February 20, 2010

Apollo plans 250 Reach hospitals in small towns

Apollo Hospitals, which runs a chain of 47 hospitals in cities such as New Delhi, Chennai, Bangalore and Hyderabad, is eyeing small towns such as Karimnagar as key levers of its future growth.

The hospital group has set up a 150-bed hospital in the tier-III town of Karimnagar, about 162 km from Hyderabad, at an investment of Rs 22 crore.

Offering services to people living in and around Karimnagar, the hospital is expected to achieve margins of 25% in the future.

Called ‘Apollo Reach’ and set up in non-metros and non-urban parts of the country, the 100-150 bed hospitals like Karimnagar are believed to be a high-profitability, low-cost model, according to Suneeta Reddy, executive director, finance at Apollo Hospitals.

“Once the model evolves, we will look at scaling it up. It’s a long-term plan,” Reddy said.

The group is planning to set up Reach hospitals in places such as Nellore (Andhra Pradesh), Bhubaneshwar (Orissa), Karaikudi (Tamil Nadu) and Nashik (Maharashtra), in the near future. The Reach hospital at Karur in Tamil Nadu commenced operations recently.

The Chennai headquartered group has a plan of setting up
a chain of 250 Apollo Reach hospitals across non-urban India with an investment of about Rs 12,500 crore, offering services like cardiology, cardiothoracic surgery, orthopaedics, neurosurgery, emergency and trauma care, amongst others.

Industry experts say the strategy of setting up 150-bed hospitals in semi-urban and rural parts has a huge potential. According to a healthcare analyst with an equity firm, all costs — manpower, land, operations — are much lower in rural parts, than in the cities.

“The salaries paid to medical and paramedical staff in smaller towns is much lower say by 30%, than what is paid in metros and mini-metros. Also, real estate can be acquired at throwaway prices, which reduces project cost by 20-25%. When there is not much invested in terms of land costs, it makes break-even quicker, say in 18-24 months time,” the analyst said.

According to Ankur Bharti, consultant, Technopak (healthcare practice), the rates charged to patients are about 20% lower than what is charged from patients in cities. “This makes healthcare services more affordable.”

According to Reddy, the revenue per bed at the Reach hospital is approximately Rs 3,200. According to Bharti, in the next say three years time, revenue per bed could reach Rs 9,000-10,000.

Apart from the Reach hospitals, Apollo is aiming at adding 500 beds to its current 7,834 beds by end of FY10 and 800 beds each in FY11 and FY12 at an investment of Rs 500 crore.

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