How Vishal Bali is giving a fresh life to India's crippled healthcare sector and making his investors richer

“If you take a look at all the multi-specialty players, they have spent almost two decades to scale up in size with tonnes of capital gone behind it,” Bali says. “But the return on invested capital in most of these enterprises are at less than 10 percent. So effectively you put in a lot of capital, you've taken a long time to grow, and then you've not got the right returns.”

In the single-specialty space, however, Bali reckons that the potential is much better. For instance, when Bali and AHH acquired Motherhood, the company had revenues of around $7 million. It has now grown to $39 million. “This is unprecedented in this sector,” Bali says. The Motherhood business already has an Ebitda margin of over 17 percent. Similarly, in the IVF business, when AHH had acquired Nova, the company was bringing in some $30 million of revenue but with a loss of $5 million. “We turned around it in six months. What was negative in that first year we turned it around with a growth of about 20 percent.”

Building it all up

For Bali, building up the new business in healthcare came rather naturally. “This is all that I know of,” says the 53-year-old.

After starting as a management trainee at Wockhardt Hospitals in 1991, he went on to become the CEO. In 2009, the Habil Khorakiwala-promoted Wockhardt Hospitals sold 10 of its hospitals to Fortis Healthcare for Rs 909 crore, in one of the largest healthcare deals in the country, making Fortis the second largest healthcare provider in India.

Bali became the CEO of Fortis Hospitals before relinquishing his duties five years later. Soon after, he set up Medwell Ventures, which runs Nightingales, a home healthcare services company across four large metros. By 2017, he also became the executive chairman of Asia Healthcare Holdings. 

“When I joined TPG Growth, we contemplated a whole bunch of ideas and one was obviously the direct investments that it was making in various healthcare enterprises,” Bali says. TPG Capital, another fund owned by TPG, has a significant investment in Manipal Hospitals, which had made attempts in the past to acquire Fortis Hospitals and the Gurugram headquartered-Medanta. TPG Growth also has an 8 percent stake in PharmEasy, which had recently acquired diagnostics chain Thyrocare. 

“The other thought process was, why don't we look at single specialties,” Bali says. “When we looked at the universe of single-specialty businesses that existed in India, at that time, we saw nothing of the scale, which would be measured up to the kind of investment that we wanted to make in that space.”

That’s when the company decided to build up a business of its own. “If there is no scaled up asset in business, then why don't we create businesses, which, from a very early stage, are on this platform, and grow them over a period of time, which was absolutely antithesis to what we will do in our private equity world of taking minority control and scale-up businesses,” Bali explains. “So here, it was majority control and very early-stage companies in the single-specialty space, and then grow them over a period. And I think that was an idea which never existed in this part of the world at all. 

In May 2016, AHH bought a majority stake (68 percent) in Cancer Treatment Services International (CTSI), which operated a single 250-bed hospital in Hyderabad under the AOI brand. CTSI operated the American Oncology Institute in Hyderabad and 10 multidisciplinary cancer centres across the Indian subcontinent, a US-based Oncology Solutions division that provides cancer care professional services to healthcare providers worldwide, and AmPath, an integrated reference laboratory and pathology services provider in India.

AHH also inducted a new management team including the onboarding of a new CEO and other executives. All that meant revenues grew from $10 million in 2016 to $40 million in 2019, at 58 percent.

“The AHH mantra is to grow entities, make them scalable and sustainable,” Bali says. By 2019, the company sold CTSI to New York-based Varian Medical Systems for $283 million (Rs 1,972 crore). In the meantime, the company grew from one centre in Hyderabad to 11 across the country, with six more in the pipeline. “It was a big exit for TPG,” Bali explains. “It was India's most valuable exit of 2019. It actually raised a lot of eyebrows in the country that within a couple of years, one can see a return like this in the single specialty space.” 

Around the same time, the company also took majority control of Bengaluru-based Rhea Healthcare with an investment of $33 million. Rhea was then operating three mother and childcare hospitals under the brand 'Motherhood' in Bengaluru, Chennai, and Hyderabad.

“When you look at the timeframe from 2014 to 2017, there were a few of these mother and child centres that came out, including enterprises like Cloudnine and Apollo cradle,” Bali says. “And their concentration was largely around one product or service, which was birthing. We felt that there was an opportunity to do something very different in this space”

It helped that Mohammed Rehan Sayeed, the founder of Motherhood was also looking at a sale, as the business had been struggling to make money. “One fine day I was having a chat with him,” Bali says. “And he said, I think I'm done over here. If you guys are interested, why don't you guys just take over this company.” Motherhood had three centres in Bengaluru then, of which two were operational. It also had centres in Chennai and Hyderabad. At that time, the company had an annual revenue of $5 million.

Bali and the team, however, took control of the three centres in Bengaluru since the business was fairly new to them. Today, the number of Motherhood hospitals has grown to 12 from three. The company is currently in the process of building eight more centres across the country. 

“The first task was to go and carve out a clear differential position for ourselves, by becoming a very comprehensive women and children's health care provider and not a birthing centre,” says Vijayarathna Venkatraman, the CEO of Motherhood, who joined the company soon after AHH’s acquisition. “On the back of that, we had to go and do a lot of internal transformation of the organization, starting from bringing in clinical talent. We had a couple of IVF programmes in our network, and we turned it around. We also brought in a fair amount of technology inside the system, which was otherwise considered to be a domain of probably a large hospital.” In addition, the hospital also diversified the services including neonatology and pediatrics. 

With Motherhood slowly transforming itself, Bali and the team also set out to acquire the then loss-making Nova IVF Fertility for $100 million. It was India’s second-largest network of IVF centres running 19 outlets in 15 cities. Goldman Sachs was an investor in the company. 

“Every fund looked at it, and everybody passed on that opportunity because people said turning around the ship is a very difficult task,” Bali says. “And we don't want to invest money in it.” Bali, who has a penchant for taking on stressed assets and turning them around, however, sensed a massive opportunity. “It was massively challenging, particularly when some of the biggest funds looked at it and pass on the opportunity. We said there is something which is right inside this company with its entire clinical domain and knowledge. The scale that was there already required a very different execution,” Bali says.

Since then, the company has grown to 50 centers. “All that I know is about running healthcare,” Bali explains. “So, when I look at many of these enterprises, it is easy sometimes to see where the gaps are, and what you need to do behind the enterprise.” India’s mother and child healthcare industry is worth some $5 billion, according to Bali, which is a massive opportunity to tap. The IVF business is currently worth $1 billion and is expected to grow.

“Nova’s business was over-managed, and the focus was very different,” says Shobit Agarwal, the CEO of Nova IVF. “Second, we had to focus on minimising the number of people. This company also was quite a bit dependent or driven by doctor referrals. We focussed on direct to customer and digital marketing.” All that meant that over the past few months, the IVF business has been growing steadily. The arm currently does more than 1,200 IVF cycles a month, helping over 40,000 pregnancies so far.

“So, from a total addressable market perspective, there was a big opportunity,” Bali says. In all, AHH has invested about $200 million in its India business so far and together, the IVF and Motherhood business brings in annual revenue of over Rs 800 crore.

Going forward

With two strong brands under its portfolio, Bali and AHH are looking at newer avenues. And that includes the likes of ophthalmology, nephrology, and gastroenterology, among others.

At the same time, however, the company also sees further scope for growth within its two businesses. “Affordability, the growing middle class, increased infertility issues and acceptability are helping the fertility market,” explains Agarwal. “We know this industry is growing exponentially by 20 percent CAGR even today. In India, we do around 250,000 cycles and this is going to grow to around 500,000 cycles by 2025.” 

That’s why despite the pandemic, Nova has been busy ramping up its facilities and intends to grow to 55 centres by the end of the year from 37 currently. Then, there is the push towards Tier 2 and Tier 3 towns, particularly when it to comes to the IVF business, propelling its third phase of growth. “We are going to cities like Gorakhpur, Allahabad, Varanasi and Vijayawada,” adds Agarwal. 

The group has also made it a habit of building facilities ground up, instead of acquiring existing facilities, as it chases fast growth. “In the process, we have also been able to evaluate various geographies,” Venkatraman says. “We have expanded our presence to some of the Tier 2 cities, including Indore and Coimbatore. We did take a little time to study because it was very important for us to understand.” Much of that, Venkatraman says, was because the management had all come from a multi-specialty hospital background. “There is a huge difference the way you approach the whole subject,” Venkatraman says.

But despite all its attention on single-specialty hospitals, AHH also reckons there is significant scope for multi-specialty hospitals to grow. “The multi-specialty players are getting bigger and stronger, and they are now going deeper in the markets. So, I think we will see more consolidation in that play,” adds Bali. “Ultimately, healthcare provision in this country is being led by private healthcare. And much of the private sector is enabled by private equity funding, which is firing the growth of the private healthcare delivery system.”

Hospitals in India account for over 80 percent of the total healthcare market, according to the government’s premier think tank Niti Aayog. The hospital industry was valued at $61.79 billion in 2016-17 and is expected to reach $132 billion by 2023, growing at a CAGR of between 16 and 17 percent. Around 65 percent of hospital beds in India cater to almost 50 percent of the population concentrated in Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, Telangana, West Bengal, and Kerala.

India currently has 1.4 hospital beds per 1,000 population. There is also a shortage of skilled health workers, with 0.65 physicians per 1,000 people and 1.3 nurses per 1,000 people. India also requires an additional 3 million beds to achieve the target of 3 beds per 1,000 people by 2025. 

For Bali, however, the attention continues to be on single-specialty hospitals. “I think the whole single-specialty play was largely ignored for very long,” says Bali. “But there is also an evolution happening around. What has happened over a period of time is many of these guys started with that single-specialty approach and ended up becoming a multi-specialty. It takes a lot of rigour and conviction to stay focussed on what you're doing.”

Then there is the financial advantage, particularly in the cost of deploying capital, which works out much cheaper in single-specialty hospitals. “Motherhood builds its hospitals in about Rs 25-30 crore. But what can you get in Rs 30 crore in a multi-specialty?” Bali asks. “You're spending almost Rs 1.2 crore to Rs 1.3 crore a bed today. For a 200-bed hospital, it will cost you a minimum of Rs 250 crore. In that context, this is far more capital efficient, not only from an establishment perspective but also from an op-ex perspective. You can get to the mid-teens Ebitda margins; you can get to the 20 percent Ebitda margin as the IVF businesses are showing right now.” 

So where does AHH go from here now? “I think, AHH will remain perpetually,” Bali says. “The life that we have given to this platform is not for a couple of years. AHH is a long-term, perpetual play. People like me will come in and probably go. But I think at the platform level, AHH will continue.”