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Business News/ Companies / News/  Emami founders say hospital investment was a big mistake

Emami founders say hospital investment was a big mistake

The admission comes four years after after a fire at AMRI's Dhakuria hospital in south Kolkata snuffed out at least 92 lives

R.S. Goenka (left), co-founder and whole-time director of Emami, and R.S. Agarwal, co-founder and executive chairman of Emami. Photo: Indranil Bhoumik/MintPremium
R.S. Goenka (left), co-founder and whole-time director of Emami, and R.S. Agarwal, co-founder and executive chairman of Emami. Photo: Indranil Bhoumik/Mint

Kolkata: The co-founders of Emami Ltd, a company with interests in health and personal care products, paper, edible oil and real estate, regret investing in hospitals, they said on Monday, a little over four years after a fire at one of their hospitals snuffed out at least 92 lives.

When asked if they were looking to exit the hospitals business, chairman R.S. Agarwal, 71, said in an interview, “Let time answer that question."

But investing in hospitals in the first place was a “big mistake", Agarwal said, as R.S. Goenka, 70, his business partner and Emami co-chairman, nodded in agreement, seated next to him.

“You need to be heartless to make money from hospitals," said Agarwal, the more vocal of the two co-founders. “There may be other ways to make money from hospitals", but they aren’t aware of those ways.

Emami, founded 48 years ago and since run jointly by the Agarwal and Goenka families, invested in hospitals at the invitation of their family friend, Shrawan Kumar Todi of the Shrachi Group—a Kolkata-based real estate developer.

They dipped their toes in healthcare back in the early 1990s when the state government of West Bengal handed them control of an ailing polyclinic in the south Kolkata neighbourhood of Dhakuria.

It was at this facility—which had since been rebuilt into a full hospital—that the fire took place in December 2011.

AMRI Hospitals Ltd (abbreviated from its original name, Advanced Medical Research Institute) currently has five facilities—four in Kolkata and one 400-bed hospital in Bhubaneswar.

With over 1,000 beds, 500 doctors and 10,000 surgeries conducted annually at the five facilities combined, AMRI claims to be one of the biggest in the healthcare industry in eastern India. Being privately held, it doesn’t break out financials.

On rampant malpractices in the healthcare industry—especially ones that doctors indulge in—Agarwal and Goenka said that they were “appalled" by the dynamics of running hospitals.

“Running a hospital (profitably) is an art, and we are no good at it," Agarwal said.

In the aftermath of the December 2011 accident at the Dhakuria unit of AMRI, the state government took stern action against the management of the hospital. Its directors Todi and Goenka, among others, were immediately arrested on charges of criminal negligence, and the hospital shut indefinitely.

For the Agarwal and Goenka families, which have done business together for almost five decades, it was the biggest setback ever, said the co-founders of Emami. “It was for us a big learning experience, too, because in course of time, it separated our true friends from the ones who are not," said Goenka.

For Agarwal and Goenka, who would never stake their personal wealth or credibility to expand businesses—“we avoid giving personal guarantee", said Goenka—it was the biggest blow to personal goodwill.

AMRI’s Dhakuria unit reopened two years after the fire, but 16 accused—including Agarwal and Goenka—currently face trial for culpable homicide not amounting to murder—a charge which, if proven, will see them imprisoned for up to 10 years.

It must have been this “overwhelmingly depressing experience—not just the accident but also what followed"—that changed their perspective on the healthcare business, said a close family friend of the Agarwals and Goenkas, asking not to be identified.

It affected Todi, too, in the same manner, this person added.

Emami, which was the majority partner with a 66% stake, bought out Todi’s 32% ownership in AMRI for an undisclosed price two years ago. The state government continues to own around 1.9% of the company.

Todi wasn’t available for comment for this story.

On Monday, Agarwal said his friend Todi had “some liquidity issues" at that time and asked to be bought out. Two years ago, the transaction was seen as a sign that Emami wanted to stay invested in hospitals despite the 2011 debacle. But even as AMRI reopened, the founders stepped down from the board of the company, distancing themselves from its operations, whereas at all other Emami group companies, members of the two families are actively involved in the management.

“To my mind, following the accident, they are unable to bring in the right kind of management bandwidth into AMRI, and hence this reversal of stance—it is well documented that they were previously quite bullish," said the family friend cited above, referring to Agarwal and Goenka.

The duo, who, despite their advancing age, still helm operations at Emami, are known to be ruthless when it comes to cutting losses.

One should never get emotionally invested in any business, Agarwal said in Monday’s interview, citing multiple examples of businesses from which the group exited because they didn’t measure up to expectations.

“Based on the profitability and our assessment of the future potential of a business, we have always decided on whether or not to stay invested in it," Agarwal said.

Entry barriers have always been a key determinant of businesses that Emami chose to enter, he added. “But if they do not work, the best thing to do is to cut losses and move on."

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Updated: 14 Jun 2016, 04:17 AM IST
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