Malvinder & Shivinder Singh: Fast And Curious

Image: Vikas Khot

Shivinder Singh & Malvinder

To most people, it remains unclear whether the suave and sophisticated Malvinder and Shivinder Singh are visionaries or mercenaries. If, on the one hand, you look at what they did with Ranbaxy, you’d say, mercenaries. The brothers inherited the company — once considered the original rock star of Indian pharma — from their father, the late Dr. Parvinder Singh. Parvinder was the kind of man who believed in long-term strategies and revelled in cracking open new markets. He showed his counterparts in the business how income can be earned in brutal markets like the US. To that extent, Ranbaxy was the Pole Star.

But when the brothers thought it right, they sold the Pole Star and their father’s dream to Japan’s Dai-ichi Sankyo for a cool Rs. 10,000 crore. Flush with funds, they’ve made fresh bets and a string of acquisitions. They made a $2-billion hostile bid for Singapore-based hospital chain Parkway Holdings through their Fortis Healthcare. This bid put them on a head -on collision path with arch rivals Apollo Healthcare who was backing rival bidder Khazanah, an entity owned by the Malaysian government. If the acquisition had gone through, Fortis would have emerged as Asia’s largest healthcare network.  

But that was not to be and that round went Apollo’s way. The brothers, however, opted out of the race because they thought “the price too high”. In any case, along the way, they sold their 25 percent stake Parkway to Kazanah at a premium, pocketed $85 million, and walked away.

If, on the other hand, you factor their ambitious investments in Fortis and Religare, you’d be tempted to think of the brothers as visionaries. With the former, they want to be the McDonald’s of healthcare, and with the latter a financial services firm with global ambitions. More importantly, they have a few billion dollars stashed away to fund these businesses and they don’t mind spending it.

To figure what the brothers really are, you ought to look at their gene pool. Like we said earlier, their father was the long -term player. And then there’s his youngest brother, the maverick Analjit Singh who spotted opportunities before others did, built businesses out of them, and sold them with equal aplomb if the time was right. Remember Hutch Telecom? 

Malvinder and Shivinder seem to have inherited in equal measure from the both of them — their father’s long-term outlook and their uncle’s pragmatic world view. When looked at from that perspective, things fall into place.

At Ranbaxy, growth was tapering off in the domestic market. In the US, it had enough troubles on its hands. In fact, soon after the brothers exited the company, the US Federal Drug Agency hit Ranbaxy with regulatory bans and Dai-ichi had to write down more than $2 billion in one time losses. It’s another matter altogether that they attracted a lot of flak for the sale from the stock markets where analysts were quick to dub them a pair out to make a killing and a quick buck.

Since then, the brothers have shrugged off criticism and have focussed on their new bets. Fortis Healthcare grew three times on the back of a string of acquisitions. With a market capitalisation of Rs. 6,600 crore, it is now more valuable than their bigger and more profitable competitor, Chennai-based Apollo Healthcare.  Religare Enterprises, their finance company is valued at Rs. 6,000 crore, making it the fourth largest in the industry. The brothers recently resigned from Religare’s board, prompting suggestions the company may be vying for a banking license.

A Different Mindset
A family friend who did not wish to be named says that they have fallen back on unusual sources to find leaders to head their business. Both the brothers are ardent followers of the Radha Saomi Satsang sect.

Over time, they have often looked at fellow members from the sect to help run the companies. As early as 2001 the brothers approached another Satsang member and a family friend Sunil “Sunny” Godhwani, to lead the group’s foray in to the finance sector. Godhwani is chairman and managing director, Religare Enterprises.

Recruitment of the current CEO of Fortis, Bhavdeep Singh, is also said to have happened through a mutual friend at the Satsang. Says a close family friend, “The brothers may think global when it comes to scaling up their business, but they act very locally in many areas including hiring talent for their company.”

Bhavdeep vaguely recollects being surprised by a call he received one day from Shivinder Singh, asking if he was willing to head their hospital business. At that time, Bhavdeep, with over a decade’s experience running retail store operations in the US, was a senior executive at Reliance’s retail arm.

Bhavdeep says, “I initially found it rather unconventional that I be called to run a hospital business. But after meeting Shivinder a couple of times, I was convinced.” Shivinder wanted Bhavdeep’s skills to create a McDonald’s model for healthcare in India.

Shivinder’s bet of bringing in Bhavdeep seems to have worked. In the aftermath of wresting control of Escorts Hospital from renowned cardiologist Dr. Naresh Trehan, Shivinder upset doctors at the hospital, many of whom chose to quit the place. Bhavdeep with his experience in setting up systems began streamlining processes and reducing costs.

Despite being an outsider to the medical fraternity, Bhavdeep made some fundamental changes.  He brought down the number of beds from 325 to 280 and reduced the number of nurses by 33 percent. The changes resulted in revenue growth at Escorts Delhi by 36 percent. Even in a smaller hospital like Kota, Rajasthan, losses have been brought down from Rs. 30-35 lakh per month to Rs. 5 lakh now.

In the financial services business too, the brothers have allowed Godhwani a free hand to build the business. Since the brothers have stepped down from the board, Religare has hired half a dozen professionals at high salaries from overseas to kick start their investment banking operations. Godhwani says that since the brothers are not on the board, they can even make acquisitions by deliberating among themselves. Dr. Bhavin Jankharia, head of Piramal Diagnostics, which was bought over by Fortis, also endorses the freedom he gets to run his show. Jankharia says, “You get the feeling they are willing to let you execute your strategies.”

What Exactly Do They Do?
The tearing hurry with which the brothers are putting their businesses together seems to have raised a few brows. Are they playing a valuation game is a question most people have on their minds. The truth, once again, is ambiguous. Sure, they see merit in ramping up valuations. That said, they also see the long-term potential in both businesses and by all accounts, they may just hang on in there for the long haul.

A research report by retail consultancy Technopak argues the hospitals business is growing annually at a compounded rate of 15 percent and that it will be worth $120 billion five years from now. To take advantage of the coming boom, they need to ramp up quickly. Most promoters in the business find themselves hamstrung by expensive real estate. That doesn’t concern the brothers because during the downturn they were sitting on cash and invested in cheap real estate, which they are now putting to good use. The focus right now is on building as many hospitals as fast as possible, before others catch up, and creating an easily replicable model.

The associated scale that comes with it allows them to bring down procurement costs by 15 percent. The average length of a patient’s stay at Fortis is now four days as opposed to seven earlier. This increases the yield per bed. All of this has a significant impact on the bottom line. Typically, hospitals take at least five years to break even. Fortis does it in two-and-half to three years.

In the financial services business, they want Religare to have its fingers in as many pies as possible — be it retail, insurance or investment banking with a focus on emerging markets. Most people would like to do what they’re doing, but what holds everybody back is the kind of cash the brothers have at their disposal. And they aren’t tight-fisted when it comes to opening the purse strings.

Last year, they made a bid for AIG’s investment arm that manages over $100 billion in wealth from over 45 locations. The brothers were willing to underwrite Religare’s right issue of shares for the deal which would have cost them $600-700 million. Godhwani says, “The mandate to us is clearly to be a cut above the rest in the domain.”

But breakneck expansion comes with a unique set of problems. In the healthcare business, for instance, they’ve been unable to attract top flight talent yet.

When they took over a hospital from Wockhardt in Bangalore, a 12-member crack cardiac unit packed up and left. Senior doctors on the team packed experience in excess of 25 years on an average. The senior doctors on the replacement team that arrived had about 15 years average under their belt.

While it bothers many, the brothers are clear they can’t wait for top talent before they start to build the business out. Instead, they need to assemble the many pieces in both the businesses first with the fine tuning following later.

Whether it makes long term sense or not is unclear yet.

As things stand, the hospital business will just about make profits this year. The business was mired in losses until recently which Bhavdeep says was on account of high capital expenditure and acquisitions. In the finance business, the company is just starting out capital intensive businesses like insurance and will be up against established players like JP Morgan and ICICI in the investment banking space.