Staying true to our ethos of providing our patients with the best-in-class healthcareservices at Shalby we tried to offer world-class yet affordable healthcare services andfacilities to our patients. Thus emerging amongst the largest and most profitablemulti-specialty healthcare organisation in FY 2017-18.
Starting with just one hospital with six beds Shalby has transformed into a chain ofmulti-specialty hospitals in just two and a half decades. It is our vision-to providequality yet affordable healthcare services to the people across the globe by innovatingadapting and imbibing world's best technologies. This is what has driven us for so manyyears and would continue to motivate us for the years ahead.
We have always strived to be the best in whatever we did whether it's selectingthe land parcel constructing hospital buildings planning and designing the interiorselecting the mix of equipment or deciding in which area of healthcare to specialise in.This never-settle-for-less attitude of ours has allowed us to deliver on our promise ofproviding world-class healthcare services and usher in positive change in the lives ofmillions we touch every day. As we turn 25 Shalby is all the more keen on keeping up thegood work by working with renewed passion and perfection by providing incremental returnsinto the hands of our stakeholders and by climbing new heights.
Indian healthcare industry
At this juncture I feel that the Indian healthcare industry is standing at aninflection point. Yes it's true that the public healthcare system is under a lot ofpressure largely owing to that fact that it has to cater to a large number of peoplebecause of the ever-growing population. Moreover with the majority of them living belowthe poverty line comes the question of affordability. The severe imbalance between theurban and the rural public healthcare system lack of healthcare spending on the part ofthe government and lack of professional doctors and other paramedic staff have compoundedthe problem further. ~50% of all villagers in India have no or very little access toproper healthcare facilities. These numbers albeit unsettling do indicate that if onecan attain the right mix of services along with an affordable cost structure there's anocean of opportunities for the organised players in the sector to explore. Despite beingone of the largest sector in India in terms of revenue and employment the government'sbudgetary allocation for healthcare in FY 2018-19 is only Rs 52800 crore compared to Rs5.97 lakh crore for infrastructure and financial sector development.
Access to capital has been one of the biggest roadblocks to the growth of the Indianhealthcare sector. Today the Indian Government spends only ~1% of its GDP on healthcarewhich is among the lowest globally for any country. Along with building highways firingup our power plants and ensuring there is a roof over every Indian's head there is a needto focus on healthcare in the country.
Consider the following facts and figures
Ensuring healthcare delivery through traditional methods will require additionalinvestments of USD 245 billion by the year 2034. This amount can be reduced by USD 90billion by focussing on preventive care leveraging technology to deliver care andshifting care from hospitals to homes.
There's a 22% shortage in terms of primary health centres and 32% in terms ofcommunity health centres.
~50% of beneficiaries travel more than 100 kilometres to access quality healthcareservices. India has only 1.1 beds per 1000 people compared to the global average of 2.7.
70% of India's healthcare infrastructure is concentrated in the top-20 cities.
At Shalby we believe that in a world with vast healthcare inequities our presence isjustified by making healthcare accessible.
Thereby making it possible for patients to reach us with convenience address the coreproblem of extensive healthcare underpenetration and make India a healthier placeto live in.
(Source: PWC Report Funding Indian Healthcare)
Prospects of the industry
The Indian Government is finally taking some concrete steps towards bolstering theindustry. Some of the recent announcements like increased budgetary allocation towards thehealthcare sector encouraging FDI policies reduction in customs duties and other taxeson life-saving equipment and the allocation of USD 10 billion for healthcarefacilities across India (under the National Health Protection Mission) amongothers can prove to be beneficial for the industry.
The real tangible change which has been highly appreciated by all the players acrossthe industry is the change in Indian Government's mindset as they try to transformthemselves from a service provider to an insurer. The National Health Protection Missionis an apt example of this changing mindset. If it's properly implemented it would createa win-win scenario for both the service providers and the service seekers. The NationalHealth Protection Mission is the largest government-funded healthcare programme in theworld and would cover ~100 million poverty-stricken families in the country with insurancepolicies of up to Rs 5 lakh per family per year for meeting secondary and tertiary medicalcare expenses. Other factors like rising income levels a growing Indian middle class asteadily ageing population and changing attitudes towards preventive healthcare areexpected to provide just the impetus that the industry needs.
Year under review
From a macro perspective we are seeing substantial transformations transpiring acrossIndia. With the advent of modernised cities increasing per capita income growing demandfor better lifestyle from the youth population of India and increasing penetration levelof the health insurance among others there has been a growing demand for qualityhealthcare services across different segments and regions which earlier were associatedwith the affluent class only. It resulted in consistent double digit growth for theindustry in the last couple of years. This favourable industry scenario led to asatisfactory performance. Our revenues grew by nearly 20% in FY 2017-18 from Rs 3305 mnin FY 2016-17 to Rs 3923 mn as occupancy grew by 23.6%.
Shalby a force to reckon with
To synergistically diversify into the other ancillary verticals at Shalby we havestrategically forayed into other relevant areas which are at their nascent stages of theirproduct lifecycles. This will enable us to maintain our profitability on a long-termbasis. For instance Shalby is a pioneer in the field of joint replacements in India andaccounts for a 15% share of all joint replacement surgeries in India today conducted bythe corporate private players.
At Shalby we have been able to reduce our capex costs substantially by optingfor an in-house team of architects engineers and interior designers who can design asper the requirements of the management. In an industry where most players are heavilyreliant on external consultants the average capex cost goes up to ~ Rs 80 lakh.Shalby has managed to set up equally equipped well-furnished facilities atmaterially lower cost. We are able to construct 30-40% more beds on a given piece of landwithout compromising room size. This has subsequently allowed us to achieve one of thehighest ROEs and ROCEs within our space and break even faster compared to our peers.Our asset-light revenue sharing model which does not involve any fixed rentals hasfurther enabled us to keep the set-up cost within check.
We focussed on the optimal usage of the real estate by cutting down on common areas andempty spaces thus resulting in 30% more beds to accommodate patients. In terms ofequipment sourcing we follow the cost-to-quality strategy which enables us to sourcemore equipment using the allocated budget compared to others. We follow a no stardoctor' policy which has enabled us to reduce our operational costs per bedsubstantially. Sizeable cash in hand means that we can grow organically and with theoption of equity dilution our dependency on debt is minimal.
As a result we see Shalby progressively emerge as one of the highest revenuegenerators within our industry space by boosting revenues and margins on the one hand andreducing our susceptibility to risks on the other.
Increasing trust of our discerning patients in the Shalby brand has translated intothis overwhelming performance of the Company. Moreover at Shalby we believe that thetime has now come to leverage our competitiveness in the wake of the changing mindset ofthe government. And there are a number of immediate factors underlining our optimism. Acouple of initiatives on the part of the government like National Health ProtectionMission proposing Rs 5 lakh family insurance coverage to poor 100 million familiesAadhaar card a health identifier and FDI in healthcare among others have really raised thehopes and opened a wide horizon for everyone to explore. This renewed optimism in thecountry is expected to result in growing demand for good healthcare services. The entireShalby team with its wide multi-locational footprint increased capacities and strongbrand value would work relentlessly to entrench our presence in every demand pocket andencash on the emerging opportunities. We also plan to foray into new horizons and makefresh investments thus moving up and strengthening our presence across the value chain.At Shalby we expect that the complement of these initiatives will enable the Company tosustain its revenue momentum enhance margins and create attractive valueproposition in the hands of all our stakeholders. I would also like to take thisopportunity to place on record our heartfelt gratitude to our valued shareholders and allother partners and associates for their continued support and faith in Shalby.