Moment Of Pride: Ashwin Naik (right) and Veerendra Hiremath, the founders of Vaatsalya Healthcare.
When Ashwin Naik, 36, came up with the idea for Vaatsalya Healthcare in 2004, his dream was to get young doctors to come to small-town India. It was also the key to the success of his rather unique business model: world-class healthcare for rural and semi-urban consumers at rock-bottom prices. Five years and seven hospitals later, he still struggles to get doctors to buy into his dream, though he has got investors to do so.
They were not profitable when they came to us. But we liked their price point, and decided to fund them to test the model.
Anand Lunia, CFO, Seedfund
“We thought good quality facilities would attract doctors. But it remains a big challenge,” says the young doctor-turned-entrepreneur. Naik, however, is far from giving up. Armed with $5 million in fresh venture capital from Switzerland-based Oasis Fund, he is getting ready to notch up one million customers per year (against 175,000 per year now). He plans to use the money to set up 13 more hospitals in Karnataka, the company’s home base, and elsewhere in southern India, taking the total network to 20. If Vaatsalya gets to that figure, it will prove the sustainability of the business model of this Bangalore-based start-up.
Naik does not specify a timeline for his expansion plans and is tight-lipped on future revenues. Going by a monthly revenue run-rate, annual revenues for the seven hospitals work out to around Rs 21 crore. Extrapolating that over 20 hospitals gives a potential revenue figure of Rs 60 crore. According to Naik, the operating cost per hospital works out to about Rs 15 lakh per month, while setting up one costs Rs 1-2 crore.
The social implications of such hospitals are immense. About 70% of India’s one billion-plus people live in rural and semi-urban areas. Here, access to quality healthcare is restricted to mom-and-pop clinics, charitable institutions and government hospitals. Pricing is arbitrary and almost always defined by individual doctors.
In terms of innovation, scalability and management strength, Vaatsalya and the business model are right up there.
Eric Berkowitz, Investment Executive, Bamboo Finance
Naik says there is an opportunity for 400 Vaatsalya-like hospitals across the country, at the very least. “Many consumers in these areas can afford better primary healthcare, but don’t have the facilities at hand.”
Vaatsalya charges Rs 100-300 per bed per night and caters to basic needs—paediatrics, gynaecology, medicine, surgery and physiotherapy. This enables it to address up to 70% of the medical needs of the local community. Each hospital, typically, has 50 beds and follows a no-frills approach, much like low-cost airlines. For instance, the general ward is much bigger than most hospitals—in a 50-bed hospital, 20 will be in the general ward—and even special rooms are not air-conditionined.
The company leases its hospitals. Being located in rural and semi-urban areas such as Hubli, Bijapur and Raichur (all in Karnataka) gives it the advantage of lower rentals. It also saves on wages for non-clinical or support staff hired locally.
The only area where the company is not frugal is doctors’ salaries. It starts them off with Rs 30,000 per month, which compares favourably with the average Rs 20,000-25,000 per month in cities. The doctors targeted are in the 32-38 age-group who’ve recently graduated with specialisations. Normally, they would serve as junior doctors in city hospitals. Here, they are taken on as specialists. This cost structure allows each hospital, which get an average of 50,000 patients per year, to break-even within 6-12 months. Little wonder then that while doctors may still play hard to get, convincing venture capital investors has been much easier.
The angel round ($200,000) came from friends, mostly small-town non-resident Indians and Aavishkaar India Micro Venture Capital Fund. This started off the 10-bed pilot project in Hubli, 420 km north of Bangalore. Incidentally, Naik attended medical school at Hubli’s Karnataka Medical College, where he also met Vaatsalya COO and Co-Founder Veerendra Hiremath. Between college and Vaatsalya, Naik dabbled in genomics research in the US and clinical research in Bangalore, while Hiremath picked up hospital administration skills with Mumbai’s Hinduja Hospital. This combination of skills was an important factor in gaining investor confidence, apart from the potential of the business model.
The angel funds allowed the duo to experiment with three models—10 beds, 30 beds and five beds, at three different locations. The conclusion was that anything less than 30 beds was inadequate to differentiate the company from small clinics and government centres. Also, it would be difficult to attract good doctors.
The experiment helped the duo to fine-tune the model and approach investors for more funding. “They were not profitable when they came to us. But we liked the price point they were addressing and decided to fund them to test the model,” says Anand Lunia, CFO, Seedfund. The seed-capital investor teamed up with Aavishkaar to invest $1.5 million in the company last April. The $5 million Oasis investment this May, apart from enabling the company to expand, will also help integrate operations such as human resources and finance.
In many ways, Vaatsalya is a venture capitalist’s dream deal. The idea is disruptive and the entry barriers are high. Failure is a very real possibility. But, the low-cost operations model coupled with the huge market potential makes it a prospect for dizzying profits on relatively low investments. “In terms of innovation, scalability and management strength, the company and the business model are right up there,” says Eric Berkowitz, Investment Executive, Bamboo Finance, which promotes Oasis Fund.
With Oasis on board, Vaatsalya can now also access the investor’s extensive microfinance network and experience to offer health insurance services. Currently, 90% of healthcare expenses in rural and semi-urban markets are not insured. That’s just one part of Naik’s and Hiremath’s gameplan. After getting to 20 hospitals in the South, the next stop is 60 hospitals in about five other states. Are doctors listening?
Source:
http://business.outlookindia.com/newolb/article.aspx?240800 (External Website) 