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Vishal Bali, Executive Chairman, AHH, discusses the growth of single-speciality hospitals in India. He described the ecosystem as maturing and becoming larger. The single specialty opportunity is around quick replication of the small box, small format institutions he added. Edited Excerpts from the interaction:.
What are the unique propositions of single-specialty versus multi-specialty healthcare models?
The opportunity in single-specialty healthcare lies in the ability to quickly replicate smaller, more efficient institutions. While working on the multi-specialty side, I realised that the demand we could fulfill was limited, as we could only establish one or two hospitals every few years—unless we were acquiring existing ones.
In contrast, single-specialty institutions allow for faster replication and scaling. The return on capital (ROCE) in large-format multi-specialty institutions is often relatively low, typically in the mid to early teens. This means it takes a long time to reach a steady-state margin of 20-25 per cent EBITDA, making the return on capital employed lower. In contrast, single-specialty institutions are more capital-efficient.
Another unique aspect of the single-specialty model is the platform approach. In private equity and venture capital, investors typically back individual chains, but at AHH, we operate multiple single-specialty institutions under one platform. This approach allows us to scale much faster.
At AHH, our ROCE is above 30 per cent. At a combined level, our margins are growing over 40 per cent year-on-year (YoY), and this will continue to expand with the growing vintage of our chains.
How did you pick the enterprises you decided to invest in?
Sometimes, you come across enterprises and instinctively feel that they present a good opportunity to lean into. It was not about having a predefined strategy but rather responding to opportunities that came our way. For example, in oncology, there was just one major player operating across the country, and we saw a gap in that space. The enterprises we invested in came to us at different times, and there was no strict sequence to our approach.
These weren’t de novo businesses—we were typically acquiring entities at an early stage. Each enterprise had its own set of challenges. Some founders faced difficulties scaling, others were looking for an exit from early investors, and in some cases, the business model wasn’t working as expected. That’s when we stepped in to help turn things around and provide the necessary capital for growth.
What are some of the key challenges in the healthcare sector in India?
The healthcare sector in India faces two major challenges. First, India is still slow in adopting health insurance. Healthcare enterprises worldwide tend to grow on the back of third-party payer systems, but India has largely operated on a self-pay model. This makes it difficult for the health insurance sector to grow at the pace needed, especially considering the large population. Even though health insurance has grown by 10-15 per cent in recent years, there is still a long way to go in terms of expanding coverage.
The second major challenge is the impact of currency fluctuations, and how that exacerberates the affordability increasing the input costs in the industry.
Can you elaborate on how currency depreciation impacts the healthcare industry in India?
Currency depreciation, especially the rupee depreciating against the US dollar, significantly affects the healthcare sector, as 95 per cent of medical equipment is imported. As the dollar appreciates, input costs increase, which impacts the affordability of healthcare.
Unless there is a massive push for indigenisation to manufacture CT scans, MRIs, and radiation oncology equipment, a robust ecosystem cannot be created.
Are you looking at any specific areas for expansion going forward?
Yes, we are exploring expansion into gastroenterology and pathology. However, there are some challenges in scaling GI services. Currently, there are no established single-specialty enterprises in India that have successfully scaled GI services across a large network. There is one player that has created a center of excellence in this specialty, but it is limited to just one city. We are assessing the opportunity to either build something from the ground up or partner with existing GI surgeons and medical gastroenterologists to expand in this space.
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Published on January 27, 2025
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