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Have a plan to add 1,000-1,200 beds over next 3-4 years, says Ashutosh Raghuvanshi of Fortis Healthcare

Have a plan to add 1,000-1,200 beds over next 3-4 years, says Ashutosh Raghuvanshi of Fortis Healthcare

Have a plan to add 1,000-1,200 beds over next 3-4 years, says Ashutosh Raghuvanshi of Fortis Healthcare
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By Latha Venkatesh   | Sonia Shenoy  Jan 27, 2020 5:29:55 PM IST (Updated)

Ashutosh Raghuvanshi, managing director and chief executive officer of Fortis Healthcare, talked to CNBC-TV18 about IHH's open offer for Fortis Healthcare.

Ashutosh Raghuvanshi, managing director and chief executive officer of Fortis Healthcare, talked to CNBC-TV18 about IHH's open offer for Fortis Healthcare.

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The Securities and Exchange Board of India (SEBI) has urged the Supreme Court (SC) to allow IHH's open offer for the company. It says the move is mandatory under takeover code. Here are the edited excerpts:
Can you update – you have to just wait for the Supreme Court (SC) orders, I think they are meeting next on February 3, right?
A: Yes the matter is sub judice, so we have to wait. You are right that the Sebi has made an appeal to the Supreme Court and that has been our stand throughout and we expect it to be heard and we have full hope that it will be addressed by the top court.
Any kind of timeline that you are working with?
A: We have an hearing due on February 3, 2020.
Q: Has the IHH takeover made a material difference to the way the hospital is being run?
A: Absolutely, Fortis Healthcare has an inherent strength and that strength comes primarily because of the good clinical talent we have available and some of the quality of assets and where they are located.
Since IHH has come on board, a lot of things have changed for Fortis Healthcare. One of them being that our debt situation was very precarious, we weren’t making enough investments in our capex of both maintenance as well as growth, all those things are behind us now because Rs 4,000 crore of primary equity which was brought in by IHH that helped us to improve our ratios and as a result of that.
We have been able to make almost Rs 300 crore of capex investment this year, which is mainly replacements and upgrade and also some little bit of growth capex. We are committed to do similar capex in the next three-five years.
Other than that our interest rates were hovering somewhere around 14-15 percent because of all kind of penal interest. That has come down to 10 percent because of our rating upgrade by couple of notches during this period because of the performance improvement as well as the parent company coming in.
What we need to very clearly distinguish here is that there are ownership issues where there are a lot of uncertainties and legal proceedings are on, however, at the operational level the company has an inherent strength and that will hold us in long-term.
You were talking about liquidity of the company. Have banks been a bit circumspect in lending because of the lack of clarity on the open offer? Are you facing any liquidity crunch because of that?
A: Currently, we are not facing any major problem because we have certain alliance. But yes, banks are circumspect and they would like to wait for clarity. However, because of our internal accruals and as I said the operations have been reasonably good – so because of that we are not facing any challenges right now.
However, if the situation continues and the clarity doesn’t emerge over the next few months then we may have to find alternative ways to fund our growth because the operations are requiring funds for growth. We have many projects where we can see significant growth within the existing hospitals and at the same time we require capex on a continuous basis because medical equipment have obsolescence and technological upgrades are required from time to time.
Will anything materially change if the SC on February 3 allows the open offer?
A: Absolutely. There is no doubt about that, because as I said that the company’s operations are in a very good situation and very good position and that is what makes us very confident that this company is poised for some great things to be done in future. Definitely if all these uncertainties go then we get the backing of all the financial institutions, our shareholders and the internal stakeholders.
All the uncertainty doesn’t go away. IHH, if it is allowed to just do the open offer, still the overhang of the case continues, isn’t it? My next question is going to be when does the case itself gets settled? is it going to be a long-drawn overhang?
A: We need to very clearly distinguish the ownership issues of the ex-promoters and whatever transactions they have done with the strengths of the company on the operational side. I think we need to distinguish these two.
You are right that as far as those issues are concerned, that will be a process, which obviously will go as per the court’s directions. However, on what we are concerned about as the new management is about how to take this company to the new heights again.
Can you help us a little more about what the game plan is as you said you are looking to take the company to new heights – what the street likes is the fact that hospitals business has been growing at a very steady pace, so Q2 your revenues were up 8 percent, occupancy was healthy at 72 percent. What is the guidance over the next few quarters, what kind of growth are you looking at?
A: I would not like to put a forward-looking number, however, the trend is likely to continue. We do expect to increase our capacity within the existing hospitals. We have a plan to add about 1,000-1,200 beds over the next three-four years. 250 beds are going to come by the end of this financial year itself and those will bring a growth rate of about 10 percent and I would say that it would reflect in the margins as well.
There are a lot of cost rationalisation initiatives, which have been going on since I have taken over and those initiatives are also going to show results in terms of profitability.
Would you be able to list the diagnostic business or will that have to wait till this case is over?
A: The diagnostic business has its own dynamic. The growth rates of the diagnostic business has been relatively lower compared to the peers in the industry.
We have grown about 5-6 percent this year. However, the EBITDA margins from 20 percent have increased to 23 percent but that is not satisfactory.
That was primarily because probably we didn’t have that kind of focus. We have been looking at the business with the same intensity as we are looking at the hospitals and we expect that the margins are likely to expand further and the growth is likely to grow into double-digits within next two-three quarters.
So you will not look at listing for at least next two-three quarters, is it?
A: Not in the very short-term but obviously a long-term plan will have to be drawn once there is clarity on the legal front.
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