Krishna Institute of Medical Sciences Ltd Management Discussions

Economic Overview

Global Economy

In 2023, the global economy remained resilient amid various headwinds, including geopolitical tensions especially the Russia-Ukraine war and more recently the conflicts in the Middle East region which led to inflationary pressures across advanced and emerging economies. Global GDP grew by an estimated 3.2%1, supported by robust government spending and increasing household consumption. Additionally, a remarkable boost in labour force participation also contributed to the economic growth.

To curb inflation, Central Banks worldwide responded by increasing interest rates. Despite the potential for economic slowdown due to these policy adjustments, the global economy managed to maintain steady growth, supported by the effective monetary policies and adaptive financial markets.

Emerging Markets and Developing Economies showed particular adaptability, benefiting from diverse economic strategies and foreign investments, which supported their continued growth despite global challenges.

Outlook

At this point, the global economy is positioned at a critical juncture, demonstrating the possibility of a gradual rebound. Going forward, inflationary pressures are expected to ease and more accommodating monetary policy measures are likely to be implemented by Central banks. The volume of products and services traded globally is expected to surge by 3.3% in CY 2025 and 3% in CY 2024, respectively (Source: IMF). In the coming months, the resilience of economies across the world and the combined policy responses of governments will play a crucial role in determining the trajectory of inclusive and sustainable growth. from robust domestic demand, driven largely by increasing private consumption.

The positive economic trajectory can be further evidenced by strong performances in high-frequency economic indicators such as credit growth, GST collections and the Purchasing Managers Index (PMI) in services and manufacturing. Notably, the PMI for services has consistently exceeded 60 points, signalling robust growth in this sector4. These indicators collectively confirm a dynamic economic activity and a sustained recovery, positioning India on a promising path for continued growth and stability in the coming years.

Indian Economy

During the fiscal year 2023-24, India recorded a remarkable GDP growth rate of 8.2%, the highest among major global economies, marking an increase from the previous years rate of 7%2. India has achieved this growth amid global economic challenges, demonstrating remarkable resilience. A significant factor contributing to this growth has been favourable monetary policies, aimed to keep inflation within target levels to support sustained growth over the medium term. This has enhanced economic stability and consumer confidence, bolstering demand across various sectors.

In addition to effective monetary policies, there has been a substantial rise in capital expenditure from H10.5 lakh crore in FY23 to H 12.7 lakh crore in FY243. This increase has further enhanced private investment, improving economic activities across the country. The economy also benefited

Outlook

The Indian economy is projected to maintain its robust growth in the forthcoming years5. This economic expansion is likely to be driven by significant investments in infrastructure, supported by favourable fiscal policies and continuous policy improvements. Additionally, a growing young workforce and targeted development initiatives in smaller cities are expected to bolster demand across different sectors.

As global economic conditions improve and central banks in developed countries ease monetary policies, India is likely to see an increase in private investments. This is expected to enhance exports and prompt greater investment and consumption, potentially accelerating a reduction in the fiscal deficit. Meanwhile, ongoing challenges with inflation, driven by high demand and rising commodity prices, are expected to be mitigated by improvements in private sector investment, stabilising prices and sustaining the growth momentum.

Industry Overview Global Healthcare Industry

The global healthcare sector is undergoing a transformation owing to rapid technological advancements, demographic changes and evolving needs of patients. The growing geriatric population, increasing prevalence of chronic diseases and the growth of healthcare markets in emerging economies are driving this shift. Healthcare organisations must not only adapt to new technologies and innovative care models but also address ongoing challenges such as labour shortages and health inequities. Failure to address these challenges, could lead to the cost of health disparities soar to approximately USD 1 trillion by 20406.

Emerging technologies-

Artificial intelligence (AI) and machine learning are transforming healthcare by enhancing the efficiency and accuracy of diagnostics and patient care. AI is expected to streamline administrative processes significantly. Predictive analytics, for instance, are being used to automate electronic health records, improving the precision of healthcare delivery. Also, investments in AI have surged in recent years, with billions being funnelled into those healthcare startups, which are focused on developing these technologies.

Lack of skilled workforce-

The healthcare sector faces an acute shortage of skilled labour, which is further exacerbated by high burnout rates among healthcare workers. According to the estimates by the WHO a projected shortfall of 10 million health care workers by 2030 is anticipated mostly in low- and lower-middle income countries7. To address this challenge, new care delivery methods such as telehealth and enhanced nurse practitioner roles are being employed to alleviate the strain on healthcare professionals. Additionally, significant funding is being allocated to support mental health and build resilience among the healthcare workers.

A shift to more equitable healthcare-

The pandemic has highlighted substantial health inequities, prompting a push for more equitable healthcare solutions. Efforts are underway to address disparities that disproportionately affect underserved populations. The use of technology to bridge these gaps is becoming increasingly important, with initiatives aimed at making quality healthcare more accessible and affordable for all.

Contactless operations-

The pandemic has led to a surge in the preference for contactless medical services, reshaping patient interactions. Healthcare providers are adopting digital platforms for virtual consultations, online appointment bookings and remote monitoring, aiming to enhance patient convenience and safety.

Outlook

Looking forward, the healthcare sector is positioned to witness continued innovation and growth. Investments targeted at integrating AI and digital technologies across various aspects of healthcare delivery is likely to surge. Despite a recent slowdown in funding, the overall trend towards digital health solutions suggests indicates a sustained interest in transforming the healthcare landscape.

Notwithstanding, the challenges prevalent in the global healthcare industry, including a complex environment of technological advancements, workforce challenges and a paradigm shift towards equitable and contactless healthcare, ongoing investments in technology and a sharper focus on addressing broader social determinants of health point towards a future where patient outcomes are improved and healthcare systems become more affordable and accessible.

Indian Healthcare Industry

As of FY 2023, the healthcare industry in India was valued at approximately USD 180 billion. It is projected to reach ~USD 320 billion by 2028. This growth, representing a compound annual growth rate (CAGR) of around 12%.8

Factors contributing to this expansion include an increase in healthcare spending by both private individuals and the government. The rise in disposable income among Indias growing middle class, combined with a greater awareness of health issues following the COVID-19 pandemic, has led to higher demand for quality healthcare services. Moreover, enhancements in insurance technology have made private healthcare more accessible to a larger segment of the population. The sector is also witnessing significant private equity activity, with investments directed towards both multispecialty and single-specialty hospitals and clinics.

Despite these advancements, Indias healthcare infrastructure still lags behind global standards, presenting substantial opportunities for development to achieve more efficient and equitable healthcare. The country has approximately 70,000 operational hospitals, with 63% being privately owned and 37% government owned. However, the current bed-to-population ratio stands at 1.3 beds per 1,000 people, which is below the World Health Organisations recommendation of three beds per 1,000 people, indicating a significant deficit in healthcare infrastructure 9.

One major challenge facing the Indian healthcare industry is the disparity in infrastructure and personnel between regions. Urban areas typically enjoy better access to facilities, technology and specialists. In contrast, rural and underserved regions face limitations in healthcare access. Additionally, India experiences a national shortage of doctors. This shortage is further compounded by uneven distribution across states, leading to limitations in the quality and accessibility of care in specific areas.

State wise total doctors under I.M.C Act

Also there has been a change in the disease burden as India sees a significant rise in non-communicable diseases (NCDs) such as heart disease, stroke, diabetes and various cancers. These diseases have emerged as a leading global health threat and are responsible for a staggering 74% of deaths worldwide. India faces a similar challenge with NCDs accounting for 63% of all deaths in the country10.

Investments in such regions especially in the south Indian states with higher number NCD patients are crucial for building better healthcare infrastructure, increasing the availability of healthcare professionals and integrating advanced medical technologies. As the population in urban and suburban areas grows, so does the demand for comprehensive healthcare services in major cities adjacent to those areas. Investing in healthcare services in both these urban centres and their surrounding areas will effectively address the long-term health needs of the broader region, driving continued growth in the sector.

Health insurance industry

The health insurance sector in India has undergone significant changes, driven by regulatory reforms, technological advancements, and increased public awareness. Standalone health insurance premiums surged by 26.2% in FY2024, reaching Rs 33,115 crore from Rs 26,243 crore in FY23 11.

Key Policies and Initiatives

Removal of Age Bar for Health Insurance: The IRDAIs decision to remove the age bar for health insurance purchases has been a game-changer for the industry. This policy change, highlighted in The Hindu, has been welcomed by hospitals and insurers alike, as it allows senior citizens to obtain health coverage without age-related restrictions. This move is expected to improve the overall health insurance penetration in India and provide better healthcare access to older adults.

Technological Innovations: Technological advancements have played a crucial role in transforming the health insurance sector. The introduction of digital platforms and InsurTech solutions has streamlined the insurance process, from policy purchase to claim settlement. The adoption of digital technologies will continue to enhance customer experience, improve operational efficiencies, and enable insurers to offer more personalized products.

Growth Drivers

Economic Growth: Indias strong economic growth is a fundamental driver for the health insurance sector. The increasing GDP and rising disposable incomes enable more individuals and families to afford health insurance coverage.

Demographic Changes: The removal of age restrictions for purchasing health insurance has opened new opportunities for insurers to cater to the aging population. This demographic shift is expected to drive significant growth in the sector as more senior citizens seek health coverage.

Rising Healthcare Costs: The escalating costs of healthcare services are prompting more people to invest in health insurance. This trend is driving the demand for comprehensive health insurance plans that cover a wide range of medical expenses.

Regulatory Support: Ongoing regulatory reforms by the IRDAI are creating a conducive environment for the growth of the health insurance sector. These reforms ensure financial stability, compliance, and encourage innovation within the industry.

Outlook

The Indian insurance market is expected to reach USD 222 billion by 202612. The IRDAIs mission of "Insurance for All" by 2047 is anticipated to significantly increase insurance penetration, bolster the ease of doing business, and make the sector more investment-friendly. With continued efforts from regulatory bodies and industry stakeholders, the future of the health insurance sector in India looks promising, poised to achieve greater penetration and improved healthcare access for all segments of the population.

Opportunities and Threats

Government Initiatives

The Indian government has introduced several initiatives focused on enhancing the efficiency, accessibility and innovation of healthcare services. These efforts leverages digital technology, broadens health insurance coverage and promotes equitable healthcare access for all citizens.

Ayushman Bharat Scheme: One of the worlds largest health insurance scheme, Ayushman Bharat promotes accessible andaffordable healthcare. As of December 2023, this initiative has successfully created 49.86 crore health accounts .National Digital Health Mission (NDHM): This mission is designed to consolidate digital health infrastructure across the country, significantly enhancing the efficiency of healthcare delivery systems.

Digital Health and Telemedicine: The Indian telemedicine sector is poised for robust growth, with projections suggesting amarket size of $5.4 billion by 2025. The widespread adoption of digital health technologies is playing a crucial role in contributing to this growth13.

Mission Indradhanush and Universal Immunization Programme (UIP): These programmes focus on immunising children and pregnant women to decrease child mortality and combat vaccine-preventable diseases.

Pradhan Mantri Swasthya Suraksha Yojana (PMSSY):

This scheme is aimed at improving tertiary care accessibility and elevating the overall quality of medical education throughout India.

Investment in Medical Education and Health Tech: Since 2014, the Government has invested INR 17,691.08 Cr in the approval and establishment of 157 new medical colleges. Additionally, the health tech sector is supported by over 4,000 startups, with 100% FDI allowed for greenfield projects, fostering further growth and innovation in this sector14.

Outlook

Indias healthcare industry is set for robust growth, driven by government initiatives, technological advancements and increasing health insurance coverage. Further, enhanced infrastructure and broader accessibility, coupled with the rise of telemedicine, are improving efficiency and increasing reach across urban and rural areas. Simultaneously, demographic shifts and a growing demand for specialised healthcare services are fuelling the expansion of private healthcare facilities. Additionally, medical tourism is gaining momentum as international patients seek cost-effective but high-quality treatments. However, the industry must address challenges in infrastructure and service delivery to fully capitalise on these growth opportunities.

Company Overview

KIMS Hospitals is one of the largest corporate healthcare groups in India, operating hospitals in Telangana, Andhra Pradesh and Maharashtra. The Company provides multidisciplinary integrated healthcare services, focusing on offering tertiary and quaternary care at an affordable cost. It manages 12 multi-specialty hospitals under the KIMS Hospitals brand, encompassing an aggregate bed capacity of over 4,000 beds. The Company also offers a comprehensive range of healthcare services across more than 40 specialties and super specialties, including cardiac sciences, oncology, neurosciences, gastric sciences, orthopaedics, organ transplantation, renal sciences and mother and childcare.

KIMS Foundation and Research Centre (KFRC) - KFRC was established in 2010 by Dr. Bhaskar Rao Bollineni, Chairman & MD of KIMS Hospitals, to conduct advanced scientific research in healthcare and clinical studies. Since its inception, KFRC has reached numerous milestones, including obtaining a DSIR certificate for scientific and academic activities and NAC-SCRT accreditation for stem cell research. KFRC has published numerous articles with practical clinical applications in international journals and has established scientific collaborations with both government and private institutions.

Medical education programmes - KIMS Hospitals conducts medical education programmes through affiliations with state medical boards and universities, offering a range of broad and super specialties at its hospitals in Secunderabad and Kondapur. These programmes include DNB and post-doctoral fellowships.

KIMS Hospitals also offers post-doctoral fellowship courses, affiliated with Kaloji Narayana Rao University of Health Sciences, in cardiac anaesthesia and urogynaecology. It also conducts undergraduate programmes, including Bachelor of Physiotherapy, B.Sc Nursing, B.Sc Medical Laboratory Technology and Post Basic B.Sc Nursing, the latter affiliated with Indira Gandhi National Open University. Additionally, KIMS Hospitals offers diploma courses affiliated with the Telangana Para Medical Board in 14 disciplines, including Diploma in Medical Lab Technician, Diploma in Ophthalmic Assistant, Diploma in Optometry Technician and Diploma in Dialysis Technician.

Financial Overview

During the year under review, KIMS Hospitals has clocked a robust performance, posting a consolidated net income of H 2,511.20 Crores in FY24, which represents a year-on-year growth of 12.94%. EBITDA for the same period grew by approximately 3.75% as opposed to FY23, indicating the Companys effective operational management and financial health.

Human Resources

The Company acknowledges the critical role of effective human resource management in delivering quality healthcare. It has a dedicated HR department which implements progressive, people-centric policies and cultivates a conducive work culture-all with an objective of attracting and retaining top talent.

KIMS Hospitals also supports ongoing professional development, empowering its personnel to excel professionally. The HR department is tasked with arranging training programmes and resources, enabling the team to continuously enhance their skills and knowledge.

KIMS Hospitals effectively leverages the collective strength of a diverse workforce. The Company prioritises creating a workplace where everyone feels valued and respected. It encourages cultural integration, ensuring a unified focus on patient-centred care is maintained across the Companys operations.

Risk Management

Internal Control Systems and their adequacy

The Company adheres to the principles of fair representation and full disclosure in all its dealings and communications. Its annual report, results, presentations, and other forms of corporate and financial communications are designed to provide extensive details and convey important information on a timely basis. The Companys philosophy on corporate governance is committed to the highest levels of transparency, accountability, and fairness in every aspect of its operations and in all its interactions with stakeholders, employees, government entities, and lenders. The Company is dedicated to ensuring that all its operations and actions consistently aim to enhance shareholder value over a sustained period. The core principles of the Companys Corporate Governance code are to ensure:

Fair and transparent business practices;

Accountability for performance;

Compliance with applicable statutes;

Transparent and timely disclosure of financial and management information;

Effective management control and monitoring of executive performance by the Board; and

Adequate representation of promoters, executive, and independent directors on the Board.

This approach ensures the Company always maintains a balance between enhancing shareholder wealth and upholding the interests of other stakeholders.

For additional details, please refer to KIMSs corporate governance report.

Cautionary Statement

Certain statements in this Management Discussion and Analysis regarding KIMS Hospitals objectives, projections, estimates, expectations, and predictions may constitute "forward-looking statements" as defined by applicable laws and regulations. These statements and forecasts involve inherent risks and uncertainties as they are based on future events and circumstances. Various factors may cause actual events or trends to significantly differ from the expectations expressed or implied in these forward-looking statements and predictions. Key developments that could affect the companys performance include rising material costs, advancements in technology, substantial shifts in the political and economic landscape, changes in tax regulations, and fluctuations in labour relations.