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I never expected that I would be talking about a business opportunity in infertility in a country with a population of 1.3 billion people very glad to be here today I see a lot of esteemed doctors in the audience I was not smart enough to be a doctor so I became an engineer and I. Couldn't become a good engineer so I ended up becoming an investor I'm always scared of talking in front of doctors because you're so. Sharp it's hard to get away with you know things but I know it. Got me into it and so here I am today happy. To give you a perspective of how we are looking at healthcare overall in India and then focus down on single specialties and infertility in particular healthcare is a very important sector for private equity and venture capital funds in India it's amongst the top five sectors as you can see on this. Chart we invest about a hundred of a billion dollars every year in this sector not too small but not too big compared to some of the other sectors like financial services and consumer and Internet which get a lot more capital even. If we compare it to some other countries like China in u.s. we have only scratched the surface in terms of investments in the healthcare sector China is at 4 X 400 compared to India and us is in a different league at. 27 times the annual investments in health care compared to what we do in India so there is a lot of headroom to make more investments in the healthcare sector in India and from a return perspective the sector has been ok for the investors again at of five returns generating sector there has been a lot of variance in the returns. Though so healthcare is a very long gestation investment sector given the various challenges that we have to deal with the sector in India the number one challenge in healthcare is as. All of you are aware the low affordability in India prices for similar procedures in US would be any way from 6x to 10x of what they cost in India so you have to operate under that constrained environment while your capital intensity is almost as high as some other countries real-estate. Cost to put up hospitals or physical centers is equal if not higher in some cities cost of medical equipment given that most of that is imported is again similar to what it would be in some of those countries. So that makes it a difficult sector to scale where your return on capital is very low unless run very very efficiently and with a laser sharp focus on operations other challenges the big one is a limited reimbursement environment so unlike the West we are a self-pay country more than 60% of the health care spent happens out-of-pocket by. Individuals which makes the bio. Universe as we call in our investment lingo very very fragmented and as the bio universe is fragmented the supply universe also ends up being fragmented only once you have the payers getting aggregated which is now beginning to happen with more private insurance coverage and the. Ayushmann parted scheme by government will start playing a bigger role as a payer we will see healthcare businesses developing more scale and the chains growing much faster than single centers or mom-and-pops. To hospital businesses healthcare businesses the last aspect that I want to highlight on this slide is the social and the emotional aspect as a society this is something that we have to carry in our stride the humanity aspect around health care we are dealing with lives we are dealing with. Life-threatening situations and we are dealing with extreme poverty so while we are all motivated commercially and want to generate returns because that's the only way to create. Infrastructure in the. Country charity is not scalable but at the same time we have to take the bottom of the pyramid and these life-threatening situations along with us and make sure we work along because of these challenges last three years have been very tough for the industry and especially for the multi specialty hospital sector as you will see on this. Slide the top three Hospital companies in. The country have had negative two flat a better growth over the last three years. So that is a validation of the fact that healthcare is not an easy sector to make investments in this is consistent with the stock. Market performance so most of the healthcare stocks have actually seen negative returns over the last two years and most of them are below their. IPO values for the IPOs that have happened over the last two to three years I mentioned this earlier. But scalability is a number one issue in our minds with the healthcare sector in India if we compare India to us we are at about 1/8 the GDP of us and if you just draw a corollary for every other business you should have businesses which are at around the same proportion. But if you look at hospital for instance the largest hospital group in India Apolo is about a billion dollars of revenue the largest Hospital Group in u.s. is at about 47 billion dollars of revenue so Apollo is a little more than billion maybe 1.5 and. Hence is at 35 X differential versus there being a 8x differential in GDP and this differential gets even more exaggerated as we go into some other segments of healthcare as you. Go into Diagnostics we are looking at a 66 X differential dr. laws which is the largest chain or srl depending on how you look at it are at about 200 million dollars of Revenue and lab cop or quest are. At around 10 to 11 billion dollars of revenue. In the u.s. if we move to dialysis it's a 400 times differential point I want to make is it's not easy to scale. Healthcare businesses in India and that's a big challenge we face across segments and especially in IVF we talked about under penetration and you know the everyone quotes this number. That we are. At only 13 beds per thousand people in India global averages at 27 countries like China in u.s. around 3035 and hence there is a lot of room to grow. In India and you can keep growing for the next few decades however when you get down to looking at it on a city-by-city basis what we have found is urban India is actually at 34 beds 2,000 people so we are no more under penetrated from a multi-specialty. Hospital perspective in the urban India there is a lot of capital chasing the limited wealth that is there in these Metro cities and that may be a few tier 1 cities beyond that we have a access problem but that's where there is no paying power so as a country we are. Already well penetrated where there is a well-paying population and this is a trend which which is also relevant for IVF if you look at cities like Mumbai Delhi Bangalore the number of cycles you do per fertile women or whichever metric you use is much higher than where it would be anywhere else in the country so under penetration in my. View is actually overstated and we need to look beyond that to see how we can scale up businesses in India having said that Healthcare still remains an attractive sector and that that's the reason why you still have a lot of us. Over here at this conference today. So there are a lot of investors over here overall we are at around 100 billion dollars of market size expected to be two and a half weeks of that in the next four to five years so growing at fifteen percent year-on-year some segments such as yours IVF are growing much faster at around 20 percent or maybe even higher. And all of you know the reasons for this but the rising income level and affordability which was the number one issue is getting a dress and that's the biggest driver for this so McKinsey estimates that the middle class population will grow 3x in the next decade from 30 million to 90 million people households in the country which. Is going to be a big driver of more health care spend and spend in. The country what do we look for as investors when we look at these health care businesses so investment considerations I break into three parts scalability unit economics and the growth potential of the business scalability and I've used some shotguns here like. Them I just wanted to get back to the medical fraternity who keep using Jagan's like XC picks EPP GDP GS so this is our jargon total addressable market total size of the market that you. Can serve that's a key determinant of whether the industry and the business can be scaled up or not entry barriers in the industry again determines whether you can scale it up or not and more importantly in business like yours revenue per facility because unlike. A multi-specialty hospital which can do one hundred million two hundred million dollars maybe in case of Madonna a lot more out of one Center in your business which is a lot more distributed business that revenue per Center is going to be much smaller and hence to scale it you will need to keep putting in a lot more. New centers and that becomes becomes an important parameter on unit economics it's the margins that you can generate structurally the business should be profitable asset turns so. The amount of capital you put in to set up a center how much revenue can you generate from that and hence the return on capital employed in a fixed deposit in a. Bank you generate anyway from 7 to 8 percent yeah a good health care business in India should generate at least 18 to 20 percent for people to take the equity risk to invest versus putting their money in a fixed deposit which is almost secure and finally the growth potential so what is the. Level of real under penetration in the markets that. You are serving. What is the growth in disease burden what is the regulatory environment looking like how what changes are expected competitive intensity in the sector and the trends of consolidation etc in the industry and when we run these parameters on the different healthcare segments so I just taken three over here to compare. With your industry of IVF comparing it with multi specialty hospitals where Diagnostics and with ethology chains you will find that multi-specialty Hospital score very high on scalability you know with one hospital you can generate a. Lot of revenue you'll have a lot. Of operational efficiency a lot of people have a few good doctors create Centers of Excellence in a one multi-specialty hospital and you've got a business going harder to do in IBF and hardest to do in Diagnostics where from each. Collection center you're generating only a few lakhs a year from a unit economic perspective IVF is actually a very interesting industry for a capita of about 70 to 70 lakhs to 80 lakhs you can get started with the IVF business and to put a good idea of. Center together maybe you end up spending four five six screws but that's about the capital you need and operating expenses are also pretty low you can generate pretty decent margins of 25 30 45 in case of in ribbon high or a better margins. And which ends up looking like 50 60 70 % return on capital which is very healthy and. That capital can then be reinvested to open more centers and grow the business and finally from a. Growth potential I think we are truly under penetrated in IVF in India there is a lot of late in demand because spoke about 28 29 million couples who are dealing with infertility not all of them have access to IVF so as the income levels go grow and awareness. Grows and access grows you will see that demand coming into the industry so. From an evolution perspective I think we are at a very interesting stage in the IVF industry we have passed the early stage which was mom and pop centers trying to build a market individual doctors catering to their individual group of patients we have moved from. That phase to what we call the growth stage growth stages when a. Few corporate chains come in there is brand building there is investments in technology and there is investments in creating more awareness and I think this is a very exciting stage to be in there is multi-year runway for growth investments made at this time in the industry will yield good. Returns as compared to UK. Which I have taken as an example which is at a develop stage they are growing at to 3% aronia. Similar to germany or france. Which are all all mature markets very interestingly again I think we are at a interesting point in the cycle with IVF because the industry has seen the benefit of innovation and efficiency over the years so I say efficiency because your cost of cycle. Per IVF procedure has come down over the years I will talk about realization which has actually. Moved up but just the procedure cost of doing IVF has come down as scale has come in as more people have got trained we have seen that come down and the success rates in the industry have gone up because of newer technologies and capabilities that are getting built in so that's a great. Equation to have you are innovating and you were taking cost down it's a big positive for the industry from a market perspective the number of infertile couples seeking IVF treatment is only about a lakh lakh 20,000 versus a 29 lakh that have a issue with infertility so there's a lot of headroom to grow that our estimate. Is that in the next six years it will grow about two and a half x and there'll be about three or 22.9 lakhs. Or not three lakh couples who will be seeking IVF treatment number. Of IVF cycles will move up from about one like seventy thousand to about four lakhs in the next six years and the market size today as we size it up is about three thousand crores which goes to. About eight thousand crores this does not include the potential of andrology and male. Fertility because typically fertility people talk about the IVF industry and there is not enough focus on male fertility I think in the country yet if you size that up and if there was enough investments to be made in that area. I think this 8,000 crores could look much bigger six years down the line and the reasons for growth penetration remains very low Japan about 50 babies out of every thousand babies born are born with. Assistance on the fertility in u.s. that number is 15 and India we are at around 1 to 2 so similarly if you look at the number of cycles per million fertile women we are at a much lower rate compared to some of the other countries in the West given our. Population given our desire to have. Kids given our desire to have a family around us there's no reason this number should look that low most global markets. Are still growing at 10 to 20 percent kegger so this industry is evolving globally unlike some other segments in health care this is a high-growth industry globally and. India is growing even faster we discussed the key growth drivers I don't want to be labor on this but affordability the marriage is getting pushed out etc are all reasons why we think IVF will continue to grow in the country this is the point on realization so while per procedure cost has come down what we. Are seeing is a lot of add-on procedures are being done and as a result the realization per patient is moving up so while your cost is coming down per. Procedure you are able to get better realization per patient and patients are able to get better clinical outcomes because of better technology so laser assisted hatching. Is now 30 percent of procedures versus what it used to be 10 percent of procedures 5 years ago XE is 90 percent versus 40 percent this is some data we have from the metro cities and as a result if you look at the patient bill the solid blue or the bottom bar. That's the procedure pricing but base package but there is medicines and additional services which can take the realization much higher the issue with the industry is that industry still remains the supply remains very fragmented still and that is because of the low cap its and the fragmented customer base because there is no reimbursements. Yet for IVF in the country except for see GHS which is a very small bit number of IVF centers as a result our growing almost in. Line with the demand for. IVF cycles so we have seen about 14% growth CagA the number of. IVF centers have gone up from about 600 to 13 as of 2017 which number is probably at around 1500 as of today as. We stand over here this is not good for the industry eventually you will see more consolidation in the industry and some of the more ambitious chains some of the better performing chains and centers growing much faster than the moment pop centers and we are seeing evidence of that over the last decade there are. A few corporate providers organized providers who have come into the industry and they are. Beginning to consolidate some of the demand corporate chains as of today account for only about 10% of the overall centers in the country much higher percentage of the cycles they do because they get a much larger cycle load but as number of centers it's only about 10% of. The overall industry scale has benefits and that's the reason we think the industry will consolidate and these corporate providers will grow much. Faster than the 20% industry growth rate that we expect the obvious benefit is around procurement we have seen this across all other healthcare segments no reason why it should not happen over here you'll be able to lower your material costs significantly as you have skill brand is a advantage this. Is a consumer business at the end of the day it's a business based on trust so as you build a brand and leverage it over a much larger population base city base you will see benefits. Of that coming with scale you can build a hub-and-spoke Network invest heavily in technology in the skilled doctors embryologist etc in a center do more basic work in other centers and I would flow into those hubs again we have seen that happen across some other healthcare segments and finally the ability to attract skilled manpower. If you are a growing organization if you have multiple levers for growth you will find good people wanting to come and work with you because they will see a growth path they will see a career path in the organization and that becomes a vicious circle as you get good people you're able. To grow faster and with growth you get more good people and that is what we are seeing with some of these corporate. Providers although there is a very varied pathway that that some of the leading chains. Like Indra melon and Nova have seen over the last five to six years growth has range anyway from 20% to 150 percent in the case of India which has been super aggressive building out new centers doing a lot of camps giving doing above the line advertising and it seems to be working for them they have grown. Fast they are now at around four five hundred crores of Revenue and very high return on capital key challenges in the industry are around availability of skilled manpower especially embryologist high customer acquisition cost as we call it as investors reproductive care doctors are typically not the first port of call for patients the first port of call. Are the gynecologists which leads to referral practices which leads to high cost of acquisition for the end care provider that will change as people invest in brand and that will change as customers become patients become more aware of the various corporate providers that we spoke about we see the issue of me2 competition. Given the low capital intensity there are too many IVF. Centers coming up weak regulations I think is one of the biggest issues in the industry there has been some movement with the art bill of 2014 where surrogacy has now been banned for non-indian Nationals the draft bill of 2017 I think needs to be formalized it has some good guidelines in over there but more than. Being formalized it needs to be implemented very rigorously you need regulations on quality you need regulations on clinical outcomes to be able to differentiate from the unethical practitioners in the industry and for the patient's to recognize. That and finally it's non-standardized treatments and packages which leads to confuse patient which again then leads challenges for the providers in the industry with that I. Will just leave you with some of my thoughts on what I think is the way forward for the industry like I said. I think there's a need for a very strong. Regulatory framework and more than that need for a strong implementation almost something like a PCP NDT kind of implementation where unethical practices are checked and curbed in the industry and while that happens I think it will be great if leaders like yourselves can start self-regulating there are examples in the globe where IVF. Centers and businesses report to a central registry you report your clinical outcomes and that. Can be a great way for you to show the direction to the government and to the regulators on the way forward for this industry there have to be investments in brand there has to be investments. Made in technology to create the entry barriers to create the differentiation and to bring the best clinical possibilities to the people of this country there has to be in with investments in talent generation and upscaling so we need to set up a lot of. Training centers especially for embryologist and for some of the latest procedures and finally there has to be some reimbursement environment either through some private or public funding programs you.

 


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