By Sarah Townsend
In his first interview since replacing B R Shetty as CEO of NMC Health, Prasanth Manghat reveals his strategy for the UAE-based healthcare group and explains why its oldest assets remain its most valuable.
“I will definitely not do a u-turn on Dr Shetty’s business models,” says Prasanth Manghat, the longstanding deputy CEO of Abu Dhabi-based healthcare provider NMC Health, who replaced founder BR Shetty as CEO in March.
“I’ve been with NMC Health for 14 years and an integral part of the group’s milestones during that time, from acquiring new assets and entering new markets, to launching new verticals and going public. I am as positive about this year as I was about last.”
As Manghat was appointed, the group announced a 38 percent jump in revenues for 2016 to $1.22bn, and a 64 percent hike in net profit attributable to the parent to $132.7m.
Speaking to Arabian Business in his first full-length interview since taking the helm, Manghat says NMC Health is on track to report an even stronger performance for 2017, as he steers the company into its next chapter of growth.
“Our guidance to the market is that we will do $1.6bn of revenues and $350m of EBITDA [earnings before interest, tax, depreciation and amortisation, which last year was $246.1m],” he states.
“Even after six months our outlook is very positive. Based on last year’s figures we are looking at 25 percent revenue growth and 50 percent growth in [gross] profit for 2017.”
London Stock Exchange (LSE)-listed NMC Health was established in Abu Dhabi in 1975 and operates a network of more than 45 hospitals and other care facilities across eight countries including Spain, Denmark, Italy, Columbia, Brazil, Saudi Arabia, Oman and the UAE.
The company has more than 2,000 beds and accounts for 26 percent of the UAE’s private healthcare beds. It was among the top 10 best performing stocks on the LSE last year and has seen steady growth since its 2012 listing.
A chartered accountant by background, Manghat is credited with spearheading the initial public offering (IPO), which was the first time a UAE company listed on the LSE.
Prior to joining NMC, Manghat worked as credit and operations head at Kotak Mahindra Finance, a non-banking financial institution in India. In his new role, he will retain responsibility for the financial function of NMC, while B R Shetty remains as joint non-executive chairman of the company.
Manghat attributes his growth projections on two key factors, he tells Arabian Business. “One is the macroeconomic fundamentals of the UAE –population growth, new suburbs, the introduction of mandatory health insurance. All of these things will help the healthcare industry as a whole and NMC will benefit because we are the only one who plays a dominant position in all three emirates where 90 percent of the population is insured. The second factor is the NMC portfolio itself.”
Manghat says the portfolio can be broken down into four categories – each crucial for different reasons. The first includes legacy assets such as the 43-year-old NMC Speciality Hospital in Abu Dhabi, which is witnessing high single-digit growth – around 8-9 percent, he says – and accounts for more than 1.1 million of NMC’s 4.3 million annual patient footfall.
These older assets are supported by newer assets from the 2000s, such as Al Ain Hospital, which are seeing double-digit growth of around 15-16 percent, largely on account of the rollout of mandatory health insurance.
Others opened in the past two years, such as the $200m Royal Hospital at Khalifa City in Abu Dhabi, and are growing at more than 20 percent. A fourth set of assets, including NMC’s acquisitions in emerging specialist sectors such as fertility, long-term care and medical device technology, are likely to witness similarly high rates of growth, Manghat says.
For this reason, he claims, there are no plans to shed older assets to finance future growth. “We have legacy assets in Sharjah and Abu Dhabi that have been there for 35-40 years and even now have the ability to grow at single-digit rates.
“In 2016, the Abu Dhabi Speciality Hospital did $135m of revenues. It is a hardcore asset that generates profit, value and volume from any tangible angle you look at it. There are not many [healthcare providers] in the country that can boast that one 10-storey building gets a million patients a year, especially in the context of a small population.
“When you consider then that the UAE population is growing at around 20 percent, you’re talking about adding almost 100,000 new patients a year. That’s amazing, really. It helps us invest in new assets.”
NMC has been highly acquisitive since its listing, snapping up both traditional and specialist healthcare assets across Europe and the Gulf. Since Manghat has been CEO, a deal to purchase the 154-bed Al Zahra Hospital in Sharjah for $560m has completed – something of which he is proud. The acquisition was funded by a mix of debt and equity with NMC placing around 10 percent of its issued share capital through a $325m raise on the LSE.
“This was a very important transaction for us,” he says. “Al Zahra was the first private hospital in the UAE 37 years ago, and it remains the largest asset in Sharjah. We already have clinics across Sharjah and more than 1,800 walk-in patients per day. With [the addition of] Al Zahra, we’ve got the perfect mix of in- and outpatient activity.”
In November 2015, NMC pulled out of the $2.2bn bidding contest for its London-listed rival Al Noor Hospitals, with B R Shetty saying at the time the valuation had not matched NMC’s expectations. Manghat, too, says there are “no regrets” over the acquisition not materialising, because of the success of the Al Zahra deal. “We issued the stock at £13.75 and today it is £22.60 so almost 80 percent growth in six months. It’s been very lucrative.”
Meanwhile, NMC is pressing ahead with plans to open fertility and other clinics in Oman and Qatar, although no further expansion is planned in the UAE at present, says Manghat. Future acquisitions are likely to focus on specialist areas of medical expertise, including orthopedics, oncology, diabetes (renal centres) and cardiology, in line with skills gaps in the Gulf, he says.
“The gap cannot be filled by physical infrastructure and technology alone; there are plenty of areas where we could bring in new knowledge to benefit the region. The UAE has a very big problem with diabetes, for example, while longer average lifespans mean there is a bigger market for replacement knees and hips.
“We are looking at specialist knowledge lacking in the market to bring in and enhance our portfolio.” Nothing is concrete yet, he adds, but talks over possible joint ventures, partnerships or pure acquisitions are taking place.
When Arabian Business interviewed B R Shetty last year, he proclaimed: “I never make hospitals to make money.” Manghat calls this a “sweeping statement”, acknowledging that a listed business has obligations to its shareholders. However, he says he has absorbed “strong takeaways” from his predecessor, including the notion that a health facility should be “affordable for all”.
“Shetty’s view is that he did not want to differentiate between people by way of colour or country in terms of services. And this is very important. My view is that sustainability is what we are aiming for, and that involves a balancing act.
“Investors in the business are looking to the returns we can give them. At the same time, our other stakeholders – the patients – put money in to get their treatment and they should also get value for their investment.
“We’ve been here 44 years. If we are to survive another 50 years, it can only be done if we take a conscious approach.” With Manghat at the helm, NMC can surely look forward to this.