Unperturbed by the concerns raised by the investment community, the Singh brothers, promoters of the Fortis hospital chain, recently completed the integration of their domestic and international health care businesses by selling their privately held foreign health care entity to the listed Fortis Healthcare for $665 million (Rs 3,300 crore, approximately). Fortis Healthcare executive chairman Malvinder Mohan Singh spoke to Joe C Mathew about the rationale behind the integration, growth plans of the combined entity and more. Edited excerpts:
After the integration, Fortis has a presence in 10 countries and runs tertiary hospitals, day care clinics, diagnostic labs and primary care centres. How do you look at the combined entity?
We are leaders in the respective verticals we represent. We are the biggest player in India, out of India and a leading one in Asia. We have 200 day care speciality clinics, we have got 200 pathology labs, 600 primary health care centres, 23,000 employees, and 4,000 doctors. Our international business is a little more than 50 per cent of our combined revenues, in excess of $1 billion (Rs 5,000 crore, approximately) on a run-rate basis.
But, the company’s market capitalisation is less than $1 billion. The integration seems to have had a negative impact on investor sentiment. How do you explain that?
That will get corrected. My belief is that it (market capitalisation) will go up substantially. All that I need to know is whether we are doing the right thing for the business. We are. And, it will show.
We have disclosed the financial numbers for the quarter (for the combined entity). They are bigger than Fortis Hospitals and SRL put together. As we close this December quarter, the India business was close to $609 million, the international was $615 million. It (the international business) is more profitable.
When you are driving change and when people don’t understand it, they tend to become cautious. But, as businessmen, you have to take advantage of market opportunities and do what you believe is right. As people understand what we have gone out and bought, and why we have done it, the value we are adding, and the opportunity for growth, and the way we continue to scale up in a very profitable manner, they will appreciate (our action). I am very confident about it.
Will Fortis continue its India focus in the same manner under the combined entity?
India as a business will continue to grow, it is a huge market, and we have a good team here. We will continue to invest significantly in the Indian market.
There is a perception the health care business is more local than global. All your country businesses are entirely different entities. How can there be synergies?
We have created a matrix of 10 countries and five verticals. We want to cross-pollinate that. We will go vertical, and go deep into those markets to funnel a health care capability and a delivery mechanism from primary to tertiary. It will take time because in each of these countries, the markets are different. So, the pace of doing this will also be different. For example, in India today, primary health care and day care speciality will take time. But, developed markets like Australia, Singapore and Hong Kong, are already corporatised. So, we will be there fast. In India it will be tertiary health care, secondary health care, secondary hospitals, diagnostics and then we will move to day care speciality.
Did these foreign assets come cheap?
Well, compared to what my competitors have paid for similar assets, we bought them at a better price, so I think the transactions over the last two years in the market have happened at a higher multiple than what we have paid for. At the same point in time, we have been able to add significant value (to the acquired assets). We have grown the top line, but more importantly, the bottom line.
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Did that value addition reflect in the $665-million price tag?
We took it at cost. See, I owned both. My intention was to bring the businesses together because the value-creating potential and the ability to unlock value was so huge. We wanted to do it in one entity.
Fortis, in its latest disclosure, has stated that it is in the process of selling non-core businesses like in-patient services to a subsidiary company. Is it part of raising funds through separate listing, in Singapore?
We didn’t make any comments. We have always talked about making a structure that will make sure we have an asset-light model. This is in that direction. I cannot say more than that at this point.
The promoters have handed over the Religare management to a professional team. Now that you have a global CEO and respective country heads to carry on the business at Fortis, is the same going to happen here, too?
Both of us [Malvinder and younger brother Shivinder] are going to spend our time to build our health care business. What is different here (from Religare’s financial services business) is that we are on a journey and a path which is unique and is being created and driven by Fortis for the first time.
For the brothers, which one is the flagship brand in your business empire? Fortis or Religare?
Both are. There is an equal focus on both businesses and both are strategically important to us. The only difference is that in health care we are doing something uncharted and unconventional, which has never happened before. And, that needs an entrepreneurial drive.
There’s speculation about your plans to enter other business verticals like real estate, aviation, etc. Your comments?
There is enough on our plate between Fortis and Religare. For us, it's only financial services and health care. We don’t want to become a conglomerate of different sectors today. We have a capability and understanding, a commitment and focus on health care and financial services and those are the two pillars (of business).