Sunday, October 15, 2006
Wealth Creation
Going IPO
That Health is Wealth we already know. But is there Wealth in Healthcare? Sure, doctors are among the highest compensated professionals, Medical devices companies seem to be raking in the moolah, as are pharmaceutical companies. But what about the hospitals, which effectively bring all these together to deliver healthcare services to patients and consumers?
To someone on the outside it would appear, given the supposedly high tariffs at the superspecialty hospitals, that hospitals are making money hand over fist. Is this true, and if so, who are the beneficiaries-the physicians, the onwers, or the investors, or all of them?
When Dr.Prathap C Reddy pioneered the concept of the Corporate Hospital, he had a tough time persuading investors to put in money into his hospitals. The development financial institutions (at that time ICICI, IDBI, and IFCI) did lend him the money, but insisted that he should go IPO very quickly. With the result that Apollo Madras and Apollo Hyderabad (they were different companies) went IPO within a year of becoming operational. Never mind that the issue size (in the late 80s) was tiny compared to current day IPOs. And IPO costs were in the ball park of 15 % of issue size. But the markets were not at all responsive, and many of these issues found it a challenge to even get fully subscribed. This did not deter other hospital promoters, and soon there was a slew of hospital IPOs (all of them tiny in size, and almost always, Hyderabad based companies, barring the occasional Chennai Hospital). However, none of these stocks performed well and most of them quoted below issue price (those days, IPOs were at face value of the stock, in most cases Rs.10).
Even though these hospitals continue to be in existence, and many of them doing reasonably well, no one knows what happened to their stocks (except ofcourse Apollo Hospitals, which has done well and is at an MCap of around Rs.800 Crores). Which is one of the reasons that investors were not terribly excited about the hospital sector till a few years ago.
Suddenly one sees the papers full of media stories about Hospitals, and most of them talk about the IPO being the preferred way to raise Capital to fund expansion programs. Yesterday there was a write up about a company called Soundarapandian Bone and Joint Hospital, which operates a 50 bed hospital and has revenues of Rs.7 Crores, in the market for investments of around Rs.10 Crores. Today, the Economic Times wrote about Global Hospitals, Hyderabad, which plans to invest Rs.500 Crores on a variety of expansion programs.
The question these stories raise is whether these hospitals are right sized for IPOs, and how soon will they be able to create wealth for the investors. On that will depend the ability of the hospital sector to consistently turn to the markets when they need Capital to fund aggressive growth plans.
That Health is Wealth we already know. But is there Wealth in Healthcare? Sure, doctors are among the highest compensated professionals, Medical devices companies seem to be raking in the moolah, as are pharmaceutical companies. But what about the hospitals, which effectively bring all these together to deliver healthcare services to patients and consumers?
To someone on the outside it would appear, given the supposedly high tariffs at the superspecialty hospitals, that hospitals are making money hand over fist. Is this true, and if so, who are the beneficiaries-the physicians, the onwers, or the investors, or all of them?
When Dr.Prathap C Reddy pioneered the concept of the Corporate Hospital, he had a tough time persuading investors to put in money into his hospitals. The development financial institutions (at that time ICICI, IDBI, and IFCI) did lend him the money, but insisted that he should go IPO very quickly. With the result that Apollo Madras and Apollo Hyderabad (they were different companies) went IPO within a year of becoming operational. Never mind that the issue size (in the late 80s) was tiny compared to current day IPOs. And IPO costs were in the ball park of 15 % of issue size. But the markets were not at all responsive, and many of these issues found it a challenge to even get fully subscribed. This did not deter other hospital promoters, and soon there was a slew of hospital IPOs (all of them tiny in size, and almost always, Hyderabad based companies, barring the occasional Chennai Hospital). However, none of these stocks performed well and most of them quoted below issue price (those days, IPOs were at face value of the stock, in most cases Rs.10).
Even though these hospitals continue to be in existence, and many of them doing reasonably well, no one knows what happened to their stocks (except ofcourse Apollo Hospitals, which has done well and is at an MCap of around Rs.800 Crores). Which is one of the reasons that investors were not terribly excited about the hospital sector till a few years ago.
Suddenly one sees the papers full of media stories about Hospitals, and most of them talk about the IPO being the preferred way to raise Capital to fund expansion programs. Yesterday there was a write up about a company called Soundarapandian Bone and Joint Hospital, which operates a 50 bed hospital and has revenues of Rs.7 Crores, in the market for investments of around Rs.10 Crores. Today, the Economic Times wrote about Global Hospitals, Hyderabad, which plans to invest Rs.500 Crores on a variety of expansion programs.
The question these stories raise is whether these hospitals are right sized for IPOs, and how soon will they be able to create wealth for the investors. On that will depend the ability of the hospital sector to consistently turn to the markets when they need Capital to fund aggressive growth plans.
# posted by Srivathsan @ 8:46 AM 
