDP by 2025.

With improving life expectancy, the demography of the country is also witnessing a change. As of 2011, nearly 8% of the Indian population was aged 60 years or more, and this is expected to surge to 12.5% by 2026. However, the availability of a documented knowledge base concerning the healthcare needs of the elderly (aged 60 years or more) continues to remain a challenge, although the higher vulnerability of this age group to health-related issues is an accepted fact.

Even though the Country is witnessing a rapid expansion in the healthcare sector, the shortage of medical workforce remains a big challenge.

As per World Health Statistics primary data 2007-2016, the density of physicians per 1,000 population for India stands at 0.8 which is very low compared to the number for USA that stands at 2.6. As per the National Health Profile 2018, India has a density of 30.2 skilled health professionals (physicians/nurses/midwives) per 10,000 population and the Sustainable Development Goal (SDG) target is a density of 44.5 per 10,000 population. To achieve the ratio reported by the USA with respect to the density of physicians, India will require an addition of around 24.4 lakh physicians in the country.

Additionally, hospital bed density in India is merely 0.9 per 1,000 persons, while the minimum advocated by the WHO is 3.5 beds per 1000 people. It is estimated that an additional 3 million beds will be needed to achieve the target of 3 beds per 1,000 people by 2025. These statistics indicate the alarming healthcare infrastructure gap in the country and the tremendous growth potential of the Indian healthcare industry for the country to progress towards the global mean.

FORCES OF CHANGE AND POTENTIAL GROWTH DRIVERS IN INDIA

Strong fundamentals inherent to the sector are expected to accelerate further growth of healthcare demand in India. The industry in India is broadly characterized by the following:

According to the Report on Status of Elderly in Select States of India 2011, published by the United Nations Population Fund (UNFPA) in November 2012, chronic ailments such as arthritis, hypertension, diabetes, asthma, and heart diseases were commonplace among the elderly, with ~66% of the respective population reporting at least one of these. In terms of gender-based tendencies, while men were more likely to suffer from heart, renal and skin diseases, women showed higher tendencies of contracting arthritis, hypertension, and osteoporosis.

With the Indian population expected to grow to ~1.44 billion by 2023 and considering the above mentioned factors, the need to ensure access to healthcare services for this vast populace is an imperative. This provides an attractive opportunity to expand into a sector with huge potential for growth.

Rising per capita income and widening of income inequalities

According to the IMF, the Indian economy is poised to be one of the top five economies by 2020, following robust GDP growth supported by a strong industry base. The last decade has witnessed remarkable economic development with rise in per capita income which has paved the way for increasing demand of healthcare services and access to better healthcare facilities. However, even as India continues to develop, the difference in earnings is giving rise to wide levels of inequality. The people in the various income slab categories fall into unique baskets typified by varying healthcare needs. Each of these presents a market in terms of the addressable value proposition. The growth in the affordable segment of population, on account of rising income levels, supports the need for quality medical care that comes at a relatively higher price. Growth in household incomes, and consequently, disposable incomes, is, therefore, critical to the overall growth in demand for healthcare delivery services in India. The share of households falling in the income bracket above Rs 2 lakhs is expected to go up to 35% in 2021-22 from 23% in 2016-17, providing a potential target segment (with more paying capacity) for hospitals.

Under-Served, Under-Consumed

The healthcare service delivery landscape demonstrates a lag with regard to accessibility and geographical reach in meeting the requirements of the nations 1.3 billion people, almost 70 percent of who, live in rural areas. Public health care institutions —ranging from primary health centers that form the backbone of the system in rural areas to larger district-level hospitals are hampered by a lack of manpower and inadequate resources such as diagnostics, pathology services and stock-outs.

In terms of global comparison, with only 1 bed per 1,050 population, versus a global average of approximately 2.9 beds per 1,000 population, the current hospital infrastructure in India is woefully inadequate. Approximately 1.7 million beds have to be added by 2025 to meet the rising demand

and address the current shortage. A combination of unaffordability and minimum access to healthcare facilities, especially for the under privileged people belonging to the lower strata of society has led to a massive under consumption of healthcare services in the country.

Transition in disease profile

As opposed to the decreasing rate in communicable diseases, lifestyle-related illnesses or non-communicable diseases (NCDs) have been increasing rapidly in India over the last few years. The contribution of NCDs to the total disease profile has risen from 30% in 1990 to 55% in 2016. Statistics show that these illnesses accounted for nearly 62% of all deaths in India in 2016. As per the World Economic Forum, the world will lose nearly 30 trillion USD by 2030 for NCD treatments and Indias share of this burden will be 5.4 trillion USD.

The contribution of a group of risks towards this disease burden —unhealthy diet, high blood pressure, high blood sugar, high cholesterol and obesity, which mainly cause ischemic heart disease, stroke and diabetes — has risen to nearly 25% in 2016. Although the combination of these risks was highest for states like Punjab, Tamil Nadu, Kerala, Andhra Pradesh and Maharashtra, it has increased in all other states as well. There were 380 lakh cases of cardiovascular diseases (CVDs) in 2005; this rose to nearly 641 lakh cases in 2015.

CRISIL Research believes that NCDs exhibit a tendency to increase in tandem with rising income levels. WHO projects an increasing trend in NCDs by 2030, following which CRISIL has forecast rising demand for healthcare services associated with lifestyle-related diseases such as cardiac ailments, cancer and diabetes. Another emerging market in the country is orthopaedics, which currently comprises a very small proportion as compared with NCDs. The orthopaedics market can be classified into four different segments, viz., knee, hip, trauma, and spine, of which the knee replacement market holds the biggest share, followed by trauma and spine. Contrary to other countries, hip replacement in India is still a very small segment as compared to knee replacements.

Health Infrastructure is skewed towards urban areas

Healthcare infrastructure is very asymmetric between rural and urban India. The current healthcare facilities in Tier II and Tier III cities still remain far behind in comparison to urban areas with many rural areas lacking even basic amenities. Rural infrastructure has largely been supported by public health facilities which are ill equipped to deal with the massive need for healthcare access. The concentrated healthcare facilities in urban areas are not so easily accessible for most of the people living in rural and remote areas of the country.

Low per capita income, low expenditure on healthcare, and low number of doctors coupled with poor insurance penetration in rural areas are reasons for the vast disparity in offerings when compared with urban and semi-urban areas. Apart from these issues, drinking water facilities, nutritional intake, sanitation facilities, awareness about diseases, etc. are also important factors that influence the health of a person. Urban areas are believed to have a better score on these parameters. Today, there exists a substantial demand for high-quality and specialist healthcare services in Tier-II & Tier-III cities.

Changing Nature of Cities and Towns

Earlier, patients travelled from various parts of the country to well-known healthcare centres, usually concentrated in pockets within key urban cities, to access services. Even within the same city, some facilities would be more popular with patients. With cities and metros quickly increasing in size and numbers, large standalone multispecialty hospitals are being overlooked by residents in favour of neighbourhood facilities as they offer easier travel options and other conveniences. These centres are also less intimidating to consumers and require lower capital to set up. Economic migration has numbed the traditional doctor-patient dynamic. Patients are therefore increasingly found to be accessing healthcare services which are conveniently located near their homes.

Increasing health awareness to boost hospitalisation rate

Although a majority of healthcare enterprises in India are concentrated in urban areas, increasing migration of the people from rural to urban areas, has heightened awareness about the availability of healthcare services for both preventive and curative care. This is bound to increase further. CRISIL Research, therefore, believes that hospitalisation rate for in-patient treatment as well as "walk-in" out-patients will surge with growing urbanization and increasing literacy.

Scaling up of Medical Value Travel (MVT)

MVT is a burgeoning multi-billion dollar industry and likely to grow further due to the many benets offered to patients. India has emerged as a pre-eminent destination for medical tourism and is one of the major hubs in the world (along with Thailand, Singapore, Malaysia and South Korea). A rare combination of world-class hospitals, equipped with

best-in-class technology, skilled medical professionals, low treatment costs, and process improvements like e-medical visa, have made India a preferred destination for medical tourism. Treatments that are most in demand include heart surgeries, knee implants, cosmetic surgeries and dental care—all of which are largely driven by the private sector. India had 38 JCI accredited hospitals in 2018, and witnessed close to 5,00,000 medical value travellers in 2017. Nearly 95% of the medical tourists are from countries in Africa, West Asia and South Asia. However, numbers from countries like the UK and Canada are also steadily increasing because of high costs and long waiting periods for treatment in these countries.

The Government estimates that the size of the medical tourism market would be around 9 billion USD by 2020 amounting to 20% of the global share; up from a size of 3 billion USD in 2015.

Country-wise cost of ailments

Treatment USA US$ Korea US$ Singapore US$ Thailand US$ India US$
Hip Replacement 50,000 14,120 12,000 7,879 7000
Knee Replacement 50,000 19,800 13,000 12,297 6,200
Heart Bypass 1,44,000 28,900 18,500 15,121 5,200
Angiopiasty 57,000 15,200 13,000 3,788 3,300
Heart Valve Replacement 170,000 43,500 12,500 21,212 5,500
Dental Implant 2,800 4,200 1,500 3,636 1,000

Source: CRISIL Research

The Government of India has undertaken several initiatives to support medical tourism which in turn is enhancing Indias image as a preferred destination for medical tourists. For e.g. the e-Visa facility now covers practically all the countries of the world (166 countries). E-Medical visa facility for the attendant has also been introduced. Further process simplifications will strengthen Indias position as an attractive destination for medical travellers.

As a unique value proposition, India offers holistic healthcare options including Yoga, Meditation, Ayurveda, and other traditional methods of treatment. These treatments have been popular with medical tourists from European Nations and the Middle East. With a view of promoting holistic treatments like Ayurveda, Yoga, and AYUSH at an international level, the Government of India has allocated 923.10 million (US$ 12.79 million) in the 2019-20 budget towards various initiatives. It has also allowed 100% FDI in the AYUSH sector for the pursuit of wellness and medical tourism. An integrated approach to Medical Value Travel will boost Indias share in this sector.

Rising investments in the indian Healthcare space Today, it is not only important for India to increase its healthcare expenditure but also undertake serious initiatives to build up its health infrastructure and health human resource. Foreign investments in the healthcare space go a long way in strengthening healthcare infrastructure.

Over the past few years, Indian healthcare funding has witnessed a dynamic growth by venture capitalists and private equity funds. Foreign investors have been playing a significant role in the development of the healthcare sectors. These multinational players have been trying to deepen their presence through partnerships and investments. These trends indicate rising investor confidence in the Indian healthcare space and deepen the perception of India as an attractive healthcare investment destination.

FDI in the health care sector has gathered momentum in recent years. During April 2000-December 2018, FDI inflows into the drugs and pharmaceuticals sector stood at a figure of USD 15.93 billion. Demand growth, cost advantages and policy support have played a very important role in attracting FDI in the healthcare sector.

RETAIL HEALTHCARE

The philosophy of ‘Retail Healthcare is to meet the consumers healthcare needs right where they are. Convenience has been playing a key role in the decision making process while selecting a healthcare provider. Increasingly, consumers are choosing proximity over distance, opting for reduced waiting time, same-day scheduling and extended opening hours (including weekends). Therefore, locating services in a retail setting within a neighbourhood has become very popular.

These changing consumer preferences and the increased use of technology have successfully spearheaded the transition to retail healthcare. Retail Healthcare begins with a focus on preventive health and extends to the treatment of low complexity cases. The key aim of Retail Healthcare is to provide several quality services at lower costs in convenient settings. The growing mindset of people to maintain good health and stay medically fit, demands a seamless healthcare delivery format to treat minor illnesses within a relaxed environment when compared to a hospital.

Consumers have made it clear that they are looking for convenience and flexibility, and healthcare providers can offer these by designing locally relevant spaces that are tailored to specific needs. The spaces should primarily focus on vaccination, patient education, information sharing, specimen collection and reports, wound dressing and aftercare, injections and tele-consultations. The Retail Healthcare business includes Primary Care Clinics, specialized birthing centers, single specialty clinics, primary health centers and diagnostic chains, apart from Dental, Daycare and Home Healthcare formats.

Globally, Retail healthcare has grown substantially over the last decade. All the verticals under the Retail Healthcare umbrella are emerging as a significant opportunity in the healthcare landscape and providing sizable untapped avenues which will further drive penetration of Indian healthcare service providers into local communities and neighbourhoods. The retail healthcare delivery system supports the service provider for providing cost-effective and quality services to consumers.

Single specialty healthcare centers operating under the Retail Healthcare delivery format have already experienced growing popularity over the past few years in India. The segment now includes multiple treatment categories in areas such as fertility, maternity, ophthalmology, dental health, dialysis and diabetic care.

STRENGTHS

Strong brand position; Widely acknowledged as leader

For nearly 25 years, Indraprastha Apollo Hospitals has built and sustained a strong leadership brand position. The hospital is widely considered as amongst the top heath institutions for its superior outcomes and processes. This position is largely due to the pioneering spirit which is exemplified in its effort to be at the cutting edge of clinical protocols and technology. The reputation and trust built by the group is a strong asset, and continues to help the group attract large numbers of patients, as well as the most talented clinicians and staff.

Extensive Reach

Indraprastha Apollo Hospitals is and integrated health services provider with over 50 specialities delivering quality care. The repute of the hospital ensures patients from across India and overseas come to it for high end tertiary health services.. The company has also established newer delivery models such as home care, to complete the continuum of care value proposition.

Resilient business model

Indraprastha Apollo Hospitals has consistently delivered encouraging operating and financial results, and returns to shareholders.The operating excellence of the hospital also gives it strength to transition over periods of regulatory headwinds, without compromising on shareholder value.

Deep technological expertise

Indraprastha Apollo Hospitals has been the frontrunner in adopting new technology for its medical procedures. The hospital invests in cutting edge technology to enhance treatment procedures, reduce recovery time and enhance healthcare outcomes.

Top clinical talent and professional Management team

Over 400 experienced clinicians, trained nursing and allied health staff and a strong managerial bandwidth, Indraprastha Apollo Hospitals commitment to excellence and exemplify by its #PatientFirst approach. The hospital continues to be a preferred employer, and is able to attract and retain top talent, both clinical and professional, from India and abroad. The hospitals Senior Management team comprises proficient professionals with rich industry experience and a proven track record.

Capacitised for Growth

Over the last 5 years, the hospital has invested in growing its assets and infrastructure. Also, with an ongoing focus on reducing the length of hospital stays, the Hospital will be able to utilise existing assets at much faster turns.

weaknesses

capital Intensive

The sector is very capital intensive. Land, building, medical equipment etc., require heavy investments along with high operating costs. This creates a significant barrier to entry and expansion, and is one of the key reasons why bed density continues to lag requirements. It is critical that the sector is recognised as a National Priority Sector, and sufficiently incentivised to expand for improving access.

Heavy regulatory burden

Healthcare as a sector, is heavily regulated. While traditionally, regulations have focused on licensing and approvals, recently, the Government has also begun regulating prices of drugs and consumables. While the intent to make healthcare more affordable is laudable, it is important to ensure that healthcare providers are able to remain financially sustainable in the long-term.

shortage of experienced doctors and skilled professionals

The healthcare industry requires skilled professionals. The quality of doctors and support healthcare professionals is crucial for ensuring high standards of healthcare delivery. Skilled professionals in the healthcare industry enjoy attractive opportunities in India and are in demand in overseas markets as well. In spite of having some of the best educational institutions in the country, gaps in medical education in India are significant. This has resulted in sub-optimal numbers of qualified healthcare professionals and a lacuna in skilled manpower including doctors, nurses and para-medical staff. Intense competitiveness amongst healthcare providers in urban areas has led to unsustainable increases in remuneration for qualified personnel. The shortage of skilled professionals is a potential show stopper for ensuring growth of the sector.

Heterogeneous Markets

With our increasing population, the need for quality healthcare services in India is high. However, these requirements are defined by the unique characteristics of local markets — demographics, disease profiles, customer attitudes, seasonal variations, price sensitivity and so on. Even hospitals in two different cities in the same state or hospitals in the same city and in its suburbs will operate under different sets of parameters. Due to the complexities involved, significant management oversight is required in sustaining clinical standards, balancing case mix, ensuring adequate volumes and upgrading technology regularly.

Opportunities changing Demographics

Indias twin demographic pattern of significant growth in the number of young and old people, presents an opportunity to serve the healthcare expectations of the young, while attending to the increasing healthcare requirements of the elderly. Alongside, the country is witnessing sharp increases in disposable income for several groups, including a burgeoning middle class, who can afford to pay for quality healthcare. This presents an exciting opportunity for growth to service providers.

Twin Disease Burden

The rise of Non-Communicable Diseases, and their contribution to the countrys disease burden presents an important opportunity to healthcare providers. Lifestyle diseases such as Cardiac ailments, diabetes, hypertension, cancer and orthopaedic ailments will drive the need for curative care. The burden of communicable diseases will also continue to be an area of focus, as provision of water, sanitation and nutrition for all citizens is yet to be satisfactorily accomplished.

Medical Value Travel

India has been a prominent destination for medical value travel. The country is well-known for delivering clinical outcomes of world-class standards, at less than one-tenth of the international cost. Indian doctors are recognised for their competence and expertise, and the quality service they provide. The countrys unique value proposition of integrated healing, using alternative forms such as Yoga and Ayurveda, presents ample scope for India to become the leading global destination for healing.

High Number of Under-Served and Poorly-Served Markets

There is a visible disparity in the availability and quality of healthcare between metro cities and urban areas compared to rural and secluded areas in the country. Access to health services is critical for good health, but our rural population faces various barriers to access. Even citizens with the means to pay for quality healthcare are compelled to travel to urban areas to access them. There is an opportunity for healthcare providers to explore newer (e.g. telemedicine) or leaner business models which will enhance access and affordability in more of the poorly-served markets.

Changing consumer preferences

The general notion is that hospitals tend to be intimidating to patients, especially those with relatively simple ailments who do not need the acute care facilities of a large hospital. They seem to respond better in a relaxed atmosphere. Healthcare providers have responded to this need, by providing a variety of options such as short stay centres, single specialty centers, neighbourhood clinics, and home services. These healthcare delivery formats are economically attractive as they require lower capital investment, achieve faster breakeven and deliver a better return profile.

Preventive Health and wellness

Health awareness is on an increased trajectory across the country. More and more people are personally aware of the state of their health, and are willing to invest time, money and efforts for improving it and in preventing critical illness. This awareness has led to a promising opportunity in the areas of preventive health and wellness, encompassing preventive health checks, diet and nutrition, exercise and well-being.

Enhanced access and lower cost of delivery through digital solutions

The growth of technology in recent decades has opened up possibilities for lowering cost of delivery, and increasing healthcare penetration, by leveraging digital solutions and telemedicine. These solutions will be most effective in expanding access to rural and far-flung areas, and in delivering the first level of care without necessitating long trips to urban centres. Public-private partnerships are also expanding in this area.

Threats Rising costs

Input costs in healthcare are rising. Minimum wage revisions are underway in several categories of manpower; real estate continues to inflate; and import costs of equipment and consumables are high. Increased competition has also meant that compensation expectations for skilled manpower is very high. In light of the Governments thrust to reduce prices through regulation, there is a real threat of hospital finances being rendered unviable.

Heightened competitive Intensity

Competitive intensity and presence has increased, especially in key markets in the country. There are even pockets of over-capacity. Every market player, whether from the organized or the unorganized sector, is striving for market leadership. This could lead to cut-throat competition and unfair practices for survival.

shortage of skilled Manpower

There is an acute shortage of skilled healthcare resources across the board. At 8 physicians and 12 nursing personnel per 10,000 population, India alarmingly trails the global median of 14 physicians and 29 nursing personnel. We also lag behind other developing nations like Brazil on these parameters. Unless immediate steps are taken to increase the number of doctors, nurses and paramedics, the shortage of manpower will lead to prohibitive costs and derail the delivery of healthcare services.

Price Regulation

The intrinsic value of a service is more than just the cost of inputs. Any attempt to regulate the prices of healthcare inputs without addressing and providing for the comprehensive costs of providing quality services, will cripple the sectors finances, and compromise quality of care.

WHATS AHEAD. BUILDING THE HEALTHCARE SYSTEM OF THE FUTURE

Quality, outcomes, and value, are the watchwords for health care in the 21st century. Sector stakeholders around the globe are looking for innovative, cost-effective ways to deliver patient-centered, technology-enabled "smart" care, both inside and outside hospital walls. Independently and collectively, health care stakeholders are likely to face a number of existing and emerging challenges in this journey.

Creating a positive margin in an uncertain and changing health economy:

For sustained success, healthcare providers will need to increase system efficiencies beyond what is needed to be profitable. Long-term sustainability will require a fundamental transformation of the way healthcare services are organized and delivered. Consolidating where appropriate and looking for synergies across the system can improve efficiency. A strategy to diversify beyond the core hospital set up will also be key, by investing in outpatient services, step-down care, urgent care, etc. Another important aspect will be to improve revenue cycle management, and leverage scale by reducing the number of supply chain vendors.

Strategically moving from volume to value

Healthcare is continuing its transition from fee-for- service (FFS) reimbursement to outcomes, and value-healthcare in 2030 will be A world apart from what we have now.based payment models. While traditional payment systems have focused on volume based payments to physicians, future models envisage maximising the value of healthcare delivered by standardized protocols, transparent information sharing, investment in clinical integration and alignment of incentives.

Engaging with Empowered consumers

The very definition of the word "patient" has a notion of dependency on the doctors or the health care providers for the person undergoing treatment. The doctor-patient relationship is critical for patients as they rely on the physicians competence, skills and goodwill. Hence, for long, there has been a supply-side dominance in health care, which has defined the way health care systems have evolved and care provided. The nature of this relationship is slowly but surely undergoing a transformation — India is witnessing the emergence of the empowered consumer, who is well-informed and aware of the choices and options available to them. Surveys and research show that Indians want to act as an equal partner in shared clinical decision making; they want to become more health literate, and are increasingly keen on managing their own health. In order to meet the expectations of this new class of consumers, healthcare providers will need to embrace a new paradigm of Consumer Centricity,

which focuses on empathy, transparency, clarity in communication and ease of access and convenience.

Focus on health, not sickness

75% of all health costs derive from preventable conditions. It is now the growing belief that the core purpose of any healthcare system is not only to provide treatment to the sick but also to promote health and well-being. Globally, the needle is moving from treatment to prevention as health care costs continue to escalate, and governments, health systems, health plans, and other stakeholders understand that it makes clinical and financial sense to invest in keeping individuals and populations healthy. Value-based payment models that reward health systems for improved quality and outcomes have the potential to enhance margins and reduce total cost of care. Therefore, there is a need to focus on promoting the adoption of healthy behaviour among individuals, through a combination of levers including m-Health, wearables, use of social networks and peer groups, programmes to drive diet, exercise and adherence to therapy, as well as economic incentives to reward desired behaviour.

Investing in exponential technologies to reduce costs, increase access, and improve care

Exponential technologies are helping to drive transformational change in healthcare by making care delivery less expensive, more efficient, and more accessible. For example, beginning in 1999, scientists spent five months and approximately USD $300 million to generate the first initial "draft" of a human genome sequence. The cost to do that now is less than USD $1,000, and could eventually drop to less than USD $1. In coming years, exponential technologies have the potential to dramatically disrupt systems and processes that have historically defined the industry. Synthetic biology, 3D printing and nano-technology, Genomics and proteomics, blockchain, gig economy, additive manufacturing, artificial intelligence, data democratization, ambient computing, and bio sensors, are all areas with tremendous potential.

Shaping the workforce of the future

Health care workforce challenges are being felt across more and more countries. Staffing shortages are evident in a number of hospital specialties (emergency medicine and geriatrics) and in general practice; there are also growing nursing shortages across both health and social care. Compounding the problem is a scarcity of leaders who can guide and support the transformation of organizations to become patient-centric, insight-driven, and value-focused. The future of work is likely to be powered by technology advancements and an augmented workforce that combines people and machines to get things done in a way thats not only more productive, but also more rewarding. When planning for the future of work, health care organizations will need to assess the trajectory of specific jobs and workflows, evaluate the mix of factors that combine to operate those jobs and processes, and determine how they can be re-envisioned through enabling technologies and new talent models.

COMPANY OVERVIEW

Excellence in Operations

Indraprastha Apollo Hospital offers international standard medical care in New Delhi, delivering multi specialties under one roof. The hospital offers world class treatment at an affordable cost, focusing on specific areas where it can optimize efforts and values. Transplants, cardiology, oncology, neurology and orthopedic with higher revenue prospects are some of the key specialties.

Apart from these specialties, the hospital has been able to deliver outstanding clinical outcomes in some critical cases and emergences.

Infection Control and Environment

The Infection Prevention and Control Program, has been an integral part of the organization since its inception. Catering to and synchronizing with the global and national needs, the program focusses on decreasing preventable Health Care Associated Infections to a minimum, and supports a robust Antimicrobial Stewardship Program aimed at judicious use of antimicrobials. Like previous years this year also witnessed various campaigns focused on infection-prevention measures and towards Antimicrobial stewardship ( AMS). Besides strict vigilance of highly restricted antimicrobials which are not allowed to be issued by the pharmacy without clearance from Infection Control, early and accurate diagnosis of infections, focus on appropriate prophylaxis, prohibition of antimicrobials without high impact scientific evidence from our hospital formulary, are some of the measures instituted in this direction. Periodic review of antimicrobial guidelines is carried out. A new program addressing the community awareness on AMS, is also being incorporated.

Continuous efforts are made towards an increase in Hand-hygiene through innovative tools so as to spread the message not only hospital-wide but across other medical institutions and to involve the community also in this most important hygiene aspect.

Through implementation of ‘bundles (of measures) and various campaigns as above, our healthcare indices currently stand 0.71, 1.01 and 1.00 respectively per 1000 device days for central-line associated bloodstream infections (CLABSI), ventilator associated pneumonia (VAP) and catheter associated urinary tract infections (CAUTI) and are comparable to the best healthcare centers, globally.

Indraprastha Apollo Hospitals also has the privilege of being the current secretariat for the Hospital Infection Society - India. There is active representation in various important expert committees in the Bureau of Indian Standards including Biomedical Waste and Infection Control Committee, the Antimicrobials Resistance (AMR) Containment Program of MOHFW, Government of India, The Patient Safety Program of Government of India and AMR Containment program of Government of NCT of Delhi and various other programs of WHO-WR for India in healthcare associated infection prevention and control, as well as antimicrobial resistance containment.

Awards and Accolades

The Hospital received a number of accolades during the year under review. The Hospital Management Asia (HMA) recognizes and honours hospitals in Asia that carry out best practices in hospital management. This year, your hospital won the Gold Award for "Compassion Courage Hope - Rebuilding Livelihood" in the Community Involvement Category and "Uberization of Patient Transportation" in the Mobile and Online Services. The hospital also won Excellence Award in P2P (From Panic to Peace) Clinical Alarm safety Campaign in the Facility Management & Financial Improvement category and Apollo Ring of Care under Hospital CEO of the year category.

The hospital has also won AHPI Healthcare Excellence Award 2019 in Nursing Excellence and Quality beyond Accreditation. The Hospital has also won Best Hospital in Facility Management & Hospitality in 9th MT India Healthcare Awards 2019.

RISKS AND CONCERNS

Given increase in operations, our organization is exposed to a wider range of risks and uncertainties. These internal and external factors may affect achievements of the organizations objectives - whether they are strategic, operational or financial.

Indraprastha Apollo Hospitals operates in a business environment that is characterized by increasing competition and market unpredictability. It is exposed to a number of risks in the ordinary course of business. This is inevitable, as there can be no entrepreneurial activity without the acceptance of risks and associated profit opportunities

At Indraprastha Apollo Hospitals, we identify business sustainability risks and opportunities on an ongoing basis and integrate these into our existing risk management framework. We have adopted certain processes which continuously enhance risk awareness and promote a culture of risk management.

The Board of Directors has constituted a Risk Management Committee comprising of Senior Management Personnel headed by the Managing Director to ensure that internal financial controls are in place. The Risk Management Committee identifies, assess, prioritize, manage, monitor and communicate suitable measures to manage such risks. The status of major risks faced by the Company and majors taken to address and minimize such risk are being reported on quarterly basis to the Board of Directors.

The risks that may adversely impact the functioning of the Company include, but are not limited to:-

• Competitive intensity and new entrants to the market

• Pace of obsolescence of technology and treatment methods utilized by us

• Inflationary pressures and other factors affecting demand

• Increasing costs of wages, materials, transport & storage

• Labour shortages and attrition of key staff including medical professionals

• Increased statutory compliances and regulatory pressures including changes in tax laws

• Complaints before the Consumer Courts filed by patients or their relatives against the hospital and the Consultant Doctors for medical negligence.

• In a Public Interest Litigation (PIL) on free patient facility in the Hospital, the Honble High Court of Delhi has held that free treatment provided by the Hospital, as per the terms of the lease deed shall be inclusive of medicine and consumables. The Company has filed a Special Leave Petition (SLP) before the Honble Supreme Court of India against the impugned judgment and order of the Honble High Court of Delhi. In pursuance of an interim order dated 30th November 2009 by the Honble Supreme Court, the company has been charging for medicines and consumables from patients referred by the Government of Delhi for free treatment. If the impugned judgement of the Honble High Court of Delhi to provide free treatment including medicines and consumables upto 33% IPD and not less than 40% OPD is to be implemented, it will impact the financial performance of the Company.

• Increasing pricing pressure from insurance companies, e.g., requests for discounts on rack rates, medication etc. will have an adverse impact on margins and revenues.

Internal Control Systems and their Adequacy

We are committed to maintaining a high standard of internal controls in our operations. Our internal controls deploy a well-designed robust system which allows optimal use and protection of assets, facilitates accurate and timely compilation of financial statements and management reports, apart from ensuring compliance with statutory laws, regulations and company policies.

While no system can provide absolute assurance against material loss or financial misstatement, our robust internal control systems which are reviewed periodically provide reasonable assurance that all of our assets are safeguarded and protected. Our Internal control system is designed to manage rather than to completely eliminate the risk of failure to achieve business objectives.

The internal control system is designed to ensure that all transactions are evaluated, authorized, recorded and reported accurately. In addition to this, extensive budgetary control reviews the mechanism for timely review of comparison of actual performance with forecasts.

Such internal control procedures are further augmented by an extensive programme of internal, external audits and periodic review by the management.

Our management is responsible for assessing the business risks in all aspects of its operations and for implementing effective and efficient processes and controls whilst ensuring compliance with internal and external rules and regulations. While reviewing our internal controls, sufficient regard is given to the risks to which the business is exposed, the likelihood of such risks occurring and the costs of protecting against them.

Discussion on Financial Performance and Results of Operations

The total revenue grew from Rs. 7,534.51 million in FY2018 to Rs. 7,886.39 million in FY2019.

The following table shows the key drivers of our revenues for the periods presented:

Year Ended March 31,2019

Particulars 31.03.2019 31.03.2018 Increase % Increase
(Decrease) (Decrease)
Discharges 58,229 57,799 430 1%
Revenues per patient () 1,35,225 1,29,476 5,749 4%
Average length of stay (days) 3.38 3.31
Out-patients 5,11,026 4,69,862 41,164 8%
Revenue per bed day () 39,984 39,117 867 2%

Expenses

Salaries and Benefits

Our salaries and benefits expense of Rs. 1940.14 million during FY2018 increased by 3% to Rs. 2002.05 million in FY2019. Year Ended March 31,2019 (Rs. in Million)

Particulars 31.03.2019 % of Revenue 31.03.2018 % of Revenue Increase (Decrease) % Increase (Decrease)
Salaries, wages and benefits (excluding managerial remuneration) 1962.04 25% 1902.74 26% 59.30 3%
No. of employees 3022 3019

Professional Fees paid to doctors

During the year, professional fees paid to doctors has been increased from Rs. 1937.65 million during FY2018 to Rs. 1975.55 million during FY2019.

Administrative Expenses

The following table summarizes our operating and administrative expenses for the periods presented

Year Ended March 31,2019 (Rs. in Million)
Particulars 31.03.2019 % of Revenue 31.03.2018 % of Revenue Increase (Decrease) % Increase (Decrease)
Repairs and maintenance 180.50 2% 194.65 3% (14.15) (7%)
Rents and leases 49.00 1% 49.80 1% (0.80) (2%)
Outsourcing expenses 467.07 6% 389.81 5% 77.26 20%
Marketing and advertising 433.97 6% 387.63 5% 46.34 12%
Legal and professional fees 37.90 0% 33.88 0% 4.02 12%
Rates & taxes 36.47 0% 38.86 1% (2.39) (6%)
Provision for doubtful debts & Bad debts written off 23.64 0% 25.50 0% (186) (7%)
Other administrative expenses 418.16 5% 402.33 5% 15.83 4%
Total 1646.71 21% 1522.46 20% 124.25 8%

Provision for Income Taxes

The provision for taxes during the year ended March 31, 2019 is Rs. 162.08 million compared to Rs. 129.02 million in the previous year ended March 31,2018.

Human Resources

Our people form the nucleus of what we do at our hospital and we acknowledge the contribution of all our employees in our journey. The total number of employees in the Company as on 31st March, 2019 was 3022 as against 3019 employees in previous year. The Company has also engaged contractors for various support services in the Hospital and they have deployed 1024 workers as against 1013 workers in previous year. Besides the above, there are Consultant Doctors who work on a ‘Fee for Service basis.

These diverse employees bring their experience, culture and commitment to the work they do every day to improve the health of our patients. Every employee of our family has embraced our philosophy of "Tender Loving Care" in the Patient Care Journey.

We understand the value of diversity in culture, language, religious beliefs, and gender, and have been a key supporter to nurture the same in the company. Therefore, the Group strives to build a conducive work environment which embraces diversity and fosters inclusion. We are committed to nurturing and developing potential leaders that can continue to enhance our values and culture further.

We believe that the foundation of outstanding quality care is a highly skilled, caring workforce that is proficiently trained to provide personalized and evidence-based care. Therefore, our success largely depends on the high level of skills, commitment and professionalism of our people. Continuous learning is an integral component of the HR system which empowers our employees to be well- prepared for providing superior patient care. The human resource systems and procedures, and the organizations environment, encourage creativity and innovation whilst driving dedication and efficiency amongst the employees. We are aware that commitment and competence of our employees are key drivers of overall organizational performance and thus we endeavor to strengthen the organizational culture and retain the best talent. As we plan for the future, our workforce continues to grow and we continue to focus on attracting the best talent in the country and across the globe.

Cautionary statement

Some of the statements in this Management Discussion & Analysis describing the Companys objectives, projections, estimates, expectations and predictions contain certain ‘forward looking statements within the meaning of applicable laws and regulations. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Important developments that could alter your Companys performance include increase in material costs, technology developments and significant changes in the political and economic environment, tax laws and labour relations.

For and on behalf of the Board
Dr. Prathap C. Reddy
(DIN :00003654)
Vice Chairman
Suneeta Reddy
Place: New Delhi (DIN :00001873)
Date : 26th July, 2019 Director