Dubai: Prasanth Manghat has no plans to take his eyes off the bottom-line. Be it future acquisitions or organic expansion, the new CEO of Abu Dhabi headquartered NMC Health will have a straight bat on how those costs should add up.
Then again, that’s not surprising for someone with an extensive background in finance before the step up to being CEO. “A health care entity cannot sustain the profit margins if we don’t increase bed capacity and niche capacity,” said Manghat, who took over from NMC’s founder Dr B.R. Shetty. “Capacity and capability have to be proportionately increased.
“Health care is a very tricky business — when you are doing well, the costs will be variable in nature. The moment we do not, it becomes fixed.
“Let’s say you spend X amount on a doctor and you get a particular return based on the number of patients. But tomorrow if patients do not come and there is a capacity issue, you still have to continue with the cardiologist. You cannot ask your nephrologist to back up the cardiology business to save money.
“In any other businesses, all of us are involved including me can be replaced and the job done by anyone. But that particular job has to be done only by that particular person.
“The only way then to sustain a health care business is to understand market gaps and make sure you are aligned to these requirements.”
New hospital assets
UAE’s health care sector is in the midst of a generational change. The leading players have already either put in place new hospital assets or — as NMC did recently in a $565 million (Dh2.07 billion) deal with Sharjah-based Al Zahra — by acquisitions.
According to Manghat, the price tag for Al Zahra was worth every fil as opposed to the costs NMC would have incurred from building a new facility in Sharjah. “We did greenfield projects for 40 years, but sizeable greenfield opportunities are less today in the UAE. And it would take longer to build something new.
“A second factor then was the time issue — Al Zahra came to us at the right time.
“Today, including the Sunny clinics we acquired earlier, we have 2,000-3,000 patients coming in to our network in Sharjah daily from 1,800 patients when we only had NMC and Sunny. We were losing out on those who were going to other facilities in Dubai or even in Sharjah for their secondary needs.
“Wherever such an ecosystem is built, sustainability will be met. Otherwise you will see ups and downs.
“Diversifying the portfolio is key in any business. There is risk mitigation in this.
“We have a lot of opportunities in the region. The Ebitda (earnings before interest, tax, depreciation and amortisation) margins (in regional health care) are very interesting for shareholders. We don’t want to dilute our focus now from the Middle East.”
Stock
For the Al Zahra purchase, $325 million (of the $565 million) came as new equity from NMC shareholders, through issuing an additional 10 per cent shares. The rest of the deal was paid through new loans. (NMC has a London listing.) “We want to make sure that our equity-to-debt is healthy,” the CEO said. “As equity, we raised money when our stock was selling at £13.75. We got money $325 million on December 15 and now the stock is trading above £18. Shareholders who invested then have had more than 40 per cent growth.
“We issued new shares to all and not just to existing shareholders. When the target is going to generate money, visibility on the asset is proper and everyone will give you the money needed.
“In any financing programme where objectives are clear, there should be a proper mix of equity and debt. If not there is a problem with sustainability.”
Al Zahra remains the big-ticket buy in NMC’s recent round of deal makings. But through the last two years, it has picked up existing speciality health care assets, here and overseas, to round out its portfolio.
“Our IVF platform is now the second largest in the world, and we have a strong presence in Spain, Italy, Denmark, Columbia, Brazil. We use the acquisition platform to grow.
“Today, NMC being a registered company in London, we need to make sure that we are not a company with a portfolio based in one country.
Expansion strategy
“In Saudi Arabia, we have two facilities — one acquired for $28 million and one built by us for $4 million — that are growing, and also in Oman and Qatar. The acquisition in Saudi was in the last quarter of 2016.
“We don’t stop by acquiring something … we use that platform and expand in that particular market. In Spain, we acquired one and created three. We did the same in Italy.”
What next — further acquisitions? “There aren’t too many assets in the UAE to look at,” the CEO said. “We need to create centres of excellence here so that patients from other regions have to come to the UAE to get treated. The best hotels, the best airlines are available in the country.
“We should be able to provide the best medical services.”
