He might be a doctor by training but he’s better known as a savvy investor and successful entrepreneur. Defying conventional wisdom that says doctors can’t be good businessmen, Bengaluru-based billionaire entrepreneur Ranjan Pai heads a virtual healthcare empire in India with 10 hospitals under its belt and a valuation of around $1 billion. So, many in the business thought the 45-year-old chairman of Manipal Education and Medical Group (MEMG) was a shoo-in for Fortis Healthcare when India’s second largest hospital chain was put on the block. And for one brief moment, he even seemed to have clinched the deal. But,as it turned out, after several twists and turns in a months-long bidding war for control of Gurugram-based Fortis, Pai eventually lost the race to Malaysia-based IHH Healthcare.

Acquiring Fortis would have been a real feather in Pai’s cap. It would have catapulted Manipal Hospitals into the position of the biggest player in the healthcare industry in India, ahead of Apollo Hospitals, the Chennai-based hospital chain set up by Dr Prathap C. Reddy in 1983. It’s hardly surprising then that Pai was disappointed but he didn’t stop to wallow in self-pity. Word on the street is that he’s looking at setting up shop in the eastern and northern parts of the country where he barely has a presence. “We liked Fortis because it was a large well-built asset...Post our Fortis experiment, we are now trying to figure out new opportunities. There are many healthcare chains that can get acquired,” Pai tells Fortune India. “We are looking at companies similar to our size and smaller [400-800 beds multi-speciality hospitals.] It has to be the right fit for us. We can look at one or two acquisitions, and then look at an IPO in the next two years for Manipal Health Enterprises.”

That’s the entrepreneur in Pai talking. It’s nopie-in-the-sky dream: Pai has already expanded the family education trust he inherited to a full-fledged conglomerate with interests ranging from education to healthcare and stem cell research with a good dose of private equity (PE) funding from time to time. From 2006 till now, Pai has raised a total of $500 million from PE investors for his education and healthcare businesses across 16 funding rounds. And he has managed to offer profitable exits to multiple investors, clocking for them an average return of 18-20% across 14 exit rounds.

“As MEMG, we have done probably the highest number of private equity transactions in the country,” says the non-practising doctor.“Premji Invest [Wipro chairman Azim Premji’s investment fund] invested twice, IDFC has invested four times. As investors, we only have TPG and Temasek in the hospital business, and Premji Invest in the education venture. All others have exited.”

TPG Capital, one of the world’s largest PE firms, owns a 22% stake in Pai’s Manipal Health Enterprises Pvt. Ltd (MHEPL). When TPG Capital decided to pump $150 million into Manipal Health in 2014, the PE major conducted a comprehensive review of the company before writing the cheque. Consulting firm McKinsey & Company found the Bengaluru-based hospital chain had one of the cleanest and most ethical clinical practices in the country with no profit-maximising strategy.

Pai’s healthcare business has always been a sweet spot with investors. Last year, Singapore’s state-owned investment company Temasek Holdings bought out private equity investor True North’s entire 18% stake in the chain for ₹1,100 crore, valuing the company at an estimated $1 billion.

That’s not bad for the Manipal-bred Pai, whose initial plan was to settle down in his hometown in Karnataka’s Udupi district and continue with his family trust. Pai’s family is one of the pioneers in the field of education in India. His grandfather, Tonse Madhava Ananth Pai, set up Kasturba Medical College (KMC) in Manipal in 1953, the country’s first private, self-financed medical college. Dr Devi Prasad Shetty, founder, chairman and senior consultant cardiac surgeon at Narayana Health, is an alumnus. And Microsoft chief Satya Nadella graduated from Manipal Institute of Technology, also run by the family.

Already an established hospital chain in south India, it was inevitable that Manipal Health would eye a pan-India expansion at some point.Acquiring Fortis would have given Manipal Health a wider presence across the country which it lacks now. The company has a network of 10 hospitals across India, one in Malaysia, and a clinic in Nigeria—with close to 3,500 beds, of which Bengaluru alone has 1,100 beds. Manipal Health has a small presence in the north:a 300-bed multi-speciality hospital in Jaipur, Rajasthan, and one in Dwarka, New Delhi, with 450 beds. “For Manipal, Fortis could have been an asset in terms of building its network across the country. Probably Fortis is one of the few hospital chains in India where the revenue and profit were reasonably distributed,” says a Bengaluru-based healthcare expert, who didn’t want to be identified. “Unlike an Apollo Hospitals, where a lot of revenue comes from Chennai and Hyderabad or Narayana Health, where the bulk of revenue comes from Bengaluru and Kolkata.”

Manipal Hospital in Dwarka, Delhi.      
Manipal Hospital in Dwarka, Delhi.     
Image : Manipal  Group     

As part of Manipal Health’s plans to expand to other parts of the country, Pai is reportedly in talks with Emami Group’s AMRI Hospitals in Kolkata to introduce the Manipal brand in eastern India. AMRI has three super speciality hospitals and a day-care centre in Kolkata and a hospital in Bhubaneswar. Manipal Health is also in talks to pick up a majority stake in Gurugram-based hospital chain Medanta, co-founded by heart surgeon Naresh Trehan with Sunil Sachdeva, chairman and managing director of Ramsons Projects, a non-banking finance company. Pai says healthcare is a capital-intensive industry and one constantly needs capital to grow. “We are also looking at exits for our existing investors in the hospital business [TPG and Temasek]. So an IPO would be helpful.”

Being an investor himself, Pai understands well what backers want. In 2011, he launched Aarin Capital, a proprietary fund with former Infosys executive T.V. Mohandas Pai (not a relation). The $100 million fund has backed over 30 startups and other venture funds in India and abroad. Ranjan Pai, who invests in his personal capacity as well, says while backing a company, he looks at only one thing: Can the promoter think out of the box when things go bad? His funding choices are independent of MEMG’s core operations.

Pai, a KMC product, decided to start something on his own after completing a fellowship in hospital administration at the University of Wisconsin-Madison. So, instead of joining the family’s not-for-profit education trust, Manipal Academy of Higher Education—which runs three universities in India—he set up MEMG in 2000. Started with$200,000 from a rented apartment near Bengaluru’s M.G. Road, the privately-held entity today is estimated to record a revenue of over ₹4,100 crore (the group’s revenue doesn’t include that from the not-for-profit universities).

Right now, the major businesses under MEMG are Manipal Health, Manipal Global Education Services (MaGE), and Stempeutics Research, a stem cell research company. MaGE runs for-profit universities in Antigua, Dubai, Malaysia, and Nepal; in India, it runs MeritTrac, a testing and assessment services company, and other vocational and training institutes.

Today, 46% of the Manipal Group’s business comes from healthcare, while education contributes about 37% to the top line. In FY18, Manipal Health posted a revenue of ₹1,607 crore, up 11.3% year-on-year. Over the past three years, the hospital business has grown at a compound annual growth rate of 14%. For FY19, Manipal Health is expected to clock a revenue of close to ₹1,900 crore—a jump of 17% year-on-year. The hospital chain has 6,100 employees on its payroll, of which 50% are nurses and about 2,400 outsourced staff.

The healthcare and for-profit education ventures in India and the overseas markets account for a bulk of MEMG’s revenue, but Pai is looking at expanding beyond his established businesses as he senses potential in the country’s health insurance sector, which has been growing at a rate of 25% every year, according to reports. Credit rating agency Moody’s says only 440 million people in India were covered under health insurance schemes as of FY17.

“Ramdas Madhav Pai [Ranjan Pai’s father] and Ranjan Pai know how to manage egocentric doctors with magic in their fingers which is the most difficult part of running hospitals.” 
Devi Prasad Shetty, founder, chairman and senior consultant cardiac surgeon at Narayana Health  

In September, MEMG entered the insurance business by picking up a 16.04% stake in Cigna TTK Health Insurance for an undisclosed amount.Over the next few months, TTK will exit the company and the Manipal Group will buy out its entire stake, making it a 51% partner in the joint venture with global insurance company Cigna (which holds the rest). According to Insurance Regulatory and Development Authority of India guidelines, insurance firms in India can only be run with a majority Indian holding in the company.

“Health insurance calls for sustained investment of capital because it is a long gestation business. It is a long cycle before the business starts becoming cash-flow positive. For Manipal, the added advantage is the existing hospital business, which gives us the understanding of the healthcare space to develop the product and lots of cross-selling opportunities,” says S. Vaitheeswaran, group CEO, MEMG. Besides Manipal Group, the other large healthcare players in the insurance business are Chennai’s Apollo Hospitals group (Apollo Munich Health Insurance Company), New Delhi-based Max Healthcare (Max Bupa Health Insurance), and others.

Pai is aware of the competition he’s up against:Malaysia’s IHH acquired Fortis to go solo in India. Winning Fortis will fuel IHH’s presence in the Indian market where it currently has a joint venture with Apollo Hospitals in Kolkata, a 51%stake in Hyderabad-based Continental Hospitals,and a 73.4% stake in Global Hospitals, which has hospitals in Chennai, Bengaluru, Mumbai, and Hyderabad. Then there is Apollo Hospitals, firmly placed as India’s largest hospital chain with over 10,000 beds across 70 hospitals and over 172 primary care and diagnostic clinics.

Be it the hospital business or the health insurance space, Pai can’t afford to drop the ball. But healthcare experts feel over the years Pai and his team have popularised the Manipal brand, especially in south India with its facilities, services, and latest medical equipment, so that people come to the hospital rather than go to a star doctor.

“When people think of Fortis and Max, they associate it with star doctors who work with these hospitals. The Manipal brand commands equal importance—the same as that of a doctor in a particular specialisation,” says a Bengaluru-based healthcare expert. “And it is reflected in the financials in terms of their doctor cost, which is fairly competitive, compared to the industry. Manipal’s doctor cost is around 20% compared to other hospitals of similar size, where the doctor cost is about 25%. The industry average of doctor cost is also around 25%.” Dr Shetty, who has earlier worked at Manipal Health, says, “Ramdas Madhav Pai [Ranjan Pai’s father] and Ranjan Pai know how to manage egocentric doctors with magic in their fingers which is the most difficult part of running hospitals.”

Manipal has also built its business around the tertiary-care model and is not dependent on one particular specialisation. Experts say that their dependence on any particular specialisation is sub-20%. In comparison, for Bengaluru-based hospital chain Narayana Health, almost 40% of revenue comes from cardiology.

Dilip Jose, MD and CEO, MHEPL, understands that healthcare is a highly competitive space. “To differentiate in a crowded market it is important to have the right clinical specialities (such as oncology, cardiology, orthopaedics, and critical care)which are relevant for the geography you are present in with the right clinical talent backed by latest technologies and equipment. Consistent quality service is a key differentiating factor.”

Pai realises that expansion, raising funds or competition are not his concerns. It is maintaining credibility. “During Fortis, the amount of support we got from the banking community,investors, friends, and family—it’s been overwhelming. If we do the right thing in business, these little wins and losses don’t matter.For me, my personal reputation and what I can do for my investors remain paramount. The credibility of who we are, what we have done—the Manipal Group, it’s incredibly satisfying,” he says with a smile.

(This story was originally published in the December 2018 issue of the magazine.)

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