Funding the last dose
July 1, 2009
His is a dissenting voice in a world enamoured of private equity (PE) funds and multinational banks: he would rather swear by the slow but sure processes of government banks. The best decision he has taken in his life? Borrowing from State Bank of India (SBI)! Meet Dr Alok Roy, an MD from All India Institute of Medical Sciences (AIIMS) and a specialist in nuclear cardiology, who decided to begin a second life by doing his own healthcare consultancy, building hospitals and creating a pharma retail chain after building hospitals for others.
But his rebirth, as he terms it, was almost aborted by riskaverse PEs, venture capitalists and banks. "We went to banks, we must have visited at least 20 PEs, including the big names," recalls Dr Roy, Chairman and Managing Director of Medica Synergie, which he set up with Aruna Nair and seven others in 2003. "To get venture funding in India is very difficult. They don't want to experiment, they don't have the guts, they don't want to invest in a new business," says the 50-year-old Roy, whose 600-employee company reported a turnover of Rs 40 crore in 2008-09.
The first break came when ICICI Venture pumped in Rs 35 crore. The second came when Dr Roy approached SBI for a loan, and got around Rs 62 crore. "For me, it was a second life. Instead of retiring, I started a new career," recalls Dr Roy, who says he had a hand in building every hospital associated with noted cardiac surgeon Devi Shetty, right from B.M. Birla Heart Research Centre and the Rabindranath Tagore International Institute of Cardiac Sciences (RTIICS) in Kolkata to the Narayana Hrudayalaya in Bangalore.
Doctor, builder, administrator
Dr Roy's career took an unusual turn quite early. After his MBBS from the SCB Medical College in Cuttack, Orissa, he did his MD from AIIMS and then specialised in nuclear cardiology. His first break came when he joined the founding team of the B.M. Birla Heart Research Centre in 1987. There, he got caught up in the excitement of running a superspeciality hospital at a time when hospital administration was yet to emerge as a profession. It was here that Dr Shetty began his journey to fame. In 1995, Dr Roy went to Bangalore to build the Manipal Heart Foundation, where Shetty joined him in 1997. Dr Roy later came back to Kolkata to build the RTIICS for Shetty while handling the Narayana Hrudalaya project in Bangalore. Then Dr Roy and Shetty parted ways, and in 2003 Dr Roy did very brief stints as managing director of Family Health Plan, the insurance third-party administrator of Apollo Hospitals, and as VP and COO of the Fortis group.
Homecoming, and rebirth
It was a meeting with West Bengal's Chief Minister Buddhadeb Bhattacharjee in 2003 that gave Dr Roy his current mission in life. "He said, 'Alok, you left Devi, but why leave Bengal? If you want to build a hospital, I will give you land," recalls Dr Roy. He roped in seven of his former colleagues and formed the company. His partners: Dr Alexander Kuruvilla, Udayan Lahiri, Ayanabh Deb Gupta, Sudhansu Roy, Anupam Shukla, Sanjay Prasad, Aruna Nair, Soma Bhan and Manoj Bathwal. He also has 11 architects working under him. He learnt his first lesson when he went looking for funds: align your needs with that of the PE and you are in the big game. After ICICI's entry, he approached SBI. He contrasts the SBI experience with his fling with GE Capital, which was to co-finance some equipment purchase but backed out citing the recession. "They did not pay! Now they have come back to me," he says.
The SBI funding came in the third quarter of 2008-09, but work on the 500-bed superspeciality hospital had begun in 2006, with his own money, that of his friends and cash flow from pharma retailing, consulting business and running a hospital in north Bengal.
Last mile trouble
"Funding wise, I am comfortable, but I still have some need, around Rs 15 crore more," says Dr Roy, who also earns fees by advising around 18 state governments on public health. Dr Roy says Medica has managed to keep costs under control. He is now operating at a debt-equity ratio of 2:1.
control. He is now operating at a debt-equity ratio of 2:1. But, having decided to tap West Bengal's health market, he finds that it is difficult to attract top doctors, managers and executives to work in Kolkata because of the city's poor infrastructure. So why did he pick Kolkata for his projects? As he puts it: "Large market, people from neighbouring states and countries come here for treatment and it is largely underserved." And don't forget that Dr Roy and his team have worked in this market for over two decades.
"Traditionally, Kolkata was once at the top of the health map. Today, it is at the bottom… Delhi has better recreation, better roads, a better education system, a better support system," he says.
The only people you can attract are those who want to come back, he says. "If we do get somebody from outside, we have to pay them big money," he says. Elsewhere, he had no problem getting top talent. "In Mumbai, you will get 10 such persons, in Bangalore 20 such people will be waiting outside the door," he says. Dr Roy is confident of getting good returns once all projects are completed, taking his total investment to Rs 150 crore. "Returns… are around 30 per cent. Our benchmark is 26 per cent-if you have crossed this, you are in the elite group," he says.
Cash flows are coming from Medica's involvement in over a dozen hospital projects across the country, pharma retailing and two operative hospitals, including one for ENT.
In hospitals, Medica is aiming for 5,000 beds by 2011-12, with secondary hospitals at the districts. Dr Roy also has some ideas on rural healthcare and health insurance for children. A medical college is also an option-but not until the government allows a corporate setup.
"You have to set up a trust. Allow me to make money legally…" says Dr Roy. A business has to be run by the rules of business, and not by the rules of the heart, he says, citing China: "Our boys are going to China to pick up a doctor's degree for Rs 8 lakh. They come back and write a simple test and start practising."
Why can't Indian entrepreneurs be allowed to do this? Why not, indeed!
SOLUTION - I
'Medica should leverage track record'
Alok Mittal, Managing Director, Canaan Partners
Medica Synergie seems to have done a great job in establishing a business with sound economic and social foundations. Medica will need to continue to evolve its model as it scales further.
The company needs more capital to expand, not just from a near-term perspective, but from a strategic perspective. What are the sources of capital the company wants to cultivate? Beyond the ideological stand on the risk propensity of PE/VC players in India, the company needs to outline what sources of capital represents its best choice. This may be a mix of equity and debt, and may come from existing stakeholders or new ones. In contrast to when the company started its operations, it now does have a track record, and hence an ability to leverage exactly what it believes is the key shortcoming of Indian PE/VC players!
The problem of attracting talent is germane to many businesses. As the company goes from 600 to 2,000 people, and from 2,000 to 5,000, how does it create the right conditions to attract and develop human capital? While work-life balance issues are hard to deal with in isolation, they can be balanced by providing a better work environment, a sense of challenge and accomplishment, and adequate monetary rewards. Further, there needs to be an emphasis on deskilling and creating the right staffing mix. An internal talent development programme may also be considered.
Some of the above principles have been applied to great effect by bottom-of-pyramid healthcare organisations, like Aravind Eye Care, and Medica may be able to learn from those experiences.
The opportunity set for Medica is huge, and will continue to expand in the future. It is only by creating the right sources of financial and human capital that it will be able to find its rightful destiny.
SOLUTION - II
'Target the returning Indian'
Padmaja Alaganandan, India Business Leader, Human Capital, Mercer
The issues Dr Roy is facing in attracting and retaining talent at Medica Synergie are not uncommon. Many Indian companies have grappled with such problems and have found appropriate solutions. Being part of a "dream taking shape" can be hugely exciting and professionally fulfilling; this aspect needs to be focussed on while simultaneously addressing the issues around soft infrastructure.
Dr Roy could try targeting the "returning Indian", or in this case the "returning Kolkatan". Global leaders such as Microsoft have used this strategy. Recession in the West accompanied by opening up of significant opportunities has made returning to India a very attractive alternative for many first generation migrants. Very often personal pressures associated with aging parents and growing children reinforce this. Leaders using this approach have invested a lot of their personal energy in visiting locations where Indian diaspora can be targeted and have successfully communicated their vision for their dream project. His own vision and commitment is, after all, what will influence the "returning Indian". Similarly, targeting professionals from other parts of India can help in building a talent pool.
Providing a nucleus to help build and grow his team will be important. Partnering with established medical institutes in other parts of India (including ones he has worked in) to send high calibre and renowned professionals for short-term stints can provide this impetus. A reputation of having the best talent in the field will be the key. A strong "core" of a quality team will go a long way in making the venture a success.
Dr Roy has the opportunity to source world class talent with a compelling employee value proposition. At the same time, he will realistically need to factor in higher costs on account of creation of soft infrastructure, compensation and possible higher attrition. The scale of his venture needs to allow him this leeway.