Rising realty costs force hospital chains to look at smaller cities

Rising realty costs force hospital chains to look at smaller cities
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First Published: Fri, May 11 2007. 02 34 AM IST

Updated: Fri, May 11 2007. 02 34 AM IST
New Delhi: Faced with skyrocketing prices amid dwindling land in India’s large metropolises, health-care businesses are eyeing smaller cities such as Nagpur, Surat, Patna, Hardwar and Guwahati.
These smaller cities and towns are relatively under-served in terms of health care. Coupled with lower costs, this translates into more lucrative hospitals, say some analysts.
“Smaller cities is where the action is right now,” says Monica Sood, vice-president with Feedback Ventures Pvt. Ltd, which has provided consultancy support to companies such as Fortis Healthcare Ltd, Max Healthcare, Artemis Health Sciences and Wockhardt Hospitals.
Sood says smaller cities “are going to be key feeders to the growth of these chains” as they have less competition for branded health care.
Land costs have become “prohibitive and can make projects (in big cities) unviable,” adds Rana Mehta, a vice-president at consulting firm Technopak.
The proportion of land costs in a project has risen from 10% to 25% in the last few years, he says.
According to Technopak’s estimates, a 150-bed secondary care hospital in a metropolis will cost about Rs60-65 crore, a third more than what it would cost in a smaller city, because of escalating real estate costs.
Projects in smaller cities can break even in three to five years, according to Max Healthcare, a unit of Max India Ltd.
“Building a hospital in South Delhi is cost-prohibitive, so no more hospitals can come up. In other parts of the city, where prices are not that bad, the payback period gets stretched by two to four years,” says Mukesh Shivdasani, Max Healthcare’s executive director, who says small cities will account for up to half of the Rs400 crore Max India is raising.
Wockhardt Hospitals’ chief executive Vishal Bali says that besides land costs, the other attraction of small cities is that health care in such places remains inadequate. For instance, hospitals in Delhi already have a huge inflow of patients from Uttar Pradesh, Punjab, Haryana, Himachal Pradesh, and Jammu and Kashmir and those in Mumbai cater to patients from other parts of Maharashtra, Gujarat, Madhya Pradesh and even parts of South India.
It makes sense then, he says, to set up hospitals in these catchment areas and service the patients closer home.
Apollo Hospitals, Max Healthcare, Fortis, Artemis, and Wockhardt, besides new entrants Emaar MGF and Hindujas, are expected to collectively invest at least Rs10,000 crore by 2010 and, according to Technopak’s estimates, at least 40% of this could go into smaller Indian cities.
A joint study by consultant Ernst & Young and the Federation of Indian Chambers of Commerce and Industry predicts private hospital providers will play a bigger role in the years to come in health care. Their revenues are expected to more than double, to $35.9 billion, or Rs147,000 crore, by 2012 from $15.51 billion today.
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First Published: Fri, May 11 2007. 02 34 AM IST
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