This document discusses valuation approaches for hospitals and health care facilities. It outlines key factors to consider such as the economy, value chain participants, facility characteristics, financial performance indicators, expansion rationale and valuation methods. Specific examples provided include a 500+ bed hospital with 90% occupancy, average revenue per occupied bed of INR 35,000 and decreasing average length of stay. Comparable transaction and trading multiples are referenced as valuation approaches.

1. EIC - Health Care
- Hospital
Valuation- Focus
Areas

2. Economy
 Growing economy with varying health care needs
 Lifestyle, Communicable
 Higher potential for health care facilities
 Potential for improvement in health care as a % of GDP

3. Value Chain
 Hospital
 Medical devices
 Diagnostics
 Pharmaceuticals
 Others

4. Hospital
 Country pattern
 Cluster analysis
 Urban/Semi urban/Rural
 Varying requirements of facilities
 Awareness

5. Hospital Analysis and
Valuation – Example
 500 plus beds (1st phase)
 Average occupied – E.g 90%
 Capacity to improve; Land bank as an investment –
Currently non operating but high potential conversion
based on the utilization

6. Some Key Indicators
 Higher IP/OP
 ARPOB – INR 35000 per day
 AlOS has decreased from about 5.5 to about 4.5
 Reduction in ALOS as a trend because of better facilities &
equipment, multiple ways of post operative etc.

7. Revenue Areas based on
Service - Example
 Cardiology
 Neurology
 General Medicine
 Nephrology
 Oncology
 Gastroenterology
 Others

8. Revenue realization model -
Institution
 Cash
 Corporate/Insurance
 State Govt Health Schemes
 Govt, Institutional

9. Cost Structure
 E.g - 70% inhouse staff & 30% consultants
 Owned Vs Managed based on a revenue sharing basis

10. Facility Data
 Example - Occupancy Rate ranges between 90% to 55%,
with a median of about 68% with industry leaders
around 70%.
 E.g EBITDA Margin is around 21% to 8% with a median of
around 15% compared to few leaders at around 21% and
many others around 11-13%.

11. Future Expansion – Rationale
Cluster Specific
 Cluster A – Higher population
 Per capita income increased
 Insurance penetration increased
 Rapid real estate development
 Increasing demand-supply gap

12. Financials & Valuation
 WACC for the operating assets around 13% and the new
construction around 15%.
 If the real estate facility is used for expansion of the
facility in the near future, one needs to consider one of
the current ‘non operating asset’ as a potential operating
asset.
 Separate stand alone valuation of land banks, in case
the real estate remains as non operating asset.

13. Relative/Comparable
Valuation
 Transaction Multiples – with stake purchases ranging
between 12 and 45%. Median range around 23-25.
 One needs to see whether the transactions are comparable
from size, region etc. before utilizing the numbers.
 Premium Vs Discount
 Trading Multiples – Small to Mid Level LTM
 Liquid vs less liquid stocks
 Discount Vs Premium