DNA Money Edit: Merger of hospitals the way ahead

Over the past few years, hospitals have mushroomed in Indian cities. Given the relatively low-cost medicine and high-quality hospitals, India has also become a popular destination for medical tourists. But in rural areas, medical care and facilities continue to be appallingly inadequate. There remain sizable differences in the quality between rural and urban areas as well as between public and private health care. Surely, the sky is the limit for the growth of India's hospitals.

A recent report by the rating firm Icra has pegged the value of merger and acquisition (M&A) deals in the hospital sector at Rs 7,615 crore in 2018-19, an increase of 155% on-year. Of course, the fiscal saw two large transactions -- acquisition of Fortis Healthcare (for around Rs 4,000 crore) and Max Healthcare (for Rs 2,351 crore). In both these cases, the deal was signed at a premium to the then prevailing market price. The report said most deals involved the acquisition of stake in multi-specialty hospitals rather than a single specialty hospital or chain.

As India's economy continues to grow at over 7%, hospitals in India are on an upward swing. The industry is capital-intensive on account of high real estate and significant medical equipment costs. Consolidation may turn out to be a better option for some players as the gestation period for investments is pretty high due to large upfront investments.