Some different ways approached to achieve the goals

The Singhs’ Fortis, also founded in 2001, built or acquired 43 hospitals to achieve a pan-India presence. Their uncle, too, as we know, loved physically expanding the business.

Inauguration of the hospitals

In 2011, Max decided to add 800 beds to the existing 1,000, which meant adding three-four hospitals, said another former senior executive with Max Healthcare. It inaugurated hospitals in Bathinda and Mohali in Punjab—venturing outside Delhi and the national capital region NCR—and in Shalimar Bagh in Delhi.

This despite the EBITDA being in low single digits, he added. But Max only got more aggressive in its expansion with time. In the year ended March 2016, Max acquired a 51% stake in Saket City Hospitals Pvt Ltd (a unit of Gujar Mal Modi Hospital and Research Centre) and a 76% stake in Crossley Remedies, which now owns and operates Max Super Speciality Hospital, Vaishali.

These were very expensive investments, said the senior executive quoted above. Max paid Rs 350 crore ($49.5 million) for the Saket City stake. (To contextualize how expensive this deal was: Manipal Hospital bid the same amount for a 74% stake in Saket City. Of course, Max bagged the deal.) Despite the company’s cash crunch, Max splurged, and this directly reflected Singh’s flamboyant approach, said both the former executives.

In Dehradun, Singh came for a final inspection days before the launch. There were two pillars blocking the view to the lychee gardens. He had the entire design changed and realtered. It took 6-8 months of delay to inaugurate the hospital and more costs to give him that view.


Setting up the priorities

Personal relationships were given primacy. “One doctor had someone who was hired to just open the umbrella for him; another doctor was paid 3X market salary because he had at some point taken care of the promoter’s mother,” said one of the former senior executives quoted above. Some of the current and former executives with Max believe that sometimes Singh fails to support tough cost-cutting decisions.

Max’s Singh also leveraged his assets to take out debt, said two people who have been associated with him. While anticipating a merger deal between Max Life, his other promoted life insurance company that is a subsidiary of the publicly listed Max Financial Services, and life insurance provider HDFC Life, Singh’s holding companies had mounted a debt of Rs 3,308 crore ($467.9 million) as on 31 July 2018. His own debt in January 2018 was estimated at $300 million. A part of it was against his stake in Max India, the holding company of Max Healthcare and health insurer Max Bupa. Singh used the debt to invest in viticulture, winemaking, and hospitality in Franschhoek Valley and Riebeek-Kasteel in the Swartland region of Western Cape, South Africa. However, the merger never went through. And that set the dominoes falling.

Last year, Singh sold the majority of his stakes in Max India (and its subsidiaries) in distress sales, said one of the former executives with Max.

How did the regulations proceed?

The policy climate over the last two years did not help. There was the government’s call to demonetize 86% of Indian currency in 2016, a cap on stent prices in 2017, and more. “Regulations came in a stop-gap manner. They were state and center led. We had to accept lower margins then,” said a senior executive with Max India, who is not authorized to speak with the media.

But not all of Max’s problems were external.

During an earnings call in 2017, Max announced that it had downsized the hospital in Pitampura, removed inpatient services and converted it into a daycare center. It acknowledged that the hospital was never profitable. Radiant is now considering converting the same hospital into an outpatient center only with the sole goal of making it profitable.

The senior executive with Max India says that Max Healthcare’s South African investor Life Healthcare, who had bought a 26% stake in 2012 and overtime increased the stake to 49.7%, never had the courage to tell Analjit Singh to make better decisions to improve profits. Private equities like KKR, on the other hand, love bloated but respected assets. If anyone can, it probably can cut costs without damaging the revenue.


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