Healthcare - The next big bet for Reliance ADAG

After Energy, Financial Services, Telecom, Entertainment, its now Healthcare, which is catching Anil Ambani’s focus, primarily due to the high margins this sector command. He is supposed to be investing Rs. 6,800 crore, comprising a chain of medicine retail stores (Rs. 1,200 crore), four hospitals in West Bengal, Bangalore, Delhi and Mumbai (Rs. 1,600 crore), and two medi-cities in Jaipur and Nagpur (Rs. 4,000 crore). Reliance Health Ltd, a subsidiary of ADAG Group, has also proposed to set up a ‘Health city’ in Bhubaneshwar at a cost of Rs.500 crore. It is converting the Mandke hospital in Mumbai (acquired recently) into a 650 bed super speciality hospital. Reliance Health is starting itself from Delhi and Mumbai as these cities contribute about 19% of the country’s drug sales.

The pharmacy retail trade, which is highly fragmented and dominated by small chemists, is seeing entry of big industrial groups like Ranbaxy (Fortis), Reliance Retail, together with other big multi-format retailers like Pantaloon (Tulsi) and Subhiksha, and regional healthcare players like Apollo Pharmacy (Apollo Hospitals Group), Medicine Shoppee (international drug retail chain), Dial for Health (Zydus Cadilla), Planet Health (Sagar Drugs & Pharmaceuticals), Life Spring (Morepan), Health & Glow (Dairy Farm), LifeKen (Lifetime Healthcare), 98.4 (Global Healthline), Body Shop (now acquired by French beauty major Loreal), Guardian Pharmacy (Guardian Lifecare).

The pharmacy trade in India is worth around Rs. 32,000 crore, plus Rs. 18,000 crore from hospital pharmacies and exports. All chemists beside selling medicines also offer OTC and alternate medicines, surgicals, rehabilitation aids and bodycare products like soaps, tooth pastes, hair oils, shampoos, cleansing lotions for sale which generate an additional turnover of about Rs. 15,000 crore. Reliance Health plans to act as a ‘national distributor’ for local and foreign drug manufacturing companies, and source drugs, medical devices, OTC medicines and other lifestyle products directly from the manufacturers and supply the same to hospital pharmacies, retail chemists and other wellness stores. Reports say it has tied up with 20 drug distributors and associations, and secured ’sole drug distribution rights’ with 10 leading pharma companies. It has been able to woo a section of the All India Organisation of Chemists and Druggists (AIOCD).

To reach up the scale, Reliance Health has already acquired two small drug retail chains, and planning to acquire some of the big pharma retail chains. Rumours say of a possible acquisition of the Max group’s healthcare subsidiary, which runs seven hospitals in NCR region. Meanwhile Reliance Retail is opening smaller format store - Reliance Health and Wellness Pharmacies, which will sell Allopathic, Ayurvedic and Homeopathic along with other health and fitness products. This might turn out to be bone of contention between the two brothers owing to the no-competition clause signed at the time of demerger.

ADAG’s health venture may turn out to be a rewarding one as the opportunities are many. Another big area in which Anil Ambani can set his sights on is being a third party administrator (TPA) for health insurance through Medi Assist. TPA accounts for 80% of the 3,500 crore health insurance market and is growing at an annual rate of 35%. Reliance Health could also leverage on the Insurance policies its sells through its financial services arm.

Reliance Health could also venture into the high potential diagnostics division, which has seen investment from big players like Ranbaxy, Nicholas Piramal. With the recent decision of Uttar Pradesh government to open 7 super-speciality hotels with private partnership, Anil Ambani could bid for it but considering his closeness to ex-CM Mulayam Singh Yadav, it is the most unlikely scenario. However, with big players coming into healthcare, consolidation is bound to happen. Could Dr. Lal’s Pathology Laboratory be next on the radar?