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Rs 600 cr Narayana Hrudayalaya IPO: Balancing affordable healthcare and the impending pressure for profits

Following the IPO, the promoters will own 62 per cent of the company.

Written by Saritha Rai | Bengaluru |
December 17, 2015 3:58:41 am
Dr Devi Shetty Chairman & Executive Director Narayana Hrudayalaya. Dr Devi Shetty Chairman & Executive Director Narayana Hrudayalaya.

He is more relaxed in his doctor’s scrubs than in a formal business suit and more comfortable delivering clipped instructions through a surgical mask at an operating table rather than behind a microphone talking about business profits. It is certainly a new avatar of Dr Devi Shetty, who is taking his Narayana Hrudayalaya public this week.

Dr Shetty and his investors, including JPMorgan, are offloading 12 per cent of the shares of Narayana Hrudayalaya for about Rs 600 crore, with each share priced at Rs 250 for the public in an offering that will open on December 17. Following the IPO, the promoters will own 62 per cent of the company.

Dr. Shetty, 62, chairman and executive director of the Narayana chain, is now faced with a recurring question on whether the IPO, with an emphasis on quarter-on-quarter performance, dilutes the company’s philosophy of bringing affordable healthcare solutions to India’s masses. The surgeon says that the perception that Narayana is about ‘free’ healthcare is incorrect. “Our model was never about free treatments but rather about affordable healthcare; charity is not scalable, good business models are,” he emphasises.

The Bangalore-based Narayana Hrudayalaya’s story began in the late 1980s. Dr. Shetty had returned from England and started working in Kolkata where his reputation spread quickly. Hundreds of patients thronged his heart clinic for consultations. “But not a single one returned for surgery,” he recalls. The prices for heart surgeries were astronomical. Dr. Shetty gained repute for performing a surgery on Mother Teresa and then became her trusted doctor. Narayana Hrudayalaya was born in 2000 with two hospitals, one in Bengaluru which is now his base, and the other in Kolkata where he began his practice. “We set about building a hospital chain that touches people’s lives and, yet, has a solid business model,” says Dr Shetty.

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To place Narayana Hrudayalaya in context, healthcare delivery in India is very much a private affair. The government spends just 1.1 per cent of its GDP on healthcare compared against 18 per cent government spend in the United States and up to 12 per cent in Europe. There is also a tremendous shortage of hospital beds — a whopping 3 million estimatedly. “The government has no plans to add beds and the private sector is too small to make a difference,” sums up Dr. Shetty. Meanwhile, cardiovascular disease is one of the biggest cause of deaths in the country and needs 2 million heart surgeries a year against the 1.2 lakh performed currently by all hospitals put together. “The remaining patients simply perish but since it is one person at a time, nobody is paying attention,” says Dr. Shetty.

The Narayana model evolved over time. Dr. Shetty and his team used economies of scale to bring down costs to unheard of levels of under Rs 50,000 putting it more within the reach of poorer Indians. The 56 hospitals in the chain treat 2 million patients every year and perform 300 surgeries daily. Patients from all over India, parts of Africa and India’s neighbouring countries throng the hospital for its “one price” clear and transparent heart surgery packages.

Its 706-bed heart hospital in the suburbs of Bengaluru is considered the world’s largest heart hospital.

That gives the chain great leverage and it drives hard price bargains with suppliers for medical consumables and equipment. It pushes local suppliers to produce within the country. To deal with the high number of heart and renal surgeries, two areas which Narayana specialises in, doctors use the assembly line approach, going from one operating table to the next with clockwork precision earning the hospital the tag of Ford of healthcare.

The chain trains patients’ relatives to administer after-surgery care so as to reduce costs and hospital visits. In recent years, Narayana Hrudayalaya has further driven down costs by innovating with building hospitals as well as managing them. “India is in a phenomenal position to make a difference and show the world a new way of delivering affordable healthcare,” he says.

The IPO will not change a thing about how Narayana operates and Dr. Shetty says Narayana Hrudayalaya has always looked at economic viability and will continue to do so. “Forget a hospital, even a temple has to generate profit and keep itself neat and tidy. Otherwise it will start stinking and god will become unpopular,” the surgeon said in an interview. It will continue to be important for Narayana to generate profits and continue to grow. “How much profit is the question, it is about need and not greed,” he says.

He dismisses the inevitable post-IPO pressure on quarterly growth and says the hospital will continue to do good for patients. “Everything else is minor detail” he says and adds, “After all, you cannot play a good game of tennis if you are constantly looking at the scoreboard.”

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