New Delhi: A question emerged after brothers Malvinder Mohan Singh, 38, and Shivinder Mohan Singh, 36, sold family-run Ranbaxy Laboratories to Daiichi Sankyo Co. Ltd for Rs 10,000 crore: Do they have a vision? Shivinder Singh, managing director of Fortis Healthcare, insists they do. Their approach to acquisitions is entrepreneurial, and they are open to exiting once the new business has grown. It reflects a new approach by family-owned businesses, the willingness to cut the business loose and seek new opportunities elsewhere. The younger of the two brothers spoke in an interview on a range of issues and said that not only was he considering early retirement, the brothers may move on from the healthcare business, though not immediately. Edited excerpts:
A double-dip recession is feared. Is that a concern for you? Will this affect your investment plans?
I think fundamentally our business is still strong and the environment doesn’t really affect what we do. We don’t have a supply-driven market in the sense that it will go up and down, keeping in mind what’s happening globally. What will affect us in the market like you described is going to be the interest rates because capital is the most significant need for a growing company and we are listed and we will be picking up debt. So, it’s petrol for an engine in that sense. When markets are in the doldrums, (raising) equity becomes a challenge, debt becomes more expensive. That increases the cost of capital, therefore cost of construction and therefore cost to consumer, which is anyway a challenge because of inflation... So, it’s a cycle effect. I don’t think it is going to derail the (investment) plans. It might make it costlier than we anticipated.
Is your strategy to move to tier II, tier III cities affecting margins?
See, in the last two years we have done a lot of work. We are going to tier II, tier III markets, we’ve eight or nine facilities now, many more are in the pipeline, including some of those we announced last week. We’re expected to get two dozen-odd facilities in these markets in the next 18-24 weeks. So first, that is a trend that we are going to have as an organization. Second, it does not impact financials as a model because the RoIs (return on investments) are not impacted. It is lower return, lower revenue basis but the percentage is what really concerns you as an investor and the percentages are not impacted. So the model is as profitable, it is just a bit different. I don’t think anything we do makes less money, it’s just that the ticket size is low. What has happened over the last year in Fortis is that because of Wockhardt and delay in some projects, a lot of projects have come together at the same time, so the Shalimar project has been delayed, the Wockhardt project came in with the acquisition. So in a span of five or six months, we set up six or eight hospitals. Every hospital has certain downtime and that all has come in together. So, in the last quarter, some Rs.14-15 crore of profit after tax was negative, primarily due to new investments, which is the roll of the dice in that sense.
India operations are owned by an entity that is listed and the global one is owned by family directly. Why are these separate?
The rationale for why they are separate was probably much more different a year ago than it is today. But the rationale was largely the fact that India as an entity went and picked up the management stake in Parkway and landed up as the controlling entity. That time we got a lot of feedback from shareholders and a lot of other partners that there was so much happening in India, so why distract and put in your capital and time in an international venture, (due to which) India was going to be sidelined and not going to be a focus. It would have either meant that you spend a considerable amount of time in explaining to every single stakeholder or just keep it separate. With Parkway, we didn’t have the opportunity. We already bought it, it was already a done deal, but when the Parkway thing unfolded and we said if we are going to be serious international (players), it makes more sense to doing it outside and getting it together and getting it right and then we will look at whether we need to put it together or not. Because while the whole thing is coming together, investors should not feel burnt about the whole idea. So, the idea of keeping it separate really came out of the feedback we got from Parkway. I probably think it is too sudden for a $350 million company that goes and buys a billion dollar company for $2 billion and says “guess what, now we have global aspiration”. I think the reason I say it is different today, because today people know there is an aspiration, they have understood it.
Do you have one business model for all markets or is it different for different markets?
We don’t have a model. Our model in healthcare is a model of philosophy. Philosophy would remain same—it would be a pretty much similar concept across. We want to bring standardized and replicable healthcare, which is basically based on tying to figure out how we can do whatever we do and do it the same across different hospitals. Therefore, it should work in different markets. If it is replicated and standardized, it allows you to bring efficiencies and bring certain level of standard in terms of quality. So that’s our model. We try to bring it cheaper than the market does. In the Indian context, we are not the most expensive healthcare. We do not aim to be the most expensive. Wherever we are, we believe we can bring efficiency that allows us to be more competitive in the marketplace, which is why the saturation model doesn’t work. Because if you are able to do the same thing in US for 20% cheaper you will get a business. This philosophy should stay for us wherever we are.
And in developed markets?
There are couple of innovations you need to do in healthcare in these markets, which are more developed, not saturated. First, you have to come out with a new model of delivery. Take, for example, the US. US has traditionally had an overdose of healthcare facilities. In fact, in the current recession, in the first six months apparently 400 hospitals were shut down. So there is an excess supply, but in the last 10 years lot of healthcare models have come up in the US, which have mushroomed much better than traditional healthcare units. They have taken cardiac catheterization, which is just the catheterization lab part of the cardiac business, to a totally new level. There are few companies that only do cardiac catheterization. They don’t do any emergencies or anything complex but basic cardiac catheterization. They do much better than anybody else, which is a new derivation than what US ever had because it is basically a hospital-based model. Now, dialysis in the US happens 80% out of the hospital because they have come out with a much more innovative retail model to do dialysis. Our dialysis venture in India that we announced last month is basically a spin-off of the US retail dialysis model, which is basically getting dialysis closer to home and giving the same quality probably at a better price… it is cheaper on net value perspective, so that’s innovation as a model and I guess it is cheaper for the consumer.
Has your focus on the healthcare business affected other verticals?
Firstly, whatever we are doing does not have any downside effect on anything else we are doing. That’s why we kept them all separate to begin with. If you call hospitals as our main business, no business of ours, because of structuring, has (faced a) slowdown. Now the question is (whether) it happened out of actuality or not, it is too early to say. But when we got SRL (Super Religare Laboratories Ltd) in May, we had 54 hospitals and 66 by the end of the month. So that answers your question.
In the case of SRL, what we very clearly said (is) that there is a case for all healthcare businesses in India to be together, which is why we put the diagnostics business in, and we have stated at that time that we took it to the board that strategically all healthcare businesses of the family should be under one umbrella. This is what we are doing globally. We are putting our all healthcare businesses in Australia under one entity. It’s a simpler structure. From a management and a growth standpoint, it would be stupid if you were to put them together and something gets affected. So, SRL has an independent management. We intend to have it listed. It will be (an) independent subsidiary. Anyhow, it is a part of the parent, which is fine.
Why did you and your brother resign from the board of Religare?
We quit from the board simply because we didn’t feel the value add of being in there. We thought our time can be better invested in stuff that needed our time. As a principle we don’t muddle up our ownership and management. As the businesses stabilize and we have right management leadership, we will be happy not to get involved with it. Our belief is if our management team has a capability to run a certain set-up and the risks and checks and balances can be taken care of either through audit committees or the board...so if the company has got to a stage where the company’s leadership can take it to new heights then why do we want to spend time doing what other people can do? So we have got a very (good) board and we are comfortable with risk and checks and balances that Religare has set up as a process there and we have more important things to do. Healthcare is, in contrast, a very new market. We are setting up new models, looking at new markets, which traditionally you never have any Indian entity go to and it’s a new game. As a group, we are trying to create the first multi-country, multi-vertical group. We are in nine countries and seven verticals and traditionally healthcare has never been an MNC (multinational company) product, it’s been a very local product, even if it has been on a huge scale, and no body has tried this model and then trying it in multiple verticals. It’s never been done before.
So apart from healthcare, what else are you focusing on?
Nothing else. Malvinder and I are completely focused on healthcare. We have our internal segregation of roles and we have a clear intent that as this model gets set up and standardized we will step out of this as well. So our intention is not to be here forever either.
Any succession plans?
I’m going to retire. I already got my successor for Fortis (India). We’d like to spend our time in something we feel has value in what we do, which others can’t do and we can put our entrepreneur competence into that. So if somebody can do my job I don’t want to do that. So Aditya Vij has come as CEO and he can do it better, so I don’t plan to run the company. And, I am not desperate to find a job. Malvinder is putting together the overall structure and strategy to make sure the company is robust and able to sustain (itself) as it grows.