shalby Management discussions

Economic Review Global Economy Scenario

After experiencing high market volatility from multiple headwinds in_2022, the global economy is showing signs of resilience in 2023. However, economic growth remains low_ in 2023, as persistent inflationary pressures, tighter monetary conditions and the prolonged war between Russia and Ukraine weigh on economic activity. Inflationary pressures are eroding real incomes, triggering a global cost-of-living crisis and substantially weakening investment growth. Further, the banking crisis in March 2023 and a debt-ceiling crisis in the United States have raised concerns over macroeconomic stability across the markets and an impending global recession. However, the rebounding of Chinas economy, improved supply-chain functioning and the recent decline in energy and food prices indicate the improvement in economic activity and sentiment in 2023. Further, with the central banks efforts to tame inflation by substantial tightening in monetary policy, global inflation is projected to decrease from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024.

Despite the economic uncertainties and underlying inflationary pressures, the outlook for the global economy is slightly less gloomy than earlier anticipated. The International Monetary Fund (IMF) has projected global GDP growth to decline from 3.4% in 2022 to 2.8% in 2023 and rise to 3.0% in 2024. The growth of Advanced Economies (AEs) is projected to decline sharply from 2.7% in 2022 to 1.3% in 2023 before rising to 1.4% in 2024. Economic prospects for Emerging and Developing Economies (EMDEs) are on average stronger than for Advanced Economies. EMDEs grew at 4.0% in 2022 and are expected to grow at 3.9% in 2023 and 4.2% in 2024. Asia- Pacific will be the most dynamic of the worlds major regions in 2023, predominantly driven by the buoyant outlook for China and India, which will be the major contributors to global economic growth in 2023.

(Source: IMF Report- World Economic Outlook April 2023)

Indian Economy Scenario

India continues to be among the fastest growing economies in the world. Despite the global slowdown, the Indian economy is exhibiting robust resilience and overall economic activity remains strong. Indias real GDP growth is estimated at 7.2% in FY 2022-23 as against 9.1% in FY 2021-22. It reflects relatively robust domestic consumption and lesser dependence on global demand. Further, despite the weakening external demand, the merchandise exports have registered the highest-ever annual exports of USD 447.46 billion with 6.03% growth during FY 2022-23 surpassing the record exports of USD 422 billion in FY 2021-22.

Domestic economic growth is gaining strength and further traction in 2023. As per the IMF, Indias GDP per capita at current prices is USD 2,600 in 2023, leading to a surge in household consumption. However, higher inflation remains a challenge and headline inflation increased to 6.7% in FY 2022-23 from 5.5% in FY 2021-22. Following the gradual normalisation of global supply chains, softening of global commodity prices, and successive hikes in the policy repo rate by 250 basis points in FY 2022-23 by the Reserve Bank of India (RBI), the consumer price index (CPI) inflation subsided to 4.25% (provisional) in May 2023 against 4.70% recorded in April 2023.

India has a long runway for growth and according to the IMF, the Indian economy is expected to grow steadily at 5.9% in FY 2023-24 before rising to 6.3% in FY 2024-25. Factors such as a conducive domestic policy environment, various dynamic reforms undertaken by the government such as higher capital expenditure, production-linked incentives (PLI) scheme and ‘Atmanirbhar Bharat, thrust on domestic manufacturing and infrastructure development, strong domestic demand, export growth, technology-enabled development and energy transition among others will stimulate growth in FY 2023-24.

(Source: Ministry of Statistics & Programme Implementation; Ministry of Commerce & Industry; IMF Data Mapper; RBI Annual Report 2022-23; IMF Report- World Economic Outlook April 2023)

Industry Overview Indian Healthcare Industry

According to Care Edge, the Indian healthcare industry is estimated to be valued at USD 110 billion in FY 2022-23 (excluding Indian pharma exports), with hospitals accounting for the largest share, i.e., about 60% to 70%, contributing approximately USD 70 billion. This is followed by domestic pharmaceuticals contributing about 18% to 20% i.e., USD 22 billion and the remaining 20% to 22% is shared by diagnostics, medical equipment and insurance. The healthcare sector has exhibited a strong compounded annual growth rate (CAGR) of 14% to 15% during FY 2016- FY 2022.

The Healthcare industry is growing at a brisk pace owing to growing demand augmented by affordability, policy support by the government with initiatives like e-health, tax benefits and incentives, aggressive greenfield and brownfield expansion by hospital chains and increasing expenditure by public as well private players among other factors. Rising demand for affordable healthcare delivery systems due to the increasing healthcare costs, growing lifestyle diseases, technological advancements, the emergence of telemedicine and rapid health insurance penetration are also propelling the healthcare market in India.

Thehealthcaresectoriswitnessinganincreaseinaccesstopatients and citizens via the launch of digital health, Ayushman Bharat Digital Mission (ABDM) and mental health programs (National Tele Mental Health Programme) providing opportunities to human resources, hospitals, and investors in the sector._ABDM will improve equitable access to quality healthcare by encouraging the use of technologies such as telemedicine and enabling national portability of health services. The Indian Healthtech industry is estimated to value USD 5 billion in 2023. Further, there has been a telemedicine boom in the country which has made high-level health facilities accessible to people in remote and tribal areas. Telemedicine has also shifted how healthcare is administered in India by enhancing care accessibility.

Indias healthcare sector is witnessing rapid adoption of the latest technologies and innovations such as artificial intelligence (AI), robotics, big data analytics and machine learning (ML) for process optimisation, increased productivity, better patient outcomes, reduction in healthcare costs and access to data. In addition, the sector has adopted robotics for process automation.

(Source: Care Ratings Report: Indian Healthcare Industry to Surpass USD 130 billion by FY24; Invest India: Healthcare)

Medical Device Industry

The medical devices market has witnessed notable growth over the past decade as a result of the implementation of new technologies and design modifications. The global medical devices market was valued at USD 465.55 billion in 2022. North America dominated the global medical devices market with 41.8% of the market share in 2022. The Asia-Pacific (APAC) medical device market was worth USD 105.93 billion in 2022 and is estimated to grow at a CAGR of 6.8% to reach USD 147.19 billion by 2027. Hospital supplies will continue to be the major device segment. The key factors contributing to the growth of the medical devices market in the APAC region are an increase in the number of healthcare institutions, a rise in the geriatric population, healthcare awareness, increasing per capita income, and increasing investment in healthcare infrastructure in the region. The medical device industry is_constantly evolving due to technological advancements and increasing investment in Research & Development (R&D) activities. The industry is striving towards creating more personalised and value-based healthcare. Further, the increasing adoption of 3D printing is expected to accelerate the pace of production for medical devices such as surgical equipment, dental restorations, and orthopedic implants. The global orthopedic devices market was valued at USD 34.7 billion in 2022 and is estimated to expand at a CAGR of 6.50% to reach USD 53.8 billion by 2030. Increasing joint replacement, pain management and high prevalence of joint pain, degenerative bone disease and damaged joints among the aging population are the key driving forces for the growing demand for joint reconstruction devices.

The medical device market in India is expected to reach INR 4,358.64 billion by 2027, expanding at a CAGR of ~41.93% during FY 2023- FY2027. There is a huge gap in the current demand and supply of medical devices in India. India has an overall 70-80% import dependency on medical devices and there is significant growth opportunity in domestic manufacturing of medical devices. The government is focused to strengthen the medical devices industry through PLI schemes, 100% FDI, R&D and incentives for selected critical care categories such as cancer care/radiotherapy, cardio-respiratory, renal care, and all implants.

(Source: Market Data Forecast; Market Research Future; Corpbiz Report: Medical Device Industry of India 2023)

Hospital Industry Growth

The hospital industry in India, accounting for 80% of the total healthcare market, is expected to reach USD 132 billion by 2023 from USD 61.8 billion in_ 2017,Rs. growing at a CAGR of 16-17%. Hospitals are expected to remain the major beneficiaries of the rising healthcare spending in the country as they account for about 75% of the healthcare spending. The healthcare sector has exhibited strong growth momentum in the past few years, which is expected to continue as the industry undertakes aggressive capacity expansion post Covid-19, supported by sustained average revenue per bed and improving case mix.Rs. The hospital industry is witnessing a huge investor demand from both global as well as domestic investors.

Rating agency ICRA expects the aggregate occupancy for its hospital industry sample set to remain healthy at 62-64% in FY 2023-24, backed by strong demand for quality healthcare due to rising affordability and burgeoning lifestyle diseases and improving medical insurance penetration, continued healthy demand for elective surgeries, revival in medical tourism volumes and continued market share gains for organised players. The bed capacity of leading hospital chains is also expected to increase by 30% by FY 2025. With hospital chains foraying into retail pharmacies, diagnostics, clinics and specialty clinic chains, the sector is witnessing integration and realisation across.

Further, ICRA estimates revenue growth to be ~15-17% on YoY basis in FY 2022-23, aided by strong occupancy and higher average revenue per occupied bed (ARPOB).Rs. However, growth is expected to be slightly moderate to ~4-6% in FY 2023- 24 due to the high base and moderate growth in ARPOB. Despite high input costs due to inflation, improving operating leverage, supported by the increasing scale of operations and continued cost optimisation measures, is expected to support a healthy operating profit margin (OPM) of ~20-22% in FY 2023- 24.

(Source: Invest India: Healthcare; Live Mint; Express healthcare; Care Ratings Report: Indian Healthcare Industry to Surpass USD 130 billion by FY24)

SWOT Analysis for the Hospital Sector

Strengths

? Increasing number of corporate hospitals, offering world-class medical technology, equipment, and facilities at a lesser cost.

? Steady increase in the number of hospitals, diagnostic facilities, doctors and other medical professionals.

? The Indian healthcare industry is cost-competitive compared to countries in South-East Asia and the West.

? Good reputation of Indian health services owing to a strong presence in advanced healthcare, such as cardiology, organ transplants, replacement surgeries, etc., and a high success rate in surgery.

? Low cost of medical services and the availability of multilingual health staff at comparatively lower costs will attract foreign investment.

? India emerged as a hub for R&D activities due to its relatively low cost of clinical research.

? Increasing population, middle class, growing health awareness, rising income and willingness of consumers to pay for quality healthcare and visit institutional providers increase the scope for investment in the healthcare sector.

Weakness

? A skewed distribution of healthcare infrastructure, devices and equipment

? Concentration of healthcare infrastructure in urban areas

? Poor maintenance of infrastructure and facilities

? ~1.2% of GDP spends directed toward the healthcare sector

(Source: Ministry of Finance)

? Paucity of experienced specialised doctors and nursing personnel

? Shortfall in bed capacity in hospitals

? Inadequate Financial resources

Opportunities

? Policy support, government initiatives and tax benefits

? Rising medical tourism

? Adoption of the latest technologies and innovations

? Public-private partnerships in the sector

? Push to manufacture medical devices and equipment, set up laboratories and diagnostics, facilities for medical education, etc. in the country

Threats

? Requirement of huge capital

? Cost expectation and service imbalance

? Emergence and re-emergence of communicable diseases

? Low health insurance penetration

Government initiatives

Government schemes and Financial inclusion initiatives have driven insurance adoption and penetration across all segments. The government has undertaken several initiatives to promote the healthcare sector in India.

? Ayushman Bharat (Pradhan Mantri Jan Arogya Yojana) (AB PM-JAY), a government-funded healthcare programme, aims at providing a health cover of Rs. 5 lakh per family per year for secondary and tertiary care hospitalisation.

? 1,56,000_ Ayushman Bharat centres are operational in_India,_which aim at providing primary health care services to communities closer to their homes.

? Other government Insurance schemes are Pradhan Mantri Suraksha Bima Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana.

? Ayushman Bharat Digital Mission (ABDM) to connect the digital health solutions of hospitals across the country. Under this initiative, every citizen will now get a digital health ID and their health record will be digitally protected.

? The government has allowed 100% FDI under the automatic route for greenfield projects. For investments in brownfield projects, up to 100% FDI is permitted under the government route.

? To promote medical tourism in the country, the government is extending the e-medical visa facility to the citizens of 165 countries.

? The ‘Heal in India initiative aims to promote Indias medical facilities and infrastructure globally and boost medical tourism. It has a digital portal with plans to standardise processes and treatment packages for foreign patients to help them navigate their medical journey in a simplified way.

(Source: Economic Survey 2022-23; Invest India: Healthcare; Ministry of Home Affairs)

Impact of the Union Budget 2023-24

Under the Union Budget 2023-24, the Ministry of Health and Family Welfare has been allocated Rs. 89,155 crore, an increase of 3.43% compared to Rs. 86,200 crore in FY 2021-22. The following announcements were made in the Budget in accordance with the governments ongoing efforts to strengthen the entire health system.

? Insurance cover for 44.6 crore persons under PM Suraksha Bima and PM Jeevan Jyoti Yojana.

? Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) was allocated Rs. 3,365 crore.

? Human Resources for Health and Medical Education was allotted Rs. 6,500 crore.

? National Health Mission was allotted Rs. 29,085 crore.

? Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) was allotted Rs. 7,200 crore.

? Allocation of Rs. 5,156 crore to the newly announced PM-ABHIM to strengthen Indias health infrastructure and improve the countrys primary, secondary and tertiary care services.

? Allocation of Rs. 341 crore to Ayushman Bharat Digital Mission (ABDM), 70% increase compared to Rs. 200 crore the previous year.

? National Tele Mental Health Programme was allocated Rs. 134 crore.

(Source: Ministry of Finance; IBEF: Healthcare Industry in India; Express healthcare)

Tax Incentives

? All healthcare education and training services are exempted from service tax.

? The tax holiday under section 80-IB for private healthcare providers operating 50-bedded (or more) hospitals in nonmetropolitan areas has been increased.

? The benefit of section 80-IB has also been extended to new hospitals with 100 beds or more set up in rural areas. Such hospitals are entitled to 100% deduction on profits for 5 years.

? 250% deduction for approved expenditure incurred on operating technology enables healthcare services such as telemedicine, remote radiology and artificial hearts to be exempt from the normal customs duty of 5%.

? There is an income tax exemption for 15 years for domestically manufactured medical technology products.

(Source: NITI Aayog Report: Investment Opportunities in Indias healthcare Sector)

Initiatives in Tele-medicine

The market size for telemedicine in India is projected to increase to USD 5.5 billion by 2025 growing at a CAGR of 31% during 2020-25. Telemedicine is transforming the healthcare sector as patients with no geographic boundaries can engage with healthcare professionals and avail of healthcare consultations. There has been an increased focus on telemedicine services. The Telemedicine Practice Guidelines (TPG) were released jointly by MoHFW and NITI Aayog in March 2020, which aim to regularise the practice of telemedicine in the country.Rs. The Guidelines, coupled with the governments tele-consultation services, have leveraged information communication technologies to enable the diagnosis, treatment and management of diseases. "eSanjeevani" is a digital health initiative of the Ministry of Health and Family Welfare and supports two types of teleconsultation services-Doctor-to-Doctor (eSanjeevani) and Patient-to-Doctor (eSanjeevani OPD) tele-consultations. eSanjeevani is an important component of the Ayushman Bharat Health and Wellness Centre (AB-HWCs) programme. It aims to implement tele-consultation in all the Health and Wellness Centres in a ‘Hub and Spoke model. The National Telemedicine Service of India has already served over 114 million patients at over 115,000 Health & Wellness Centres through 15,700+ hubs and over 1100 online OPDs serviced by more than 225,000 doctors, medical specialists, super-specialists and health workers as telemedicine practitioners_as on 30 April 2023.

As Telemedicine technology advances, artificial intelligence (AI) and machine learning are anticipated to help the delivery of efficient healthcare. Further, 5G penetration in the country will revolutionise telemedicine as it will enable faster data transmission and higher bandwidths, reduced lag during video chats and faster file transfers, allowing doctors to access and share medical data quickly and securely.Rs. It will enable doctors to monitor remote patients and deliver better and faster care, saving time and money while providing better patient outcomes.

(Source: NITI Aayog Report: Investment Opportunities in Indias healthcare Sector; eSanjeevani- Ministry of Health and Family Welfare)

Public Private Participation (PPP)

The public-private partnership (PPP) model_is a catalyst for the growth of the healthcare industry in India._The PPP model has numerous benefits as it increases efficiencies through optimum resource utilisation and widens the reach of healthcare services. It can provide funds and resources for the speedy implementation of the strategies and create best-in-class healthcare infrastructure and facilities in the country that benefit the masses.

The private sector dominated the healthcare market in India, accounting for 40.66% of total revenue.

Private healthcare infrastructure – hospitals and diagnostics have grown multi-fold in the last decade.

Private hospitals are essential to the provision of healthcare services in India. Around 70% of people living in rural areas and about 80% of people living in cities largely rely on private hospitals as their primary source of healthcare. The private sector offers superior facilities, higher quality of service and skilled doctors and support_ staff through shared resources,Rs. thereby further increasing efficiencies. Additionally, the corporate structure and management expertise of the private sector in building and running operations add to the seamless experience. With the sizeable private sector investment and the governments support, Indias medical value travel (MVT) industry will gain a strong foothold in the international market.

(Source: Businesswire)

The countrys healthcare requirements have seen a significant transformation as a result of the recent rapid growth of the Indian economy, growing population, favourable demographics and socioeconomic diversity. Given the cost of healthcare and the stark disparity between urban and rural areas, collaboration between the public and private sectors is necessary for long-lasting reform. The pandemic has shown the collaborations of both the public and private sectors in diagnostics, technology and treatment for saving lives. Moreover, public-private partnerships can help address the issues of affordability and accessibility of healthcare services in rural regions of India.

Healthcare Delivery in India

According to CRISIL MI&A Research, the Indian healthcare delivery industry is expected to grow at a healthy CAGR of 10-12% between 2022 and 2027 to reach Rs. 8.6 trillion in 2027. The growth will be driven by long-term structural factors, renewed impetus from Pradhan Mantri Jan Arogya Yojana (PMJAY), the potential of the Ayushman Bharat scheme, the governments increasing focus on the healthcare sector and increasing affordability.

Within the overall healthcare delivery market, the in-patient department (IPD) is expected to account for nearly 70% (in value terms), while the balance is to be catered by the out-patient department (OPD). Though in terms of volumes, OPD volumes outweigh IPD volumes, with the latter contributing the bulk of the revenues to healthcare facilities.

Healthcare delivery market growth in India

IPD: in-patient department; OPD: out-patient department

(Source: CRISIL MI&A Research)

Healthcare services are provided by the government and private players in India. They provide both IPD and OPD services. However, the provision of healthcare services in India is skewed towards the private players mainly due to the lack of healthcare spending by the government and high burden on the existing state health infrastructure. The share of treatments (in value terms) by the private players is expected to increase from 60% in 2018 to nearly 70% in 2027 owing to the expansion plans of private players and increasing reliance on private facilities till government infrastructure is properly put in place.

Share of treatments in value terms

38% 35% 31% 27%

62% 65% 69% 73%

FY 17 FY 22 FY 23P FY 23P

Private hospitals Government hospitals

(Source: CRISIL MI&A Research)

Low health-insurance penetration is one of the major challenges for the growth of the healthcare delivery industry in India, as affordability of quality healthcare facilities by the lower-income groups remains an issue. While low penetration is a key concern, it also presents a huge opportunity for the growth of the healthcare delivery industry. With the PMJAY scheme and other growth drivers, health insurance coverage is expected to increase to 47-50% by FY 2027. With the increase in health insurance coverage in coming years, hospitalisation rates are likely to rise. In addition, health check-ups, which form a mandatory part of health insurance coverage, are also expected to increase, boosting demand for a robust healthcare delivery platform. The rise in demand for health infrastructure, modern technologies, multi-disciplinary healthcare and investments by private equity players have been some of the key driving factors for consolidation in the industry.

(Source: CRISIL MI&A Report: An assessment of the healthcare delivery market in India with a focus on West India, April 2023)

Health Insurance Industry

The pandemic has emphasized the importance of healthcare in the Indian economy. Health insurance would play a critical role in the effort to strengthen the healthcare ecosystem. The growth of the health insurance industry in recent years can be attributed to various factors such as a conducive regulatory environment, increased participation of the private sector, improvement in distribution capabilities, rapid digitalisation, and significant government initiatives. Insurance products get a fillip after the pandemic and rising medical inflation. The pandemic increased the insurance penetration rate and triggered awareness of insurance and demand for protection products, especially health insurance.

Health insurance premiums have been the primary growth lever of the non-life insurance industry. This has resulted in the segment increasing its market share from 29.5% for FY 2020-21 to 35.3% for FY 2022-23. The health segment has grown by 23.2% in FY 2022-23 compared to 25.4% in FY 2021-22.

The total premium for health insurance in FY 2022-23 was

Rs. 90,667.7 crore compared to Rs. 73,598.1 crore in the previous year. Standalone Private Health Insurers (SAHI) continued to move on their growth curve as total premiums increased to Rs. 26,242.3 crore in FY 2022-23 compared to Rs. 20,867.2 crore last year.

Premium (within India) Underwritten by General and Health Insurance (in Rs. Crore)

The Insurance Regulatory and Development Authority India (IRDAI)s mission of "Insurance for all by 2047" has unveiled a slew of measures to increase insurance penetration in the country. Among the various initiatives towards boosting insurance penetration, IRDAI has also permitted insurers to conduct video-based know-your-customer (KYC) documentation, launch standardised insurance products, and allow insurers to offer rewards for low-risk behaviour. The growth of the health insurance market is also supported by government initiatives and schemes such as Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Jan Arogya Yojana) (AB PMJAY) etc., which aims at providing a health cover of 5 lakh per family per year for secondary and tertiary care hospitalisation. Since inception, 197 million beneficiaries have been provided Ayushman cards, and over 43 million hospital admissions worth over Rs. 0.49 lakh crore have been authorised through a network of 28,667 empanelled healthcare providers, including 13,115 private hospitals as of January 20, 2023. These schemes have driven insurance adoption and penetration across the health segment and have increased the share of health insurance since 2020 to pandemic-induced awareness. The outbreak of the pandemic has heightened awareness of lifes unpredictability and uncertainties and peoples lack of preparations in the occurrence of a medical emergency.Rs.

The health insurance industry is expected to maintain its growth trajectory on the back of the popularity of health insurance products/schemes, rise in disposable income levels, gradual introduction of new products, supportive regulatory landscape and insurance requirements of a growing population. The health insurance segment is on track to surpass Rs. 1 lakh crore mark in FY 2023-24. Further, the rapid economic expansion, supported by digital infrastructure and innovation and demographic factors such as a growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will contribute to the growth of the health insurance industry. The Internet of Things (IoT) and telematics are expected to change the sector in the coming years permitting insurance companies to use the data from internet-connected devices to increase operational efficiency.Rs. Technology-enabled customisation and transparency are expected to increase the demand for health insurance in Tier-II and Tier-III cities of India.Rs.

(Source: Care Ratings Report: Non-Life Insurance Premiums End FY23 on a High, Motor and Health Continue to Dominate, April 27, 2023; IBEF: Indian Insurance Industry; Economic Survey 2022-23)

Company Overview Company Background

Established in 1994, Shalby Hospitals Limited (hereafter referred to as "Shalby" or "the Company") is Indias leading multi-specialty hospital and provides high-quality and economical healthcare services. With three decades of experience in the healthcare industry, it currently runs a pan-Indian chain of 11 multispecialty tertiary hospitals and 4 Single specialty Hospitals (SOCE) across 6 states with a total bed capacity of more than 2,000.

The Company has established its reputation internationally as a pioneer in the field of joint replacements in India. Shalby is also the top player in the world for knee replacement surgery. It is taking advantage of this market niche and developing an asset-light approach in India. It is committed to provide quality and affordable healthcare services with a prime focus on patient welfare. The Company is well-positioned for further expansion and has great brand recognition in its core markets. Its facilities are equipped with cutting-edge technology and an expert team of highly qualified medical professionals. It employs more than 3,400 skilled physicians, surgeons, and support personnel with extensive subject knowledge and significant industry experience.

The Companys two upcoming facilities with a combined capacity of 321 beds will be located in Maharashtra. Shalby has 59 outpatient clinics (OPDs) across 16 states. It has also expanded its global presence by opening OPDs in Kenya, Nairobi, Ethiopia, Tanzania, and Uganda in the African continent.

Key Strengths

? Global leadership in joint replacement surgery

Shalby is the leading provider of knee replacement surgery worldwide. Approximately 45% of the Companys surgeries are arthroplasty procedures. It maintained its leadership in the arthroplasty market by performing 1,48,000 procedures in FY 2022-23. Shalby is also the first hospital in Gujarat to perform Spine and Orthopedic surgery using Image-Intensified Television. It owns 15% market share in private hospitals offering joint replacement surgery and a 5% overall market share. The knee replacement market in India has been growing in double digits over the years. Shalby will benefit from this trend due its strong market position and established brand equity, especially in this segment.

? Strong brand value

With nearly three decades of experience, Shalby has emerged as a trusted go-to brand in the healthcare industry, particularly in the orthopedic surgery market. Its brand reputation is well-established in India and international markets owing to its advanced technologies, world-class infrastructure, superior healthcare services, and track record of successfully performing surgeries on patients of all ages throughout India. In FY 2022-23, the Company provided healthcare services to ~5,22,817 patients.

? Unique business model

The Company has strengthened its position in the industry by following a unique business model, which aims to optimise Capex and Opex to achieve higher return ratios while providing best-in-class services. The Companys in-house planning team focuses on several factors while strategising new facilities and operations. Key factors include well-planned architecture and interior design, optimal utilisation of space, effective space optimisation in OT rooms with a high OT to bed ratio, judicious purchasing of high-quality and cost-effective equipment and devices and centralised procurement process for cost savings. Further, the Company does not require any fixed rent or security deposits as it operates on either a fully owned or Operation and Maintenance (O&M) revenue-sharing model.

? Dedicated team of experts

The Company has a dedicated and experienced in-house team of 4,000+ qualified doctors, surgeons, and support staff with extensive industry knowledge and domain expertise. They are imperative for the success and growth of the Company.

? Expertise in outpatient clinics (OPD)

With more than 15 years of expertise in OPD clinics, the Company has built a strong reputation. It operates OPDs in India and overseas to provide patients with specialised consultations. It also offers training to local doctors conducting OPDs in and around Ahmedabad. The Company formulates an expansion strategy for OPD clinics by analysing patient trends. Hence, when the Company plans to expand its facilities, it benefits from high brand recall without spending high branding costs.

? Strong balance sheet

The Companys robust balance sheet over the years despite its significant commercial expansion over the past decade is one of its key strengths and provides it a competitive advantage in the market. It has remained debt-free due to its asset-light model and steady free cash flow from its legacy hospitals in Ahmedabad.

? Healthy operating margins

The Company has maintained healthy operating margins due to its operational efficiency and several cost optimisation measures such as optimal use of the available built-up area, customised building construction, optimised procurement costs, etc. All these cost-conscious efforts around centralised procurement and clinician management strategy have supported healthy margin levels.

Key Business Strategies & Focus Areas

1. Growing other specialities

Shalby extends its expert healthcare through a wide spectrum of specialties. While maintaining global leadership in joint replacements, Shalby remain focused diversified into other segments such as Cardiac Science, Oncology, Neuro-science, Critical Care, General Medicine and Organ Transplants.

2. Expanding Footprints

Leveraging its strong brand equity, orthopedic expertise and existing OPD infrastructure, the Company is judiciously expanding in newer States to increase business operations. It is also setting up two hospitals in Nashik and Santacruz (Mumbai) in Maharashtra with a bed capacity of 146 and 175 respectively to provide access to important local markets with higher per-capita income.

3. Asset Light Business Growth

Shalby intends to grow its orthopedics business through an asset-light franchise business model under Shalby Orthopedics Centre of Excellence (SOCE) brand. This asset light business strategy enables us to grow our business without spending much capex and become EBITDA accretive very soon.

4. Leveraging Technology

The Company is focused on adopting and leveraging advanced technology to provide better medical services and outcomes, patient reach and satisfaction. It ensures that all its hospitals and facilities are equipped with state-of-the-art equipment and technology.

5. Homecare Services

The Company is exploring the homecare segment to achieve diversification in the services segment, keeping pace with current needs. It offers "Homecare" expert healthcare services at the convenience of home to enable fast recovery of patients from illness and disabilities. The intention is to offer an "invisible hospital" at home. The service witnessed good consumer traction due to high-quality and cost-effective solutions. In total, 27000+ homecare cases and 102000+ homecare visits were reported by the Company for FY 2022-23. It aims to provide superior 24x7 homecare services through high-end digital systems. It is also focused on growing the number of services and markets outside home locations.

6. Prudent Capital Allocation

The Company is following a sustainable Capex business model. It operates on either a fully owned or an Operations and Maintenance (O&M) revenue-sharing model. It is focused to increase operating efficiency and profitability through strategic real estate usage, unique building design, optimum utilisation of floor space, and centralised large-scale medical device and consumable procurement. Moreover, the Companys additional 40% of the total bed capacity is available to support organic growth trajectory with limited capex. Its cost per bed is Rs. 3.5 million, which is significantly lower than Rs. 7.5- Rs. 15 million per bed incurred by other private hospitals. This innovative method has led to significant cost reduction and profitable expansion. The Company aims to double ROCE in the coming years by leveraging its operational efficiency.

7. Training and Development

The Company aims to consistently invest in high impact training programs to establish a dedicated professional medical base. It gives an impetus to the training of nurses and allied health professionals for the delivery of skilled support services.

8. Backward integration through Implant Manufacturing

This initiative of backward integration through manufacturing knee & hip implants will enable Shalby to secure the supply chain and reduce costs significantly. Other than procuring internally, Shalby is also selling these implants in USA, Japan and Indonesia currently which will also help to establish our presence in global markets.

Growth Drivers

? Orthopedics – an evolving market

With the increasing cases of orthopedic disorders such as arthritis, the demand for orthopaedic healthcare services has surged in India. ~15% of the countrys population suffers from arthritis. The orthopedics 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. The orthopedic implant market size in India is valued at Rs. 4,838 crore in 2023 and is expected to grow at a CAGR of ~9.23% by 2030.

(Source: Hospaccx Consulting)

The government has undertaken various initiatives to address the challenges faced by orthopedic patients including launching health insurance schemes, developing healthcare infrastructure, promoting medical tourism and supporting orthopedic research and innovation. This has created ample opportunities for orthopedic healthcare providers in India to expand their services and cater to the growing patient base.

? Growing prevalence of lifestyle diseases

Lifestyle diseases or non-communicable diseases (NCDs) such as diabetes, high blood pressure and cardiovascular diseaseshavebeenincreasingrapidlyinIndiaprimarilydueto sedentary lifestyle, obesity, urbanisation, pollution, stressful work life, lack of physical activity, growing consumption of junk food, tobacco and alcohol and nutritional deficiency. Such factors are giving rise to alarming levels of non-communicable diseases and leading to rising demand for healthcare services in India. As per the World Economic Forum, the world will lose nearly USD 30 trillion by 2030 for NCD treatments and Indias burden will be USD 5.4 trillion.

(Source: CRISIL MI&A Report: An assessment of the healthcare delivery market in India with a focus on West India, April 2023)

? Growth in Medical Tourism

Medical tourism is a key growth driver for Indias healthcare market. The Indian medical tourism market was valued at USD 2.89 billion in 2020 and is expected to reach USD 13.42 billion by 2026. India is ranked 10^th by the Medical Tourism Association on the Medical Tourism Index (MTI) for 2020-21 out of 46 destinations of the world, 12^th in the top 20 wellness tourism markets globally, and 5^th in wellness tourism markets in APAC. India has emerged as an attractive destination for medical tourism due to the cost-effective, quality healthcare services, availability of advanced medical technology,_and a large pool of highly qualified medical professionals. India attracts patients from across the world and around 1.4 million medical tourists visited India in 2022. Medical tourists from neighbouring countries like Bangladesh, which sees the highest footfall of medical tourists to India along with Iraq, Yemen, Afghanistan, Oman and some parts of Nepal visit India as there is a lack of quality healthcare services in their countries. The cost of surgery in India is about one-tenth of that in developed countries. India has also become a favoured destination for Yoga and Wellness with its focus on traditional therapies. India is well-positioned to catapult its share in the global medical tourism market. (Source: IBEF: Healthcare Industry in India; Invest India: Medical Value Travel; Live Mint)

? Growth of private health insurance

The demand for health insurance coverage is rapidly increasing in India due to growing awareness of health security post-Covid-19, the rising costs of quality healthcare coupled with rising income levels, longer life expectancies, and an epidemiological change towards no communicable diseases.Rs. Improving medical insurance penetration in the country, growth of private health insurance and insurance coverage by corporate and government entities are growing the demand for the healthcare industry, as it increases affordability for advanced healthcare services.

Financial Overview

Financial and Operational Performance (Consolidated)

The Company continued to deliver high double-digit growth over the last two decades. During FY 2022-23, its consolidated revenue stood at Rs. 8,274 million, against Rs. 7,114 million in FY 2021-22, which is mainly due to the strong recovery of elective surgeries which continues to drive the core specialty revenues. Profit before Tax (PBT) stood at Rs. 1,020 million compared to Rs. 792 million in FY 2021-22. The Companys PAT increased to Rs. 677 million from Rs. 540 million in the previous year. During the year, the Companys outstanding balance of loans stood at Rs. 1,417 million.

Operational Highlights

Particulars	FY 2021-22	FY 2022-23
Bed capacity (Nos.)	2,000+	2,000+
Operational beds (Nos.)	1,235	1,260_
Average Length of Stay (Days)	4.55	3.92_
Occupancy (Beds)	563	570_
In-patient Count (Nos.)	61,173	71,893
Out-patient Count (Nos.)	3,18,455	4,50,924

Significant Financial Ratios

Ratios (consolidated)	FY 2022	FY 2023	Difference	Reason for variance above
				25% year on year
Debtors Turnover	7.40	7.76	5%	No Major Variance
Interest Coverage	15.16	12.17	-20%	No Major Variance
Current Ratio	2.58	2.66	3%	No Major Variance
Total Debt/Equity ratio	0.18	0.15	-14%	No Major Variance
Operating Profit ratio	12.80%	13.81%	8%	No Major Variance
Inventory Turnover	9.70	5.25	-46%	Due to high Inventory
Net Profit Margin	7.59%	8.18%	8%	No Major Variance
Return on Net worth	6.31%	7.50%	19%	Better Profitability

Segmental Performance Hospital Business

Our hospital business showed exemplary performance in FY2022-23 wherein we delivered high double-digit growth across in-patient counts (including daycare) and overall surgery count that grew by 18% and 35% y-o-y respectively while ARPOB increased by 11% on a y-o-y basis respectively. Our hospital revenue recorded at Rs. 7274 million grew by 10% y-o-y and EBIDTA at

Rs. 1615 million by 13% y-o-y while we continued to maintain a double-digit PAT margin of 11% in FY2022-23 v/s 12% recorded in FY2021-22.

Implant Business

Our Implant manufacturing business under Shalby Advanced Technologies, Inc in California, USA has made steady progress during FY2022-23. Revenues grew nearly by 3x to Rs. 939 million of which sales in the USA and India contributed 60% and 40% respectively, supported by the growth in the production of components which grew to 4500 components on monthly basis. We reported a positive EBITDA in FY2022-23 backed by cost reductions while maintaining a healthy customer mix from the retail and wholesale USA customer segment.

Key Risks & Mitigation Strategies

The Company is exposed to various risks due to internal and

external factors for which it has devised robust mitigation

strategies to minimise their impact on business operations.

The key risks and their corresponding mitigation measures are

depicted below:

? Regulatory Risks

Being a part of the healthcare industry, the Company is

required to comply with various laws and regulations. It

faces regulatory risks such as pricing caps on surgeries,

implants, stents, etc. due to frequent modifications

in regulations and legal procedures. It is exposed to

challenges of compliance, adherence to procedures and

meeting patients expectations on expenses and quality

of treatment. The Companys business activities are also

impacted by economic policies like demonetisation, GST,

and taxes.

Mitigation: The Company closely monitors regulatory

developments and tries to predict regulatory changes

based on evolving industry trends. It also focuses on cost

optimisation and enhancement of operational efficiency to

mitigate regulatory risks.

? Lack of skilled workforce

For providing superior healthcare services, the Company depends on an expert team of skilled and qualified professionals. There is a scarcity of competent doctors, nurses, and paramedics due to inadequate medical education infrastructure in the country. Moreover, there is a significant imbalance in the availability of medical professionals in urban and rural areas. This adversely impacts the Companys ability to provide high-quality healthcare services.

Mitigation: The Companys "Shalby Academy" provides excellent educational programmes for paramedical students and other healthcare professionals. Experts in the field provide training to students for efficient healthcare delivery and complex surgeries. The majority of the specialists trained in this academy are absorbed in the Companys hospitals, protecting them from a talent shortage.

? Capital-intensive business

The hospital industry is capital-intensive due to high costs for land acquisition and building construction, legal and approval costs, and procurement and maintenance of technologically advanced medical equipment. The high cost of medical professionals further increases the Financial burden. These factors put pressure on the return on investment (ROI).

Mitigation: The Companys unique business model with optimal use of real estate to grow operations allows it to keep capex costs under control. It has an in-house team of architects and designers for construction and utility planning, enabling it to break even faster than competitors. Systematic procurement of medical equipment at competitive prices helps in the reduction of operational costs and the increase of profits. Further, the Company expands its orthopaedic and joint replacement businesses through a franchisee model, avoiding significant capex investment and developing an asset-light business strategy.

? Concentration Risk

The Company suffers geographical concentration risk because half of its operations are concentrated in a single Indian state, Gujarat.

Mitigation: To reduce concentration risk, the Company is focused on increasing its geographical footprint. It has strategically established its new facilities in other Indian states. It set up 5 hospitals in different states with a combined bed capacity of 908. The Company is also expanding its existing facility in Maharashtra with two additional hospitals in Mumbai and Nashik with a total capacity of 321 beds. This strategy will enable the Company to reduce revenue concentration from a single state. Additionally, the company has strategically diversifying its risk by venturing into Knee & Hip implant manufacturing activity based which also helps to establish a great synergy for our Orthopedic business.

Business Outlook

The healthcare industry is expected to maintain its growth trajectory in the coming years, primarily led by the increase in medical tourism and the increasing healthcare requirements of a large population. Further, advancements in digitally enabled healthcare such as the utilisation of artificial intelligence (AI) and telemedicine will pave the way for the growth of the healthcare sector. The robust pharmaceutical sector in the country will also aid the growth of the healthcare industry.

The Company is focused on expanding its footprints in Tier-I and Tier-II cities where the demand for specialties is more than quality service availability. It is committed to broadening the scope of its innovative offerings, such as the care card and homecare. The Company is confident to outperform the industry average growth in the next fiscal, backed by its unique business model, service capabilities and domain expertise in the healthcare market.

Regulations and Safety

The healthcare sector in India is increasing its focus on adherence of compliance with international safety standards as India strives to align with global norms. As a provider of healthcare services, Shalby constantly endeavours to adhere to the ever-evolving rules and regulations. It is committed to adapt to the changing industry demands with strong compliance to even stringent laws.

The Company has adopted various initiatives for the protection of the environment and minimise the impact of its operations on the environment. The Company is committed to focus on maintaining sustainability and abstaining from damaging the environment while exceeding patients service expectations. It aims to consistently maintain quality standards, reduce waste generation and segregate recyclable waste at hospitals. It also ensures that all its practices are according to the applicable laws and safety regulations.

The Company follows strict surveillance processes and maintains records for any potential legal discourse in the future. All the vendors of the Company are duly certified, ensuring all equipment and devices meet the highest regulatory standards. Shalby has obtained global accreditations from the National Accreditation Board for Testing and Calibration Laboratories (NABL) owing to its robust corporate governance procedures and regulatory compliances.

Internal Controls

The Company has a robust internal Financial controls system, in all material respects, for accurate Financial reporting. During FY 2022-23, the Company was operating effectively according to "the internal control with reference to Financial statements criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India". The top management ensures that an effective internal control system is in place and it adheres to all applicable laws and regulations. The internal control system ensures the safeguarding of assets, reliability and accuracy of Financial reporting in a timely manner and prevention of fraud and errors. All Company transactions are recorded in compliance with the Indian Accounting Standard (Ind-AS) according to the accounting policies. The Internal Audit Team periodically monitors the key findings and offers strategic guidance.

Human Resources

The Companys Human Resources function is critical to business continuity. It considers its employees as the most important asset and integral to its competitive position. The HR team places significant emphasis on identifying and recruiting the right individuals, fostering ongoing employee engagement with the organisations mission and vision, retaining them with a lively culture and assuring their career advancement. This has become more difficult as demand for qualified healthcare workers in India has increased. To meet these challenges and expectations, the Company has built a robust Human Resources staff in the corporate office and across all operating units. This team includes an experienced team of specialists for the Learning and Development project.

Information Technology

At Shalby, IT remains a key focus area to ensure the smooth functioning of its hospitals and effective and efficient patient care. The Company is constantly improving patient care by reengineering and streamlining the processes with the smart deployment of IT and technology adoption. It has benefitted from technologies to design patient-centred interventions by gaining insights into health information and changing needs of patients. It also uses new technological tools by synchronising business operations to accelerate business growth. Shalby aims to leverage technology to scale the Company higher qualitatively and increase profitability.

In todays rapidly evolving healthcare landscape, the assimilation of technology has become imperative for organizations to provide efficient, patient-centric care. It is undergoing a remarkable transformation, facilitated by advancements in artificial intelligence and machine learning. Embracing IT initiatives and undergoing digital transformation has become a crucial strategy for healthcare companies worldwide.

At Shalby, we recognize the significance of leading this digital revolution within the healthcare sector. We are committed to drive technology and digital initiatives to enhance the patient and doctor experience. In recent years, we made commendable progress by focusing on building a digital team and laying a strong foundation to deliver our digital vision.

1. Digitization of Patient Feedback System

Digitization has made it easier for patients to provide their feedback through online portals and mobile apps. This has not only increased the accessibility and convenience for patients but has also improved response rates and data accuracy. Moreover, the digitization of patient feedback enables Shalby to analyze the collected data more efficiently and allows healthcare providers to make data-driven decisions. This proactive approach promotes patient-centric care and enhances overall service quality.

This has transformed the way patient feedback is collected and utilized, paving the way for improved patient experiences, enhanced care delivery, and overall system efficiency.

2. Arthroplasty Clinical data

Recognizing this importance of clinical data of arthroplasty, Shalby had rolled out initiatives to capture comprehensive arthroplasty clinical data, encompassing pre-operative, post-operative, and operative findings. These initiatives aim to gather detailed patient information, including medical history, imaging data, and pre-operative assessments, enabling surgeons to make informed decisions and personalize treatment plans. Post-operative data collection facilitates monitoring patient recovery, identifying potential complications, and assessing the effectiveness of interventions. This data-driven approach promotes evidence based practice and fosters innovation in arthroplasty.

With robust data capturing initiatives in place, arthroplasty clinical data serves as a valuable resource for improving surgical outcomes, enhancing patient safety, and driving advancements in the field of joint replacement.

3. Patient engagement & touch points

In todays digital age, we believe in optimizing patient touchpoints to deliver exceptional care and experiences ensuring seamless patient interactions.

I. Implant Business Website Development: We have now fully operationalised our implant business website. The website is fully equipped with all implant product portfolio, surgical documents, geographical footprints, distributors showcase and touch points. This website go live was a part of digital marketing initiative and enabled us to reach out to unexplored territories through various digital campaigns etc and increase our business.

II. Hospital Business micro website: We have also enhanced the features of our hospital unit individual micro websites. Website revamping focuses on intuitive navigation, clear presentation of services, online patient portals, appointment requests, and access to medical records. Enhanced website functionality empowers patients with self-service options, medical educational resources, and seamless communication channels. These initiatives elevated patient experiences, improve accessibility, and foster effective communication, ultimately enhancing the overall quality of care provided.

III. Strengthening of BCP & DR: Patients data is of utmost importance. Hence, Shalby is prioritizing the strengthening of Business Continuity Planning (BCP) and Disaster Recovery (DR) strategies. We have strengthened our BCP and DR measures and made them even more robust which involve comprehensive risk assessments, backup systems, data protection, and contingency plans. By focusing on these areas, we are now able to safeguard patient care, maintain operational continuity, and swiftly recover from disruptions, ultimately ensuring the well-being of both patients and healthcare professionals.

As Shalby continues to embrace IT initiatives and digital transformation, we remain committed to leading the way in delivering exceptional healthcare experiences and outcomes. Our ongoing investment in technology and digital solutions will help us drive innovation and transform the healthcare landscape. By improving patients touchpoints, we aim to offer users a seamless experience, engage them meaningfully, and increase our reach. Moreover, our focus on data-driven insights ensures informed decision-making and positions us at the forefront of the industrys data revolution.

Cautionary Statement

Certain statements in the Management Discussion and Analysis describing the Companys business, Financial performance, objectives, prospects, predictions or similar expressions may be ‘forward-looking statements within the meaning of applicable laws and regulations. Actual performance or results may vary significantly from the forward-looking statements contemplated in the Directors Report and Management Discussions and Analysis Report due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, technological obsolescence, new regulations and Government policies, tax laws, and other statutes and incidental factors that may impact the Companys business as well as its ability to implement the strategy. The Company disclaims any duty to update the information given in the aforesaid reports.