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Health Fortis

First stop India. Next Asia.

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Fortis Healthcare executive chairman Malvinder Mohan Singh [left] and younger brother, and executive vice chairman, Shivinder Mohan Singh want to be a step ahead in emerging economies' hospital business.

Image Credit: Bandeep Singh

Fortis Healthcare is betting on the fast-growing Asia-Pacific economies to become a global hospital chain. It’s contrarian, it’s risky, but the Brothers Singh aren’t short on ideas.

SOMETIME IN JULY 2011, VISHAL BALI, GROUP CEO, Fortis Healthcare, (then the head of international operations in Singapore) got a call from his executive chairman Malvinder Mohan Singh, asking him to check out a 55,000 sq. ft. property between True Jesus Church and Trinity Church Centre on 19 Adam Road, Singapore. “Can we do something there because the plot is for sale?” Singh asked.

For Fortis, this meant revisiting Singapore. In March 2010, it had bought a 24% stake for Rs 3,200 crore in one of Asia’s most prestigious hospital chains, Parkway Holdings, but exited within three months with a profit of Rs 400 crore after a bid togain greater control failed. The Adam Road plot, a 20-minute drive from Singapore’s central district, held promise. It was owned by a local health-care provider, Pacific Healthcare, which had run into financial difficulties trying to build an oncology centre there. “The only issue was what to do with it because it was neither big enough to be a multi-specialty hospital, nor small enough for a day-care centre,” says Bali. 

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A week’s research, many site visits, innumerable phone calls between Bali, Singh, his younger brother and executive vice chairman Shivinder Mohan Singh, and an investment of $65 million (Rs 348.7 crore) later, Fortis set up a 35-bed boutique hospital with two operating theatres for colorectal treatment (tumours in the colon). It was the first of its kind in Southeast Asia. Named Fortis Colorectal Hospital, it got on board the top four surgeons of Singapore, including Dr. Francis Seow Choen, who pioneered colorectal surgery in Asia.

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Vishal Bali, Group CEO, Fortis Healthcare

“The decision was based on a number of factors, including the fact that colon cancer is the most prevalent cancer in Singapore and locals are willing to pay a premium for high-quality, specialised services. Also, the hospital would create a niche and differentiation for the Fortis group,” says Bali. The hospital, which became operational within 12 months, is expected to become Ebidta positive within 18 months of operations. By January 2012, Fortis also picked up an 85% stake in RadLink-Asia, one of Singapore’s largest out-patient cancer diagnostic networks, for Rs 245 crore, and launched a cancer day-care centre by the middle of the year. Meanwhile, there’s talk that the Singapore government will introduce regulations that will subsidise medical costs only for the underprivileged. This could prove a boon for private players.     

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The Singapore investments show how billionaire brothers Malvinder and Shivinder Mohan Singh are reading the health-care opportunity. They want to learn the nuances of health-care delivery in developed markets that are about a decade ahead of India—models and best practices, which they can import and replicate here to maintain their lead. The total number of hospitals under Fortis is 75—68 in India and seven overseas. Apollo Hospitals (51 hospitals, 1,400 pharmacies) comes next. Equally, they want to take the Indian expertise to emerging economies which are some years behind. “In 15 to 20 years, we will not only use our cross-country learnings to be present across all categories of health-care delivery—from diagnostics to day-care centres to secondary and tertiary hospitals—in 20 or more countries, but also become the most preferred one-stop shop for all ailments and diseases. We have set the ball rolling,” says Malvinder Singh.

This strategy crystallised a few years ago, coinciding with its 10th anniversary in 2011. Though it had failed to get control over Parkway, Fortis figured it needed to go abroad again. By then it was already 38 hospitals strong in India. Asia figured high on the agenda because health care in the Asia-Pacific region is a $400 billion to $500 billion opportunity, nearly 10 times that of India, and is likely to grow at a compounded annual rate of 10% between 2011 and 2015 to touch $1,778 billion. 

Within Asia, Fortis looked at two sets of countries: the developed ones, and others, which were further refined based on filters such as GDP rates (6%-plus), demand-supply imbalance, and ready acquisition opportunities, to target specific countries. While Singapore and Hong Kong showed up in one set, Vietnam and Sri Lanka showed up in the other.

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A glass-walled testing lab at the hospital

For Fortis, 2011 ended in a flurry of activity. In August, it picked up a 65% stake for $65 million in Hoan My, Vietnam’s largest hospital chain, with five hospitals and 800 beds. Dr. Nguyen Huu Yung, chairman, was happy to have them on board. More so, as the doctor says, “Fortis was willing to pay a reasonable price for the stakes owned by VinaCapital and Deutsche Bank in my corporation.”

The Singh brothers changed the name of the hospital to Fortis Hoan My Hospital, but pretty much kept everything else (language, culture, etc.) intact. They retained Yung as chairman, and roped in some of the older employees such as former head of administration Dr. T.V. Long. “Through the locals we learnt that in Vietnam, government doctors are allowed to practice in private hospitals. That made our work that much easier,” says Bali. 

Fortis then added new specialties, such as neurology and orthopaedic surgeries, and trained Vietnamese doctors, nurses, and paramedics. At a recent Heart Conclave in New Delhi’s Escorts Heart Institute (a premier cardiac hospital that belongs to Fortis), nearly 45 doctors from India and Vietnam partnered each other on new techniques in complex heart surgeries, and acute stroke treatment guidelines. Nurses and paramedics were trained in intensive care unit protocols and improved post-operative care. Fortis now plans to set up a medical university and another hospital in the capital, Ho Chi Minh City, by 2015.
In March 2011, before the Hoan My acquisition was finalised, Fortis picked up a 28.6% stake in a leading Sri Lankan Hospital, 350-bed super-specialty Lanka Hospitals Corporation Plc., for $36.3 million.

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A vibrant child OPD with coloured lighting that keeps changing every few minutes

In December that year, it bought Quality Healthcare, the largest day-care specialties network with over 600 centres in Hong Kong. Malvinder Singh says he wants to learn how day-care centres work in developed markets. That knowledge is already being put to use at Renkare, a chain of state-of-the-art dialysis centres, and Fortis C-DOC diabetic day-care centres, across India. “This model of organised day-care centres,” says Shivinder Singh, “is still evolving and it will take a while to say whether they have been successful or not.” However, for him, the real takeaway will be if they can learn to run a chain of hospitals, each no bigger than 2,000 sq. ft. Think of them as sachet hospitals. “We know how to set up hospitals in 2 lakh sq. ft. to 4 lakh sq. ft., but how to size it down to bytes of products [500 sq. ft. to 2,000 sq. ft.] is the real challenge,” he adds. 

Fortis has already added a diagnostics arm to the existing business by acquiring 70% in a leading Hong Kong-based diagnostics and imaging group called Central Medical Diagnostic Centre, and set up specialties such as neurology, dermatology, and endocrinology. It will build a medical college by 2015 in Hong Kong. It also plans to set up a specialty hospital there. However, since land is very expensive, Fortis has bid for a government tender. The last private hospital there came up in 1994.

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A 36-seater cinema hall set up to entertain the visittors. 

These investments aren’t just about the former British colony—they are equally about China. Despite its achievements in setting up world-class infrastructure, China suffers from lack of specialised private health care because of its socialist underpinnings and its well-heeled travelling to Hong Kong or the U.S. for treatment. “When China decides to reform its health care—allow private players—we will be in the right place to enter the huge untapped market because of our association and understanding of Hong Kong,” says Bali.

The margins abroad are also better. Radiology is a 25% margin business in Singapore, while Fortis’s Sri Lankan and Vietnamese hospitals bring in 18% and 20% returns, respectively. Here overall margins vary between 17% and 18%.


CONVENTIONAL WISDOM SUGGESTS that best practices applicable in a certain hospital are rarely applicable elsewhere. There’s no multinational hospital chain yet, while well-known institutes such as Mayo Clinic, Johns Hopkins, or even Cleveland Clinics are still mostly local. Dr. Pervez Ahmed, former CEO and managing director of New Delhi-based Max Healthcare Institute, says what works in an East Delhi hospital may not work in South Delhi. Ahmed practised in the U.S. for 35 years, and set up seven hospitals for Max in Delhi and its suburbs. “A Mayo Clinic in Florida will be different from the one in Minnesota. This is because meeting local health care needs not only calls for a deep knowledge of local diseases and expertise in managing them, but also an understanding of the local culture because one is dealing with human beings.” 

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A sculpture by Jitish Kallat, a Mumbai based sculptor, greet visitors at the lobby of Fortis' flagship hospital in Gurgaon.

That is, in some ways, the Apollo Hospitals model. After an attempt to run a hospital in Sri Lanka which misfired, it has focussed entirely on India, including its smaller cities. The market also seems to favour them. Apollo’s market capitalisation of Rs 11,000 is over twice Fortis’s (Rs 4,500 crore). It scores higher even in the other metric, the ratio of enterprise value (EV) to Ebidta. According to credit rating agency Crisil’s data, Apollo’s EV/Ebidta for FY13 is 20.6, compared to Fortis’s 13.4. An indicator of performance, this indicates Apollo’s higher efficiency in running hospitals.
Ahmed believes that “going abroad makes sense only if you want to build a $10 billion company fast because the ticket sizes of hospitals and price points of various services are far higher than India. It is all about chasing dollars.” 

Fortis knows the pitfalls of trying to move healthcare models across the world. It bought a 64% stake in Australia’s Dental Corporation Holdings in January 2011. Dental Corporation buys out the practices of dentists by paying them a one-time fee, and once it has grown its business around them, takes 60% share of their revenue. This has proved highly successful in Australia, New Zealand, and Canada, [where practitioners believe in having a better work-life balance and want more free time to focus on their expertise], but was a non-starter in India and Singapore. Doctors here are more entrepreneurial, and refuse to give up their independence. In less than two years, Fortis sold its stake to the Britain-based health-care group Bupa, despite growing the business in its existing markets from 140 to 190 dental practices.

Such experiences notwithstanding, Shivinder Singh argues that Indian health care has a lot to learn from developed economies, Singapore especially, in terms of increasing operational efficiency, excellence in diagnosis and surgery, or even the services provided to patients. “What is a one-off surgery in India is routine in Singapore hospitals as are their systems and processes, pre- and post-operative care. But it will be many years before we are able to achieve such standards of excellence,” he says. Adds Malvinder Singh, recounting his earlier stint at Parkways: “When I was there, I had begun to understand Asian health-care opportunities, the supply-demand gap, their needs, the markets and sectors, the quality of nursing and post-operative care, and how the system is structured.”

Some analysts, such as Dr. Rana Mehta, executive director, leader healthcare practice, Pricewaterhouse-Coopers India, says gaining such experience could well be worth the effort because in some years Indian health care too will mature and acquire some of the characteristics of Singapore. “People who have experience in running such hospitals will obviously benefit once the development takes place,” he says. Ahmed says that it is good the Singh brothers are learning both from the domestic and the international markets “because they are relatively young in this business”.

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 It’s also about learning to deal with competition. In Singapore, not only do the private players such as Parkways, Raffles, and Mount Alvernia Hospital, compete with each other, they also come up against an equally developed public sector health-care system. “The competition is cut-throat,” says Bali. 


TO SUPPORt its global ambitions, Fortis has spun off a separate entity, the Religare Health Trust (RHT), and listed it on the Singapore Stock Exchange. Fortis holds 28% of it, while the rest is with institutional investors and others. RHT has raised Rs 2,260 crore, and absorbed 17 of Fortis Healthcare’s assets—some domestic and all international hospitals, outpatient departments, and diagnostic units worth $789 million—for Fortis to run an asset-light business.

Taking a leaf out of the hotel industry’s book, Fortis runs the operations and manages medical care, for which it pays RHT an annual fee to use its assets. In FY13, the fee works out to be Rs 369 crore. This has led Fortis to bring down costs by 70%, and it can now focus on doctors, nurses, and medical equipment, essentially patient care, especially during the first 48 critical hours after a patient is admitted. In the future, if Fortis, for instance, wants to buy or set up a new hospital, it can enter into an agreement wherein RHT acquires the property and invests in the building, while Fortis takes the responsibility of running the services. 

Mohit Modi, director, equity research, Crisil Research, says there could be three reasons why Fortis set up a trust. First, while a trust is not allowed to list under the Indian laws, it is standard practice in Singapore. Second, it gives locals an opportunity to invest in the fast-growing Indian health-care market, which is expected to grow at a compounded annual rate of 15% from 2010 to 2015 to touch $119.6 billion, making Fortis attractive for future fundraising. Last, since Singapore has one of the lowest tax rates in Asia, the outgo is much lower. Also, institutional investors such as those tied to RHT are always looking for a steady return on capital but are not for huge gains. RHT not only has an income from Fortis Healthcare—the fee it gets to let Fortis use its hospitals and facilities—but also adds to its revenues by independently running the outpatient departments, diagnostics, and radiology clinics. 

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Investors are not convinced. Global investment bank J.P. Morgan believes that while the fund infusion from the listing of RHT can bring down Fortis Healthcare’s debt to a more comfortable position—it did, reducing its debt equity ratio from 2:1 to 1:1—it will hurt valuations in the near future. “The interest savings are going to be offset by the management fee paid by Fortis to the trust,” says its November 2012 report. Fortis has been off the radar of the broking community for years because of its decision to acquire discrete international businesses across different geographies and trying to integrate them, thus stretching its balance sheet. 

Another section of the market thinks Fortis would grow each of its international (or domestic) businesses to a certain size and offload its stake—basically, behave like a private equity (PE) player, just as the Singh brothers did in Ranbaxy, Parkway Holdings, or even Dental Corporation. The Singhs vehemently deny any such plan, claiming that both Fortis and RHT are long-term businesses with interests in building a new global health-care model with all its risks, challenges, and opportunities. “If we were just PE players, would we have walked out of Parkway with just a few crores after investing nearly Rs 3,200 crore for a 24% stake?” asks Shivinder Singh. 

The brothers categorically state that if an enterprise does not make a strategic fit in their overall business or economic scheme, they walk out only after giving it a fair chance. “We ran the Kota hospital in Rajasthan for two and a half years and the one in Amritsar for five years before shutting them,” says Shivinder Singh. The elder brother adds: “We are passionate, objective, and committed to our business, but not emotional.”

Ask Shivinder Singh what it feels like to be the first Indian health-care multinational in seven countries—Singapore, Vietnam, Hong Kong, Sri Lanka, Australia, New Zealand, and Mauritius—and he flares. “We are not just the first Indian company, but the only one in the world to have such an extensive presence across so many geographies,” and adds that they are the number one in five countries.