NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, December 17, 2015

All eyes are on the IPO of Narayana Hrudayalaya, the Bangalore-based affordable healthcare chain founded by India’s best-known cardiac surgeon Dr. Devi Shetty, which opens tomorrow. Dr. Shetty, 62, pioneered inexpensive cardiac surgeries by creatively and efficiently driving down costs, thus putting life-saving surgeries within the means of thousands of poor Indians. That is particularly noteworthy in a country where healthcare is mainly delivered by as-yet small number of private healthcare operators while the government spend on healthcare is a scant 1.1 % of the GDP – compared with 18% in the United States.

Narayana’s shares are priced in the band of 245-250 rupees (about $3.7) and the IPO will collect just under $100 million for the promoters and investors including JP Morgan Partners and Pinebridge. Post-IPO, the promoters will be left with 62% of the stock. India’s hospital chains are just beginning to corporatize and just two prominent hospital chains have listed on the stock markets so far. A slew of IPOs of lesser-known players are in the pipeline, however.

The 15-year old Narayana Hrudayalaya’s IPO is in the spotlight because ‘low-cost’ does not translate into ‘profitable’ in the Indian context. But in an interview earlier this week, Dr. Shetty soothed potential investors saying that his company is based on a solid business model whilst touching people’s lives. “Our hospital is a for-profit model built around making healthcare solutions affordable,” said the England-trained Dr. Shetty who returned to India in the end 1980s and was the personal physician to Nobel Prize winner, Mother Teresa, before turning entrepreneur. India’s telecom operators who have brought phones into the hands of India’s masses continue to provide him inspiration to bring costs down, he said.
Narayana has 56 facilities, treats 2 million patients every year and conducts 300+ surgeries daily. The chain is known for clinical excellence but innovates from the get-go on both processes and materials, leveraging economies of scale. Dr. Shetty has been dubbed the Henry Ford of heart surgeries because his doctors go from one operating table to the next with an assembly line precision that is rare in the Indian healthcare system. Narayana keeps tight control on its purchases, driving down prices by negotiating directly with equipment manufacturers like GE and, in some cases, encouraging domestic companies to make in India inexpensive local versions of costly imported medical supplies. Most recently, the chain has experimented with no-frills hospital buildings as well as with patient care – drafting and training patients’ family members to administer after-surgical care. All of this brings the cost of a heart surgery to about $800, a fraction of the costs in the West. “India is in a phenomenal position to lead the way, make a difference and show the world a new way of delivering affordable healthcare,” Dr. Shetty said.