BackEmami strives to turn around AMRI Hospitals
Singed by a December 2011 fire, which claimed 92 lives, Emami ropes in McKinsey to build trust and transform AMRI Healthcare into a profitable venture within 3 years
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Kolkata: Their fathers might be ruing their decision to buy into a hospital in the first place, but Emami Ltd directors Aditya Agarwal and Manish Goenka are striving to turn around their healthcare venture AMRI Hospitals Ltd (AMRI being the acronym for its original name Advanced Medical Research Institute).
Singed by a December 2011 fire—an accident that killed at least 92 people—AMRI is wallowing in losses, but consumer goods maker Emami, which controls the hospital chain, isn’t giving up.
Having already pumped in at least ₹ 650 crore from the group’s coffers to keep AMRI afloat, Emami is working with consulting firm McKinsey and Co. to turn it around. For a little over a year, the consulting firm has been working quietly with an AMRI team to streamline processes, according to Agarwal and Goenka.
The three-year transformation programme with McKinsey—internally called AMRIT—has four key aims: improve service delivery, improve patient experience, expand services and build new capabilities through hiring, the two directors of Emami said in a joint interview. It started in June 2015.
Lack of trust is a “big problem" for hospitals run by private companies, said Agarwal, whose father (also Emami chairman) R.S. Agarwal had said in an interview two months ago that investing in healthcare was a “big mistake" because the group couldn’t master the “art" of running hospitals.
The group bought into AMRI in the late 1990s, when it had only one hospital—the one at Dhakuria in Kolkata. It was at that time a joint sector company with substantial investment from the state government of West Bengal.
Later, AMRI acquired another unit in Kolkata’s upscale Salt Lake neighbourhood and built two new ones.
“All stakeholders are responsible in varying degrees for this trust deficit (that private hospitals face)," said Aditya Agarwal. For AMRI, it is a little more complex than other private healthcare facilities because the 2011 accident cost it a “great deal of credibility", he added.
It was a big blow to AMRI’s goodwill, and almost immediately the company plunged into losses, said Manish Goenka, one of the directors of Emami, the parent company. AMRI is a professionally-managed company.
The Dhakuria unit, where the fire broke out, was shut for more than two years. The two other units in Kolkata were also impacted by the blow to AMRI’s goodwill. And amid plummeting cash flows, construction of the new 400-bed hospital at Bhubaneswar ground to a halt, leading to “huge cost overruns", according to Goenka.
The group has recently added a day-care centre in Kolkata. Now, all its units are operational and slowly regaining the lost ground, the two Emami directors said. But in the past four years, AMRI has run up an accumulated loss of at least ₹ 400 crore.
Because AMRI on its own financial strength couldn’t any longer manage its mounting debts, Emami stepped in to repay them following the 2011 debacle. Bank loans were replaced by unsecured loans from the Emami group, which also helped AMRI cut interest costs.
But the hospital chain still owes close to ₹ 400 crore to financial institutions. These loans have various features, such as a moratorium on repayment, designed to help AMRI tide over the crisis, according to Aditya Agarwal.
Still, AMRI’s total indebtedness of around ₹ 1,000 crore isn’t easy to manage, given that it still needs time to rebuild the trust that it previously enjoyed, said a former AMRI executive, who asked not to be identified. The solution probably lies in expanding the chain, creating new revenue streams, this person added.
As a group, Emami is not looking to make profits from AMRI, Agarwal and Goenka said, claiming that the consumer goods maker hadn’t taken a penny out of the hospital chain either by way of salary or dividend. “But at the same time, we want AMRI to be self-sustainable," said Aditya Agarwal.
Healthcare is anyhow a “thin-margin business", said Rupak Barua, AMRI’s chief executive officer. “But what is important is despite the 2011 debacle, the Emami group hasn’t stopped investing in the hospital chain, and that’s important because this business requires constant investments for upgrades," he added.
To rebuild AMRI’s image, the management decided to overhaul internal systems and controls, bringing in an external consultant, according to Barua. And things have already started to look up, which is evident from the flow of patients. “Even doctors who had left are coming back," he said.
This has shored up AMRI’s financial performance, too. The hospital chain, according to Barua, is “recovering operating costs" but it will take years to wipe out the outstanding debt.
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