It was a regular day for Dr. Ashutosh Raghuvanshi at his Bengaluru office. His calendar was chock-a-block with meetings and there were many things still unchecked on his to-do list. So when his assistant came to tell him that a family was insisting on seeing him, Raghuvanshi took sometime before agreeing to meet them.

Requests from patients and their families to see Raghuvanshi, the vice chairman, managing director and group CEO of Bengaluru-based Narayana Hrudayalaya Ltd—No. 462 on the Fortune India 500 list this year—are not uncommon. That the 56-year-old executive has a personal rule of never turning down a patient’s request to see him also often works in their favour.

The three members who walked into his sparse office a minute later included an 18-year-old who Raghuvanshi had first operated on in 2001, when she was a year old. She had a complicated heart condition which needed three surgeries over 15 years. The family managed to partly pay the expenses of the first surgery, but hit a dead-end for the second and third surgeries in 2007 and 2015 as the father, who was a primary school teacher, had lost his job. On Raghuvanshi’s reference, Narayana Hrudayalaya’s foundation chipped in and the surgeries were done at almost zero cost.

On November 6, the family had come for a final checkup and asked if she could work at the hospital to extend her gratitude. “This is what we live for, it’s so fulfilling,” says Raghuvanshi, who joined the hospital chain in 1997 as a senior cardiac surgeon. He is referring to the philosophy the hospital chain stands for—to provide high quality, affordable healthcare to the masses so that no patient is turned down from a medical procedure for lack of money. “The economic demographics are not changing at the same rate at which people require healthcare,” he says, stressing that the onus is on organised players to make healthcare affordable for all as they can negotiate better rates with medical consumables and insurance companies.

This unique proposition of providing affordable healthcare to the poor and working classes makes the chain a distinctive healthcare provider in the country. It is probably this thesis that made the chain a success with investors: In 2008, it had raised ₹400 crore from JP Morgan and AIG; in 2015, it raised nearly ₹300 crore from the U.K.’s development finance institution CDC Group. A year later, it listed on the bourses and its stock jumped 35% from its issue price of ₹250 on the day of its debut. Today, Narayana Hrudayalaya, rebranded as Narayana Health in 2013, has 23 hospitals, seven heart centres, 19 primary care facilities across India, totalling over 6,100 beds and an international hospital in the Cayman Islands, which has 106 beds.

In the healthcare segment, it’s important to differentiate oneself and clearly identify the segment one is focussed on, says Raghuvanshi. “We are different because of the segment of the market we are focussed on.Most large hospital chains only want premium patients, whereas we do not focus on premium patients. That’s, however, not to say that we don’t like to have premium patients, but we want that to be a limited part of our business. Think of it as the airlines business, where the first two rows are business, and the rest is economy,” he says. “Ultimately, whatever the segment a patient comes from, the only way to win in this business is by being a high quality healthcare provider. Our costs and high quality are not mutually exclusive, they go hand in hand.”

The hospital chain caters to over 2.6 million patients annually and nearly 40% of them need financial assistance. The assistance facilitated by the chain itself either comes through its foundation or financial sponsors such as merchant groups and corporates or crowdfunding platforms such as It also passes on the cost benefits from premium patients to the poor. Despite all this, the company typically takes a hit of nearly 5% on it revenues because of these subsidies. “That’s the purpose of the business and if ever this business of caring for the poor and the working class becomes so bad that it becomes unsustainable then I don’t want to be in the business. I believe everyone should have a purpose. And irrespective of what the situation is, we should strive to live up to our purpose,” chairman Dr. Devi Prasad Shetty, a recipient of the Padma Shri and Padma Bhushan in 2003 and 2012, respectively, tells Fortune India.

Shetty, who served as Mother Teresa’s personal physician in 1984 when she had a heart attack, founded the chain in 2000. It was in the same year that the company’s flagship Narayana Health City hospital on the outskirts of Bengaluru started operations. It currently has 225 beds. What stands out for the chain is that over the years it has managed to keep the cost of surgeries down. The cost of a commonly available bypass operation in 1989 at Bombay Hospital (where Raghuvanshi was a surgeon) was ₹1.4 lakh and could go up to ₹2 lakh depending on the room and bed, he says. Today, the cost for this surgery at the chain is ₹1.45 lakh. “If you consider the inflation and increase in other costs, it’s actually 50% less than earlier,” Raghuvanshi says.

Image : Narayana Health
Corresponding to the size of the operations we have and what we can borrow, we have reached a sort of level where the management, promoters and board are cautious about the level of debt. So we are slow on greenfield projects.”
Venugopalan Kesavan, group CFO, Narayana Hrudayalaya

While subsidising costs is a way of life for Narayana Hrudayalaya, it will never turn them into a charity as it believes that it’s only business, and not charity, that can be scaled and sustained.“Narayana’s business model has targeted the mass market. It has done very well to move from a single specialty to a multi-specialty hospital.While most hospital chains offer subsidised care to a segment of patients, Narayana has been able to communicate that well and use it for positioning itself,” says Ranjan Pai, chairman, Manipal Education & Medical Group. Manipal Group multi-specialty Manipal Hospitals competes with the chain in the tertiary care space. “I think Dr.Devi Shetty’s leadership and vision have worked very well for them. He had big dreams and the determination to execute those ideas.”

Shetty dreamt big because the Indian healthcare market is one of the largest in the world.While India has 17% of the world population, it accounts for nearly 21% of the global disease burden. By 2022, India’s healthcare market is expected to see a threefold jump in value to $372 billion, according to industry estimates. A vast population, growing cases of lifestyle diseases, increasing demand for affordable healthcare delivery systems, rapid health insurance penetration, and government initiatives, along with tax benefits and incentives, are driving up the healthcare market in India.

For years, Shetty and Narayana Hrudayalaya were synonymous with cardiac care. Five Years ago, cardiac care accounted for 70% of the chain’s business; today, it is around 40%. Over the years, it has added over 30 specialties, including cardiology and cardiac surgery, cancer care, neurology and neurosurgery, orthopaedics, nephrology and urology, and gastroenterology as a tertiary care provider. It also has one of the largest bone marrow transplant facilities in the country. “We decided to focus on specialties that are complex and need large infrastructure. Also, these are diseases that are prevalent more than ever before. At Narayana, we did 45,000 dialysis[procedures] last year, even though we are not recognised as a nephro care provider. We did 600 kidney transplants last year,” says Raghuvanshi.

The revenue from nephrology contributes 8.9% to the company’s top line and is growing 10-15% year-on-year. Cancer care contributes over 10%, while gastroenterology pitches in with 10-12% to the revenues. The company is also stream-lining its costs along the way. “We have a central buying unit, so that all products that we need are standardised in consultation with doctors. Also,for products such as water, we only have two or three brands; we don’t have all brands that are there in the market. Now what that does for us is it makes our logistics easier, gives us a price advantage with vendors, helps us manage inventory levels in a better way because we don’t have too many SKUs [stock keeping units],” says Raghuvanshi.

Over the past five years, the company has seen average annual growth in the range of 15-20%.Foreign patients—mostly from Nepal, Bangladesh, and Afghanistan—have played a big role in this growth. In the past three years, the number of these patients has increased by 100% and they contribute 10% to revenues. In the second quarter, the chain’s revenues grew 27.2% year-on-year to ₹711.3 crore. Its Ebitda grew 21.6% to ₹73 crore, while net profit declined 20.6% to ₹13.6 crore. In the short- to mid-term, the focus will be on growing margins and profitability for the chain. “As it looks to scale up in other regions, where the consideration for quality has more weight than affordability, the model is likely to be modified from ‘affordable’ to a mix of affordable plus quality at premium,” say analysts Siddhant Khandekar and Mitesh Shah in an ICICI Direct research report.

Earlier this year, the chain completed the buy-back of a 71.4% stake in the Cayman hospital(Health City Cayman Islands or HCCI) from Ascension Health Ventures for $32.3 million. The company previously held a 28.6% stake in the hospital. Last year, it acquired NewRise Healthcare, a Gurugram-based multi-specialty hospital,from drug maker Panacea Biotech for ₹180 crore.

These strategic moves have piled debt on the balance sheet. The chain had a total debt of ₹216.7 crore as on March 31, 2017, reflecting a debt to equity ratio of 0.19. It had a total debt of ₹801.5 crore as on March 31, 2018, reflecting a debt to equity ratio of 0.74. In the financial world, lower ratios (0.4 or lower) are considered better. “Improvement and sustainability of margin holds the key as any further slowdown in margins could worsen the situation further in the near term. We, however, remain positive on the stock [Narayana Hrudayalaya] as we believe the long-term prospects remain intact on the back of [an] asset-light model and affordability philosophy,” the analysts cited above said.

Image : Narayana Health
Ultimately, whatever the segment a patient comes from, the only way to win in this business is by being a high quality healthcare provider. Our costs and high quality are not mutually exclusive, they go hand in hand.”
Ashutosh Raghuvanshi, vice chairman, MD, and group CEO, Narayana Hrudayalaya 

The company is also taking cognisance of its debt situation and pressure on margins. Some Steps include going into a wait-and-watch mode on expansion, particularly international, and leveraging technology to save costs. It is mindful of the effect that government schemes such as Ayushman Bharat and plans to implement minimum wages will have on the company’s financials. It is working on an asset-light model under which the company will engage with partners who invest in land and building while it takes care of medical equipment and hospital management on a revenue share basis. “In the last 12-18 months we have slowed down a bit on new projects. That is largely due to the Cayman Acquisition. As a result, corresponding to the size of the operations that we have and what we can borrow, we have reached a sort of level where the management and promoters are cautious about the level of debt. So we are slow on greenfield projects unless it is very strategic to us,” says Venugopalan Kesavan, group chief financial officer of the hospital chain.

In April, the hospital chain will roll out a unique hospital information software it has been creating over the past year, not only for itself but for other healthcare providers also. “It’s like Windows for hospitals.Billing is one part of it. It will also have admission details, medical records, images that a doctor can pull up... it’s a platform on which everything sits. As we have decided that we want to be a technology-focused company, it makes sense for us to invest in this capability,” says Viren, Devi Shetty’s son and executive director of the chain.

Over the next two years, Narayana Hrudayalaya intends to have paperless hospitals. It is also working on ways to help patients interact with doctors online so that they don’t need to come to the hospital frequently. Going forward, technology may become the backbone for the chain but its heart is set on the human beings it treats. That connect, as Devi Shetty says, will probably never go away.

(This story appeared in the December-March Fortune India 500 quarterly special issue.)

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