The Hindu Business Line : `We will turn zero-debt by 2005-06 end'

Incorporated in 1982, it has, in recent years, aggressively restructured itself by exiting its non-core businesses such as pharmaceuticals and telecom. Today, the group is focussing on the sectors of insurance, healthcare, clinical research and speciality plastics.

The company's Joint Managing Director, Mr B. Anantharaman, has provided leadership in the areas of finance, business and resource planning to the group's diverse businesses. He is also Chief Advisor to the Chairman, Mr Analjit Singh.

In a freewheeling interview, Mr Anantharaman talks about the group's transformation and its future plans.

Has the focus on healthcare and insurance paid off?

Let me briefly give you a background. After divestment from Hutchison Max (telecom business), our Chairman said that Max would focus on the services business. We deliberately went into the process of identifying businesses and zeroed in on financial services, healthcare services and IT services.

On the financial services front, we chose insurance and entered into a joint venture with New York Life. We are now ahead of our business plans by one full year in all the parameters — be it total number of policies, sum assured, topline and bottomline growth.

The map ahead is clear, we are extremely committed in terms of capital requirement. The capital base now stands at Rs 430 crore and could go up to Rs 600 crore. Healthcare is a very difficult sector. When we got in people were asking how we would pull it off.

"You don't have domain experience. You are not a Prathap Reddy or a Naresh Trehan," they said. But today as far as the National Capital Region (NCR) is concerned, Max is way ahead.

What are your plans for the healthcare segment?

The plan envisages creation of 1,000 beds by year 2006. Our first tertiary care hospital dealing with cardiac care in Saket (South Delhi) is up and running, another super-speciality hospital at the adjoining block will be commissioned by the end of the year.

The performance of our cardiac hospital is better than expected. There are three secondary hospitals in three locations in the NCR region and another one is being proposed.

All this will take Max Healthcare to a peak revenue of Rs 600 crore by end-March 2007 which, in my opinion, is fairly significant by any healthcare service provider.

By when do you think the healthcare business would turn profitable?

I cannot give you a straight figure. If it was a standalone hospital I could tell you immediately. But our model is a growing one, which comprises a network of hospitals with different profiles.

We hope that the company will start making profits by 2007-08.

What about IT services?

IT services is the only business that did not succeed, mainly due to a combination of several factors. We had started our business with acquisitions in the US, that too at the peak of the dotcom boom when valuations were high.

The timing was bad as the US economy crashed, 9/11 happened and we were losing money. So we decided to pull out. We also had a medical transcription BPO, but sold it back to the minority partner and made good money on that. Recently, we also exited a very well run V-sat business, Comsat Max, which was sold to Bharti.

Could you elaborate on your plans for the clinical research business?

That is one business we are very bullish about. It is run under a separate company, Neeman Medical International. The company operates in three geographical locations — North America, Latin America and India. While internationally, Neeman offers site management services to on-going clinical research projects, in India it works like a clinical research organisation (CRO) and helps clients get regulatory approvals. With the patents regime in place, we expect an exponential growth in clinical research. Earlier, the absence of patent protection was acting as a dampener to most pharmaceutical companies and research sponsors. Now, we expect more work to come to India. We have a very healthy order-book with customers such as GSK, Wyeth, Pfizer and CROs such as Quintiles and PPD.

Our Indian operations have already turned profitable on a net income basis and our USP is the high patient retention rate of over 90 per cent. From the present revenue of $6 million (around Rs 26 crore) Max India hopes to achieve $100 million in the next five years.

The speciality plastic business seems to be the odd-one-out. Any plans to get out of this one?

We are very happy with the business as it gives us steady revenues of Rs 125-140 crore. The debt level is low and it is a very well run business. The top seven customers account for 70 per cent of the business. We are committed to stay in the business, though it may not fit with our healthcare or insurance business. If need be the capital base could expand, either through Max's own capital resource or infusing outside capital.

Could you please elaborate on the financial plans?

The spate of restructuring, including the sell-off, has helped us raise capital. Part of this has been used to fund the healthcare and insurance business. A substantial part of it has also been used to retire debt of the holding company. Debt has been reduced to Rs 80-85 crore compared to Rs 200 crore a year ago. I do not think Max India has any business to have debt, as it is the holding company. By the end of 2005-2006, we will become a zero-debt company.

We recently raised capital for the healthcare business. The total project cost envisaged is Rs 575-580 crore. Out of that, debt of Rs 210 crore has already been closed, while Rs 145 crore has been raised through equity. One of the options is to leave the debt alone and raise the remaining money through equity. While we are in talks with reputed equity partners, we are also open to going in for an IPO. Warburg, for instance, has already invested in the company and could take up more equity. We hope to close the raising of capital by June-July this year.

The life insurance business stands with a capital of Rs 460 crore, and our investment is Rs 360 crore (74 per cent). The business plan envisages a peak investment of Rs 600 crore, of which our share would be about Rs 430 crore. We need another Rs 70-80 crore, which can be easily managed.

What about investments in clinical research and speciality plastics?

We have not earmarked any investments for speciality plastics business. In the clinical research segment, we have already invested $15 million. Another $3million may be needed. But this is really not a capital-intensive business.

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