Regency Hospital Ltd Management Discussions

REPORT INDUSTRY STRUCTURE AND DEVELOPMENTS

Overview of the Healthcare Services in India

India has had several achievements in the growth of its healthcare-services sector since independence. The country inherited basic and limited healthcare infrastructure, which was grossly inadequate to meet the demands of a large and diverse populace. From that starting point, India has emerged as a serious player in the global healthcare services delivery landscape with a multitude of world class healthcare institutions imbibing the highest standards of clinical excellence.

While the public sector was the predominant service provider for most of the post-independence era, over the last decades the private sector in India has steadily grown and enhanced its quality of operations to emerge as the leading provider of the entire array of healthcare services. Though Government initiatives in the field of healthcare are largely critiqued, there have been meaningful initiatives and innovative reforms.

Contributing approximately 4% to the countrys Gross Domestic Product (GDP), the sector was valued at an estimated USD 90 billion in the last financial year. It is expected to continue to grow at a CAGR of 15% through 2017 to reach USD 160 billion.

According to WHO, Indias per capita health expenditure stood at approximately US$122 compared to approximately US $7,164 in the United States, US $3,222 in Germany and US $265 in China. The global average per capita health expenditure was US $863.

According to CRISIL, the private sector accounted for about 75% of total healthcare expenditure in India, which is among the highest proportions of private healthcare spending in the world.

Corporate hospital chains have been playing a key role in driving expansion and growth in the Industry. So far, corporate hospitals have mostly concentrated on expansion on Tier I cities (including metros) with large scale multi-specialty tertiary care facilities.

Apart from viewing the progress in terms of achievements by public and private healthcare institutions in the country, there has been significant improvement in various offerings across the healthcare spectrum in India. This is apparent from the strides made in primary care to quaternary care, expertise across various specialties, adoption of technology based treatment and large volumes of complex medical procedure being undertaken. The simultaneous progress and growth of allied offerings like diagnostics centre, medical & nursing colleges, pharmacies or medical insurance have resulted in extending and widening the reach of healthcare to all the corners of the country.

Structurally, the Indian healthcare system incorporates the key ingredients required to enable all the necessary health services to be delivered to the public effectively.

The Healthcare Services Delivery Landscape in India

A detailed analysis of the healthcare system in India reveals that our health care model needs further augmentatio on several vital parameters, namely:

• Health expenditure as a percentage of GDP

• Per capita spending on healthcare

• Doctor-to-Population & Hospital Bed-to-Population ratio

• Infant and maternal mortality ratio

• Size of the healthcare market

Ensuring healthcare for all calls for a multi-disciplinary & multi-pronged approach. Significant improvements in the delivery mechanism cannot be brought about by just changing or applying pressure on one factor and leaving the others unchanged. A model obsessed with controlling costs without paying attention towards changing other determinants will not lead to creation of a successful delivery system. Determinants like accessibility, quality standards, equitability, resource availability and equitable distribution need to be worked upon simultaneously to produce visible changes.

Key Characteristics:

A track record of sustained growth over along with the potential for accelerated growth in the future has sharpened the focus on the healthcare services delivery sector. Fundamental strengths are contributing to a favorable view for investing into the sector and the industry in India which is characterized by the following:

• Population growth and changing demographics

• Rising Burden of Non-Communicable Diseases

• Inadequate Public Infrastructure

• Rising per capital Income and Qualified Consciousness

• Disparity in Health Infrastructure between urban and rural areas

• Evolving Business Models

• Increased focus from Investors

KEY GROWTH DRIVERS:

The vast middle-class with increasing disposable income is continually seeking superior healthcare services. Likewise, more senior citizens are now demanding the best medical care, even if it comes with premium. Rapid internet penetration and increasing mobility have also raised peoples awareness of quality healthcare, apart from triggering new demand for preventive care and treatment of various lifestyle related diseases. These trends are likely to spur greater spend on healthcare services across the country as well as accelerate the health insurance business.

With the rise in literacy levels across the country and growing awareness, it is expected that a greater percentage of the population will recognize the need for quality preventive and curative healthcare. This is likely to result in an increased demand for healthcare delivery services as the hospitalization rate (percentage of people who actually visit a hospital when unwell) will increase.

SWOT ANALYSIS:

• OPPORTUNITIES

There is a significant gap between the demand for and supply of quality healthcare in India. Apart from abysmal public healthcare facilities, India is faced with many other factors such as historical underinvestment, growing population and increasing incidence of lifestyle diseases. The current industry scenario favors larger players who can make the required investments and offer extensive and high quality treatments.

The nature of health problems is changing rapidly. As treatments struggle to keep pace with the increasing complexity of health problems there is an increase in the use of technological innovations. Further, there is a shift in he epidemiology profile of the country with a larger proportion of lifestyle diseases such as diabetes as well as increase in heart diseases and cancer. This is resulting in an increase in the average cost of treatment. Regency hospital Ltd. realizes the need of quality healthcare services in the area of its operations and its Board of Directors followed by qualified and experienced team of doctors specialized in their areas are endeavoring their best to bridge the gap of demand and supply of quality healthcare services.

• THREATS, RISKS & CONCERNS:

The increasing propensity for entrepreneurs and business houses to enter into the healthcare business has resulted in a spike in setting up of Greenfield facilities, JVs and acquisitions. In order to make these ventures remunerative after having invested significant funds, there is a chance that some of these players may resort to unsustainable pricing in order to gain market share.

Inflation rates in India have been high in recent years and high inflation is expected to continue for some time. Increasing inflation in India is depleting the purchasing power of patients and intensifying the cost of living for our employees. There is also upward pressure on other costs such as transportation, supplies, equipment and other expenses, and an inability to manage costs or pass increased cost onto patients will lead to compressed returns.

The risk present in the healthcare industry is the emergence of several domestic hospital chains, combined with the entry of international players is leading to an increased number of competitors chasing finite resources such as land, quality medical professionals and potential acquisition targets. Demand growth is expected to outpace improved supply of these resources. A failure to acquire resources at fair and reasonable rates will impact the ability to suitably grow and expand our operations. Further, increases in operating costs can impact the Companys operations and financial condition.

The biggest concern is rising inflation in the economy. Staffing is a major concern for the healthcare industry as well. But these are sector wide concerns. For its part, Regency Hospital Limited has tried to address the concerns by focusing hard on cost cutting drives, economizing, digital adoption strategies to reduce dependence on manpower.

• STRENGTHS

Your Company is well known as the first corporate hospital network in the state of Uttar Pradesh. An impeccable track record, several pioneering initiatives and the sheer number of surgeries with high success rates have helped to establish the Regency brand as a premier brand in the healthcare sector in India. This brand value provides several tangible and intangible benefits such as the belief and trust that makes patients choose Regency, the ability to attract doctors and other healthcare professionals ahead of competition, ability to appropriately price its healthcare services, sustained marketing benefits and a headstart in footfalls at new facilities.

Our management team comprises of senior professionals with abundant expertise and knowhow. They possess a proven track record in the healthcare services industry and have been instrumental in driving strategy and growth. The blend of doctors as well as qualified professionals for key functions has enabled the company to repeatedly balance the multiple objectives of delivering high standards of clinical excellence, best in class patient care, rapid technology adoption, value optimization and focus on key specialties while growing in a steady and calibrated manner.

We have developed a distributed access model to comprehensively serve the healthcare needs of patients in their local communities through our network of multi-specialty hospitals and primary clinics. This gives us several touch points across the healthcare delivery chain which translates into a greater number of patient referrals thereby driving higher volumes.

COMPANY OVERVIEW :

Regency Hospital Ltd. was founded by Dr. Atul Kapoor in year 1987 and the company is listed on Bombay Stock Exchange in the year 1992. We are headquartered in Kanpur, Uttar Pradesh and also manage through several subsidiaries, joint ventures and associates.

We are leading private healthcare services provider in Uttar Pradesh offering comprehensive end-to-end healthcare services. Our primary line of business is provision of healthcare services, through hospitals, pharmacies, and primary clinics. In addition we provide health insurance services and conduct education and training programs.

We have continuously increased in bed capacity creation and have increased the bed capacity under our management from 115 beds at the commencement of our hospital services in 1992 to more than 300 beds as of March 31, 2015.

Focuses on high operational effectiveness, timely delivery of quality care have ensured that the hospital maintains its leadership position.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Your company has established a wide ranging system of Internal Controls to ensure that all assets are safeguarded and protected. Further, it has processes in place to ensure that all transactions are evaluated, authorized, recorded and reported accurately.

Your company has put in place a review mechanism whereby the management regularly reviews actual performance in comparison to forecasts. Any significant deviation from forecasts is reviewed and assessed rapidly to identify any market trends or shortcomings in service offerings.

The system is designed to adequately ensure that financial and other records are maintained in an optimum manner, are accurate and are reliable for preparing financial information and other data and for maintaining accountability of assets. The internal control procedures are augmented by an extensive program of internal, external and audits and periodic review by the management.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE HOSPITALS :

As of 31st March, 2015, we had a capacity of 310 beds which includes two hospitals and one Daycare Clinic located in Uttar Pradesh (Kanpur).

	2014-15	2013-14
No of Hospital/Clinic	3	2
Number of Owned Beds
For indoor Patients	280	280
For Dialysis Patients	30	20
Total	310	300
Number of Revenue Earning Beds
For indoor Patients	255	255
For Dialysis Patients	30	20
Total	285	275
indoor Patients treated	15929	15162
Dialysis Patients treated	22467	17154
Total	38396	32316
Average Length of Stay (Days)
indoor Patients	3.99	4.12
Bed Occupancy Rate(%)
indoor Patients	68.36%	67.19%
Dialysis Patients	84.36%	78.33%
Average Revenue per
Occupied Bed Per Day
indoor Patients excluding
Dialysis Patients	11735	10886

DISCUSSION ON FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS

The following table present summaries of results of operations for the years ended 31st March, 2015 and 2014:

	31.03.2015	31.03.2014
Operating Revenues	10308.73	9057.06
Add: Other Income	142.11	296.10
Total Income	10450.84	9353.16
Operative expenses	2084.3	1983.43
Salaries and benefits	2050.61	1654.43
Administration & other expenses	4355.53	3736.76
Financial expenses	873.21	729.58
Depreciation and amortization	468.53	526.05
Total Expenses	9834.19	8630.25
Profit before Income Tax	616.65	722.91
Tax Expense	250.78	263.19
Profit after Tax	365.85	459.72

RESULTS OF OPERATIONS

Regency Hospital Ltd. is constantly increasing its operation and achieving new heights and breaking its own records. During the year under review, Company achieved turnover of Rs. 10308.73 as against Rs 9057.06 in preceding financial year. All this are the constant endeavor of Board of Directors and constant quality services by Company. However, management still feels that it is not an end and there are still various targets to achieve.

Your companys marketing initiative continued the excellent pace of growth and rapidly expanded too many new areas of state.

HUMAN RESOURCES:

Successful companies across the world are recognized by their people and the innovations they bring to bear. This ethos has always underlined the human resource agenda at Regency Hospital Ltd. and hence the financial year 2014-15 too witnessed numerous initiatives and endeavors purpose-designed to enhance the companys people capital.

The healthcare services business is a labor intensive business. There are multiple touch points for patients in the entire process from preventive to diagnostic to curative services. At these touch points human interaction is a critical ingredient. Thus, it goes without saying that the quality, sincerity and dedication of our personnel have a significant impact of our services.

Your company proactively works to inculcate its vision and mission as well as high standard of values in each of its employees. There is a long-standing commitment to create a culture that embraces diversity and fosters inclusion. Apart from stringent selection processes, there are several initiatives in the domain of Health Education and Skill Development. A structured and transparent compensation program is followed across the organization. Comprehensive evaluations are conducted and employees are made aware of their performance ratings on Key Result areas and Competencies.

The company follows a holistic approach to development of people with a focus on grooming the next generation of leadership. These robust processes ensure a continuous supply of manpower to support the organizations patient care delivery process and fuel its growth objectives.

CAUTIONARY STATEMENT:

Some of the statements in this Management Discussion and Analysis, describing the Companys objectives, projections, estimates, expectations and predictions may be forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from those expressed or implied. Important developments that could alter your companys performance include increase in material costs, technology developments and significant changes in political and economic environment, tax laws and labor relations.