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    Good medicine will make good business but good business does not make good medicine: Dr Naresh Trehan

    Synopsis

    “For our valuation and pricing exercise, we have spoken to almost 100 institutional investors across India and internationally. There are leading sovereign funds like GIC from the Government of Singapore. We have almost all leading mutual funds in India in our anchor book. Leading institutional investors from various parts of the world are there as well.”

    Dr Naresh Trehan-Pankaj SahniAgencies
    Dr Naresh Trehan, CMD, and Pankaj Sahni, Group CEO, Medanta, in conversation with ET Now as the Global Health IPO kicked off on Thursday.

    At a time when there are 8-9 listed hospital companies in India. What is so different about your hospital and why should our viewers invest in it?
    Dr Naresh Trehan: Medanta was created to bring to India and the surrounding countries, an institution equivalent to Mayo clinic, Cleveland Clinic, Harvard where that model is on the same platform. All the specialities are led by leaders who are benchmarked around the world and the collective strength of all these people culminate in a very strong delivery system which patients can get much better results from because the platform lends itself to collective treatments.

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    That is why this was brought and we built 2.7 million sq ft in Gurugram and put the systems in place which represented that standard whether in physical structure, technology and also human capital. The doctors who joined us were leaders benchmarked around the world and not only in India. So with that collective strength of huge experience, the doctors had been working together full time and we were able to produce results.

    Within the first 15 months of opening, we broke even in Gurugram. It was a big investment. It was the first time that such a large hospital of 1,300 plus beds was created in the private space. Then we also had the strength to take the next step and were able to pay back all our debt or loans within six years which were actually 12-year loans. So our performance was very strong. Not only financially but also our systems and protocols became so robust that we felt the comfort that we can take this to other underserved areas and we did.

    The first was a 1,000-beds hospital in Lucknow to serve 200 million people in UP where this kind of standard did not exist. Then the next step was Patna; again serving 130 million people devoid of this kind of healthcare. Lucknow has 1000 beds and Patna 650 beds and we are now building a new one in Noida, which again has a very large population.

    So Medanta represents that system where people full-time work together as teams rather than individuals and the end result is far superior and most complicated cases get the best treatment. We have done all the high end stuff like heart transplants, liver transplants, kidney transplants, robotics. We actually created robotic kidney transplants and are always at the cutting edge. We are now starting lung transplants. All these things are under one roof and they are also replicated because these systems and protocols have been replicated across the whole system.

    We have two smaller hospitals in Ranchi and Indore. Growth is coming very rapidly from our hospitals and that is why we believe that we have a system which works, which gives relief to the population around it and has represented India. Newsweek International has named us the best private hospital in this part of the world three years in a row.

    Currently your market cap is on the higher end at about Rs 9,000 crore. How have you priced the IPO? Have you used the industry as a benchmark or have you used your cash flows and your growth as a benchmark to arrive at this valuation because one is absolute, second is relative?
    Pankaj Sahni: For our valuation and pricing exercise, we have spoken to almost 100 institutional investors across India and internationally. Look at the quality of some of our anchor investors. There are leading sovereign funds like GIC from the Government of Singapore. We have almost all leading mutual funds in India in our anchor book – approximately 12 or 13 mutual funds are represented in our anchor book. Leading institutional investors from various parts of the world are there as well.

    We have engaged with some of the institutional investors, bankers and engaged with our board of directors and our shareholders to arrive at what we believe is a fair price for this IPO. It is priced at Rs 336 at the top end of the band and as you rightly pointed out, when you look at some of the matrix which come out from the valuations and from the multiples, you compare those with what is prevailing and you will find very clearly see why we believe that this is a fair price. We are very confident about the opportunities for growth that are to come for us in Medanta both in the short, medium and long term.

    Growth is not only coming from our mature facilities which continue to do well especially over the last couple of years, even when you compare FY2020 to FY2022, even if you discount the Covid year or FY2021, when we saw a CAGR of about 20% year on year on our revenues. We have very strong EBITDA margins and we have good performance across the board and this is despite some of the challenges we face with international patience.

    Even more exciting is the fact that some of the growth that we have seen in our new assets, our Lucknow facility currently is at about 500 beds, our Patna facility, which started in January of this year approximately has 300 beds and both those assets are performing very well.

    Our Lucknow facility is in fact performing exceptionally well, already generating about 28% EBITDA margins in financial year 2022 and was EBITDA breakeven in its first full year of operations despite some of the challenges with COVID. So we feel very confident about the prospects and the opportunities that we have and with Noida coming on board as well, setting ourselves up not just for the current period but for growth in the long run as well.

    What kind of response have you got from your anchor investors because just looking at the valuation that you just talked about, it is attractive but it cannot be called cheap?
    Pankaj Sahni: The response from our anchor investors has been overwhelmingly positive. You will be able to find some of the names that are represented in that book. When you look at let the domestic side, there are almost 13 mutual funds – all the leading mutual funds in the country are part of the anchor book, in fact possibly even more, are looking to subscribe that we could not accommodate given the size restrictions in the anchor book so on the domestic side.

    There was phenomenal response from all the leading mutual funds, leading life insurance companies as well represented in our anchor book.

    On the institutional side also we have received a very positive response. Lots of sovereign funds participating in the anchor book. We have healthcare specific funds participating in the anchor book from all across the world. We have international funds that have a very strong investing experience in India across sectors participating in the anchor book.

    There was a problem of plenty for our company in terms of the anchor book. We had a very long list of people wanting to participate in a very significant manner in terms of the size. We have done our best to ensure that we get a fair representation across Indian and international institutional investors. So, we have a very strong anchor book by all accounts. When you look at our pricing, as I mentioned, look at our financial performance, our EBITDA margins, revenue growth amd the growth trajectory as well. We feel fairly confident. Our company, our board, bankers along with our institutional investors worked to arrive at a price that is very reasonable.

    You are a leading cardiologist who is also donning an entrepreneurial hat. How are you going to maximise returns for shareholders while remaining an essential service making sure it is affordable for the larger good of humanity?
    Dr Naresh Trehan: I will say that good medicine will make good business but good business does not make good medicine. So you never lose sight of your core goal, which is to deliver the highest end of healthcare that can be provided anywhere in the world at the most affordable prices so that more and more people can actually benefit from it. The third is the integrity of medicine has to be maintained always.

    So if you stick to these three core values, then patients will seek you out. So with that core value,.one can see the growth that has happened.

    Coming back to the IPO, the other upper price band you are quoting a PE of about 43, which is lower than the industry average of about 50 plus. A very conscious decision?
    Pankaj Sahni: Like I mentioned earlier we have done our price banding in conjunction with our bankers, board of directors and also some of our existing institutional investors as well as the investors that we engaged with in the past. You will see in our RHP that some of the investors had actually also participated in a purchase. Carlyle, which had about 26% equity, is selling about 6% of their equity prior to this IPO. They will sell the remaining 20% in the offer for sale in the IPO. They will extinguish their entire stake so that there will be no stock overhang in terms of selling or etc as we move forward with respect to the Carlyle stock.

    Temasek, our other financial investor, is keen to stay invested in us. They own about 18-19% stake. So in terms of support, guidance that we have received for this pricing, we have very strong inputs from a variety of leading people who are familiar with this space. In the pre-IPO sale, SBI Mutual Fund picked up some of the 6% stake being offloaded. Novo, which is a Danish fund, picking up some of that stake and that was also done at the price of Rs 336 shortly before this IPO.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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