EXECUTIVE SUMMARY The Business Idea High-end medical treatment facilities in India are scarce and concentrated only in selective
cities. Figures confirm the fact that outstation
patients account account for 65 to 70 percent of the occupancy. occupancy. Affordable lodging lodging and dinning near the hospitals is the prima concern for these patients and their relatives/visitors. relatives/visitors. Providing a solution to this need forms the basis of our business plan. Hence we will like to venture into the ‘hospital-ity’ industry. We plan to provide accom accommo modat dation ion facili facilitie ties s near near hospit hospitals als for the relati relatives ves of outsta outstatio tion n pati patien ents ts who come
for for trea treatm tmen ent, t, at a low low cost. We name ame thes these e
accommodation accommodation centers as ‘Aashray’.
Our Mission statement: “We envisi envision on to provid provide e clean, clean, convin convinent ent qualit quality y accom accommod modati ation on with with friendly friendly service at affordabl affordable e price price to exceed exceed customer customer’s ’s expectatio expectation n and thereby ensuring financial success and growth opportunities for the company and its shareholders” shareholders” The suggested business plan is feasible, profitable, risk-free and affordable.
How do we start??? We have identified a few parameters on the basis of which we will shortlist various hospitals and locations for ‘Aashray’.These are: •
Capacity of the hospitals (should be high)
•
Ability of the hospital to attract non-local patients(very important)
•
Cost of land near the hospital. (Preferably low).
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Customers (patients) insights.
Cons Consid ider erin ing g
the the
abov above e
ment mentio ione ned d
crit criter eria ia’s ’s we find find that that citi cities es like like
Ahmadabad, Patna, Bhopal ,Indore, Jodhpur ,Pune , Bhubaneswar,Vijaywada etc,(w etc,(whic hich h act as ‘medic ‘medical al center centers’) s’) are perfec perfectt locati locations ons to start start with with because they attract high number of patients from all the corners of their states. Also, land availing is relatively easier and cheaper. Apart from these medical centers, we will also target a number of speciality and super-speciality hospitals (like heart centers, kidney and cancer center) depending on the above mentioned short listing criteria. Aashr Aashrays ays can can also also be built built,, strate strategic gicall ally y locate located d betwee between n two hospit hospitals als,, ensuring higher occupancy and profits, as they will derive its customer’s base from both the hospitals. The possibility of tie ups with hospitals should also be explored. Having selected the hospitals and location, we plan to provide lodging and dinning facilities to outstation patients and their relatives as near the hospital as possible.
Concept of ‘AASHRAY’ •
These lodging places – we will call them ‘AASHRAY’- will be a cross between a traditional Indian dharmashala and a hotel.
•
It will ensure the cleanliness and hygiene of a hotel but will work on a very small number of employees.
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As it is a low cost service it shall cut down on the frills and ensure minimum overhead costs.
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These lodges will be strategically located as near to the hospitals as possible and will be more hygienic and ergonomically built.
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Aashrays will derive their demand from the hospitals and therefore will be non cyclical, rescission proof business.
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The number of rooms/beds in these Aashrays will be linked to (lets say, around 20%) total number of beds in the hospitals- thus ensuring near hundred percent occupancy rates.
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Aggressive cost cutting practices shall ensure profitability.
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Also, tie ups with the hospitals will ensure higher occupancy. occupancy.
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Thoug Though h relati relatives ves of patien patients ts are are ‘the ‘the only only prior priority ity’, ’, in case case of low occupancy, rooms may be let out to others for short durations, the extensions of which shall be daily reviewed.
•
The most important challenge for the project is availability of land. The options available are as follows: o
Outright purchase of land.
o
Purchase of land on lease-transfer lease-transfer basis.
Porter’s five forces analysis:
High initial investment and first mover advantage ensures high entry barriers. Threat of substitutes is low. Bargaining power of supplier and customers is low. Exit barriers are very low as fixed investments (land and building) are easy to recover.
Revenue Model:
Cost=cost of land (fixed and high) +construction cost (fixed and high) +employee salary
(variable
and
moderate)+electricity
and
other
maintenance
costs(moderate).Revenue=renta costs(moderate).Revenue=rentall charged from customers+income customers+income from canteen.
The payback period comes to around 5-6 years in case of outright purchase purchase of land. Profits depend on selection of city, medical centre and rent charged, apart from occupancy rate. Lease- transfer seems to be good alternate in case we want to start showing profits from the very beginning. The uniqueness and scale of the plan coupled with affordability affordability to the needy lodgers will ensure “Aashray” attaining an iconic brand status in 8 to 12 years. Once the efficency and expertise as gained we will gradually move on to the bigger cities.
THE BUSINESS IDEA High- end medical treatment facilities in India are scarce and concentrated only only in select selective ive cities cities.. Figur Figures es confir confirm m the fact fact that that outsta outstatio tion n patien patients ts accoun accountt for 65 to 70 percent percent of the occupa occupancy ncy..
Affor Affordab dable le lodging lodging and
dinning near the hospitals is the prima concern for these patients and their relatives/visitors.
HOW DO WE START? Location of Aashray, type of rooms, number of rooms and rentals charged will depend on the following factorsQUANTITATIVE QUANTITATIVE INFORMATION: •
No. beds in the hospital
•
Occupancy rate of the hospital
The higher the
better •
Percentage of outstation patients
•
F.S.I in the area
•
Cost of land near hospital better
•
Cost of construction in the city
QUALITATIVE INFORMATION: •
Relative cost of services charged in the hospital.
•
Relative income group of patients.
The lower the
Considering the above mentioned criteria, we find that cities like Ahmadabad, Patna, Bhopal, Indore, Ranch, Pune, Bhubaneswar, Cochin etc, (which act as ‘medical centers’ for their respective states) are perfect locations to start because they attract high number of patients from all the corners of their respective states. Also, land availing is relatively easier and cheaper. Apart Apart from from theses theses medica medicall center centers, s, MultiMulti-sp speci ecial ality ity and supersuper-spe specia cialit lity y hospitals (like heart centers, kidney and cancer hospitals) also satisfy the above above menti mentione oned d requi requirem rement ents. s. They They are equall equally y good good locati locations ons to start start hospitals. Having Having select selected ed the hospit hospitals als and locati locations ons,, we plan plan to provid provide e lodgin lodging g facili facility ty to outsta outstatio tion n patien patients ts and their their relati relatives ves as near near the hospit hospital al as possible. TYPES OF ROOMS-The rooms can be classified into three types.
Type A – rooms with beds only.
Type B – rooms with toilets attached.
Type C – rooms with toilet and kitchens attached
Apart from the above mentioned 3types of rooms, we plan to provide a single bed accommodation in a big hall at minimum price for an overnight stay. This shall depend on the type of the hospital. For example, if ‘aashray’ is built near a low cost government hospital, we expect more people from lower strata of the society with lower per capital income to come to such hospitals. For these kind of customers, customers, the hall facility will be best suited. Number of rooms of each type and rentals charged will be determined on a case to case basis and shall not be standardized.
MARKET DYNAMICS & COMPETITIOR ANALYSIS Currently the industry is in introductory phase: hence the completion is most likely to be from unorganized, local accommodation accommodation providers. The market is largely unattended & differentiation is low. •
Some competition exists from unorganized players like those who rent out flats in areas nearby these hospitals. But these are unable to carter to a major part of the demand and hence people have to go to various dharamshalas dharamshalas and hotels which may not be in the nearby area.
•
Also, though food id available nearby the hospitals at a cheaper cost, the level of hygiene and cleanliness is very low. SWOT ANALYSIS
Strengths
First mover advantage.
Stable returns.
Weakness
Differentiation Differentiation is low, easy to imitate.
Availability of required land.
Few growth avenues.
Entry barriers are low.
Exit barriers are low.
Opportunities
Market size. Tie ups with hospitals in
Threats
Unorganized players.
Hospitals may venture into
metros.
Franchise
this field.
Demand is derived from hospitals.
MARKETING & SALES The main thrust of the marketing plan is to create awareness about Aashray. Tie-up with NGOs /social workers There area several NGOs and social work groups who help people get medicines, blood and other necessary requirements in the hospitals. Tie-ups with such NGOs can help create awareness among the target audience.
BRANDING AND AWARNESS Aashray should leverage on the first mover advantage by selecting the prime hospitals. Growth can be attained in the form of tie ups with hospitals (in metros), and franchises if possible. Spending on awareness is important because of the following reasons•
Occupancy in Aashrays cannot be expected to be very high in the initial phase of the launch. As the service is new and in its introductory introductory phase, awareness will definitely add to the customer’s customer’s base.
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Aashray as brand is likely to deter the prospective competitors to enter the fray.
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It helps to keeps the option of franchise open.
•
Owners may expect more returns in case of exit.
FINACIAL PLANNING & FINANCING NEEDS INTIAL CAPITALOUTLAY/FINACING NEEDS The real estate cost & legalities shall have a bearing on the organizational organizational performance. performance. The capital expenditure and financing structure (debt, equity) will have an impact on the accounting statements. statements. There are three ways of going ahead with the property acquisition: 1. Outrig Outright ht Purc Purchas hase e of Land Land •
In case of sufficient initial capital.
•
Insulates from fluctuations in interest rates and rise in property prices.
2. Bank Bank Fin Finan anci cing ng •
Low equity does not hinder ownership.
•
Monthly cash outflows.
•
Ownership retained.
3. Leas Leasin ing g Pro Prope pert rty y •
Minimum cash outflow.
•
Fluctuation in interest rates & property prices may jeopardize the budget.
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Deal can be structured for right to purchase at the end of lease period or for purchase at determined price.
Apart from the above three options , other option with various mixtures of debt and equity could be considered.
REVENUE Revenue will be mainly contributed by the rentals of the rooms.
Rentals=f (cost of land, cost of construction, expected payback period, percent of outstation patients)
Revenue is also expected from canteen if outsourced. outsourced. The suggestion is to outsource canteen only if reduction of overhead costs is of utmost importance. importance. OUTSOURCING THE CANTEEN WILL RESULT IN RISKING Hygiene and quality- the core competencies of Aashray. COSTS The expenditure incurred by Aashray can be divided into two broad categories-fixed and semi-fixed. The variable component is linked to the occupancy and the facility usage. Fixed costs included•
Administrative Administrative and general expenses (a small portion is variable)
•
Property taxes
•
Insurance
•
Payroll
Semi-fixed expenses include•
Energy costs
•
Operation and maintenance expenses
SALES FORCAST AND REVENUE GROWTH
Number of rooms in Aashray=f(number of beds in the hospital, percentage of outstation patients, occupancy rate in the hospital).
The revenue is expected to be fairly stable as the industry is recession free and non cyclic in nature. Revenue growth can be expected from any of the following•
Increase in rentals.
•
Expansion.
•
Increase in occupancy.
BUSINESS RISKS Competition: The idea is simple and easy to initiate. Competition can be from the following•
Big players may enter the fray.
•
Competition from unorganized and domestic players (Dharmashalas, paying Guest services and rented flats) may intensify.
•
Few hospitals may find it profitable to start their own accommodation accommodation facilities.
Demand: •
Competitions may results in price reduction and fall in occupancy.
Construction: •
Rise in cost of raw materials (overshooting (overshooting of budgeted cost).
•
Delay in construction due to various factors like labor strike force, major change in government policies, and irregularly in supply of Raw material.
MEASURE TO COUNTER RISKS: •
Judiciously identify lucrative lucrative locations and try to leverage on first mover advantage. Thus discouraging the big players to enter competition.
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Create awareness about the brand and advertise on few attributes like low cost with hygiene environment, tie ups with hospitals will help in countering the competition from unorganized players.
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Valve added services like-emergency bus service, air coolers and early booking discount etc. will help in negating competition and ensure occupancy.
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One way to counter the risks in construction (monerty and time delay)is to insure the complete process.
ACTUALS The following is the preliminary research finding of five different kinds of hospitalsS.NO
Hospital
Type
Relative Treatment Cost
1
Apollo Hospital,
Multi-specialty
High
Hyderabad 2
Narayan Hrudyalaya, Bangalore
3
Super-
Moderate
Specialty IGIMS,Patna
Medical
High
Center 4
RIMS,Ranchi
Medical
Moderate
Center 5
Govt.Med.Hosp,Nagpur
Medical
Low
Center
Now the distribution of each type of room A, B & C is dependent on the type of people who come for treatment is such hospitals. This is determined by the Qualitative factors: •
Relative cost of services charged in the hospital
•
Relative income group of patients
We have divided the distribution distribution of rooms for the above mentioned hospitals in the following way depending on the qualitative factors:
A(Beds
Apollo
Naryana
20%
20%
IGIMS
RIMS
GMH
30%
50%
65%
only) B(toilets
35%
40%
45%
30%
25%
45%
40%
25%
20%
10%
attached) C(Toilet and kitchen)
The total no. of rooms to be built is taken as 50% of target customers.
Target Customer = Total no. of beds in hosp. X Avg. Occupancy of Hosp. X Avg. no. of outstation patients
The final figures come out to be Apollo
Naryana
A
17
21
B
30
C Total
IGIMS
RIMS
GMH
64
105
207
43
96
63
80
38
43
53
42
32
85
107
213
210
319
Now the total floor space required to build A,B & C types of rooms are: Room Type
Floor space in sq feet
A
125
B
150
C
175
The total capital required to build these five Aashrays depends on: •
Cost of land near the hospital
•
Floor Space Index (F.S.I)-
FSI means Floor Space Index, which is the ratio between
the built up area allowed and plot area available. Like if FSI is 1 then on a plot of 100 sqmts, one can build 100 sqmts of built up area and with the setbacks and open spaces, the building building can be higher than than one floor. Simply it means that that higher the FSI, higher built up area is possible
Cost of Construction in the city
•
•
Total Floor Space Required
Actual figures of the above (as confirmed from real estate agents in respective cities) Come out as: Hospital
No. of of
Cost of
Beds
land
F.S.I
(sq.feet)
Total
Cost of
Floor
constructi
Space required
Total cost (in lacs)
on in city(sq. feet)
Apollo
550
1000
2.25
18992
500
155
Naryana
500
1550
2
15671
500
190
IGIMS
1000
750
2.5
31343
450
235
RIMS
990
700
2 .5
28400.6
450
207
450
316
25 GMH
1500
900
2.5
39046.8 75
FINANCIALS RoomsinHospital Outstation patients Average Occupancyin Hospitals No of roomsin Aashray (Functions (Functions of the above 3factors) Average OcupancyRate of Aashray No.of rooms Occupied
1500 50.00% 85.00% 319
80% 255
Cost Of land construction cost per square feet Total Construction Cost
156 450 19543359
Total Intial Investment Initial Investment in case of lease
35178047 19543359
Hospital name Type of Hospital Cost inhospitals Outstation patients Combined Factor Type of Rooms A B C
Typeof Rooms A B C
OperatingCostsper month: FixedCost Payback period Employee cost Property taxes Administra trativ tive and general ex expenses
GMH 3
Type of Financing
L 1 5 207 80 32
Reqiured per month 404263.2 272100 1339937
Basepayback 5
Daily ilyRentals 81 142 183
Newpayback
100000 10000 10000
Semi-f -fix ixedcost Energycost Operatingand Mainta intanence expenses
100000 10000
Total Operatiin ngCost per month
230000
Incaseof Outrightpurchaseof land Annual Cashflo flow requiredto achieve the base payback Monthly Cashflow reqiured Monthly revenuesrequired tomeet the cashflow
7035609 586300.8 816300.8
Outright of Of Land
Incaseof BankFinacing Actual revenues per month 816300.8 OperatingCost 586300.8 Invest payment per month 234520.3 Operatingcashflow 351780.5
Incaseof leaseof Land Actual revenues per month 816300.8 OperatingProfit 586300.8 Lease Rentals per month 15634.88 Operating cashflow 429953.9
TOTAL NUMBER OF ROOMS: The total number of rooms to built will be dependent
The total number of beds in the hospital
Number of Outstation patients
Average occupancy rates of the hospitals.
The calculation for total number of rooms for a location near Government Medical Hospital , Nagpur Nagpur as seen from the above diagram diagram comes out to be 1500(total number of beds in hospital) X 80% (Average occupancy rates of hospital) X, 50% (Number of outstation patients) X 0.5 (Factor for scaling to estimate demand) RENTALS
As you can see from the above diagram the rentals charged for room type B is a function of
Total rentals required for a pay back period of 5 years
Total number of rooms of type B
Total number of rooms in ‘Aashray’ and
Type of hospital i.e. whether it is s super/multi specality or medical center and whether it is a high cost, low cost or medium cost hospital.
For example considering pay back of 5 years(out right purchase purchase of land). The rentals of Type B (rooms with toilet attached) comes out to be 142 Rs. Per day. However, the payback period will change once the way of financing is changed to bank Finance or lease of land.
PAYBACK PERIOD
The base payback period is assumed to be 5 years in case of outright purchase of land and accordingly rentals have been decided. The ‘New Payback period’ heading will give the payback period as we change our financing options. For example, In case of ‘Lease of Land’ option, the pay back period will be Initial cost of construction/ (Operating cash flow- Lease rentals). Here we will not consider the cost of land our calculation for initial investment.
PROFIT & LOSS STATEMENT Location
Category(Type) cost wise(H,L,M) Total No of Beds Average %of Outstation Outstation patients Average occupancyrate Cost of Land(per square feet) F.S.I. Cost of connstruc connstruction tionper sq.feet Total cost of of land T otal constru tructio tionco cost Total Inta Intail Inv Investment
Bilaspur Apollo
Banglore Patna Narayan IGIMS
1 H 400
2 M 500
50% 85% 1400 2.5 450
Ranchi RIMS
Nagpur GHM
3
3 M 990
3 L 1500
50% 85% 2500 2
50% 85% 750 2.5
50% 85% 700 2.5
50% 85% 900 2.5
450
450
450
450
H 1000
7437500 19755859 9482812.5 8393962 15634688 5976562 7112109 144224218 13490296 19543359 13414062 26867968 2370731 21884259 35178046
Revenues(per month) Total operating tingcost (per month) Interest Interest payment/l ent/lease rentals (per month) Depreciation tion(per month) PBT Taxes PAT/ Net rofit
453567.7
677799
625117
594737
816300
230000
230000
230000
230000
230000
89427 49804.69 84335.94 25300.78 59035
179119.8 158046.88 59267.58 118535.16 209412.1 118535.16 62823.63 35560.55 146588.5 82974.61
145895.1 112419.1 106432.5 31927.04 74496.42
234520.3 162861.3 188919.1 56675.74 132243.4
Net cash flowbeforetaxes Payback pe period(inyears)
134140.6 268679.7 237070.31 218842.6 351780.5 8.333333 8.333333 8.3333333 8.333333 8.333333
The above figure shows our sample Profit/Loss statement cum hospital related data.The figures for revenue and profit as well as costs and depreciation are on monthlybasis. monthlybasis. Total operating costs includes: •
Employee costs(wages and salaries): The number of employees would be proportional to the number of rooms in Aashray and as possible. For convenience, we used 1,00,000 per month as employee salary.
•
Property taxes: Property taxes will be charged as per the municipality regulation. Each city has its own property tax structure.
•
Administrative Administrative & General expenses: Administrative Administrative and general expenses would include expenditure on maintaining cleanliness in premises, rooms cleaning, telephone charges etc. The average administrative and general expenses are assumed to be Rs.10,000 per month for each’ e ach’ Aashray’.
•
Operation & Maintenance expenses: Operation and maintenance expenses would include electricity cost and costs on annual repairs, maintaining drainage system, repainting the building if required etc. Some of these expenses will occur on an annual basis but for the purpose of monthly Profit and loss, they are taken proportionately as monthly expenses.
ORGANIZATIONAL ROADMAP Phase 1: •
Shortlist locations for Aashray.
•
Identify 15-25 hospitals for launch of Aashray over a period over three to four years.(Identify hospitals on the basis of quantitative and qualitative information information as described above).
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Depending upon the capital available choose the best property acquisition mode and build Aashraya.
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Spread awareness (through NGOs, social workers and local television advertising)and advertising)and try to establish brand name.
Phase 2: •
This is the expansion phase. Using flows from existing Aashrays get into newer locations.
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Having achieved learning curve;explore the possibility of venturing into metros.
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Possiblity of building Aashrays in areas located centrally between big hospitalsin the metros to carter to all of them simultaneously.
•
Explore the possibility of catering to ‘medical tourists’.
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Keep the options for franchising open.
Phase 3: •
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The industry is in maturity phase. Choose between milking the cash cows and venturing into new avenues.
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Learning curve may help in venturing into following
Identifying educational centers without hostels and providing dormitory for students.
Working women hostel.
Residential facility for BPO employees.
BIBLOGRAPHY
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