New Delhi: Max Healthcare is accelerating capacity expansion across brownfield projects, new hospitals and acquisitions, with Chairman and Managing Director Abhay Soi outlining a simple operating principle behind the strategy: occupancy comes first, followed by revenue and then EBITDA.
The comments come as Max Healthcare expands its Saket facility with a new 400-bed tower, taking the hospital’s total capacity to approximately 1,200 beds.
For Soi, the speed at which newly added beds are occupied will be critical to determining the financial impact of the expansion.
“Out of the 400 beds here, we already opened 120. And it’s already at 80 per cent plus capacity of the place. And we are ramping up the capacity very quickly,” he said.
The Saket expansion is a brownfield addition that takes the facility’s total capacity to 1,200 beds, making it the largest private-sector hospital facility in Delhi by bed capacity, according to Soi.
Occupancy first, EBITDA follows
Soi explained that the economics of a new capacity addition change progressively as occupancy rises because much of the cost base is incurred before the full capacity is utilised.
“When you add capacity, first you add revenues. Let’s say, we started this capacity in May. And we opened slowly 220 beds. The ramp-up of these 220 beds is not 80 per cent within May. Let’s say, within May, it would have been 50 per cent occupancy. But the entire ground floor, your cost is the same. So you have revenue, but your EBITDA is zero.”
As more beds are occupied, their incremental contribution to EBITDA increases.
“The first 50 beds give you some EBITDA, the following 50 beds gives you more, and the last 50 beds will contribute the most because, by then, all the costs are already accounted for,” Soi said.
He said this creates a typical trajectory for hospital capacity expansion occupancy and occupied bed days rise first, followed by revenue and then EBITDA.
“But at some stage, the growth in revenue starts to outpace the growth in occupancy, and the growth in EBITDA starts to outpace the growth in revenue,” he added.
For brownfield projects, Soi expects this ramp-up cycle to happen relatively quickly.
“In a brownfield, typically, you know, the entire cycle is about a three-quarter cycle or four-quarter cycle, but that’s about it. But the good thing is that first you want to see occupancy move up, EBITDA will chase. It has to,” he said.
The phased opening of beds is also important because hospitals bring capacity online as infrastructure becomes ready.
“Out of my 400 beds, I’ve only opened 200. The first 100 will pay for the cost. The next 100 will give me some EBITDA. And the last 100 will give me the most.”
Scale and ROCE drive expansion decisions
While Max continues to add beds, Soi said the strategy is not simply about increasing capacity. The ability to scale a facility and generate returns on capital remains central to expansion decisions.“This is a fantastic location. It’s 10 acres. It gives me ability to scale. It gives me return on capital. So I think there are two things one is return on capital and the other is scale,” he said.
A high return on a small facility, he argued, may not necessarily make strategic sense if there is little room for expansion.
“If I get a 100 bed which has 20 per cent return on capital, it may not make sense? It has to be something which I can scale.”
For Max, therefore, the investment case is not just about the initial return from a facility but its ability to support multiple phases of capacity expansion.
Acquisitions: No one-size-fits-all playbook
Acquisitions are another component of Max Healthcare’s expansion strategy, with Soi setting a target of achieving 20 per cent ROCE over four years.
However, he said there is no standard turnaround formula for acquired hospitals because each asset comes with different challenges.
“It’s not the same because simply different people have different challenges. Some may have a revenue challenge, some may have a cost challenge.”
Instead, Max relies on accumulated operating experience across its portfolio, while continuing to invest in technology and clinical capabilities.
Why India needs more hospital capacity
Soi’s case for aggressive capacity creation is also linked to India’s changing demographic profile and the healthcare burden that will accompany an ageing population.
“We see our future. Our future is what is happening in Europe right now. Our average age is 29. The cohort of 1.6 billion people will become 43 in 14 to 15 years later. There’s no doubt on that front.”
As the population ages, he informed that demand for hospital infrastructure to rise significantly.
“So you see the burden on those healthcare, our population is going to see the same. Where are the hospitals? Our healthcare infrastructure creation needs to accelerate. Instead of hesitating, we need to double it down, triple it down.”
Balancing affordability and returns
The aggressive expansion strategy also raises the question of whether private hospitals can generate attractive returns while keeping healthcare affordable.
Soi said affordability and pricing need to be viewed differently.
“Firstly, affordability, this is the function of purchasing power and per capita income. Whereas, price is a function of cost, of land, of construction and other inputs at that point of time.”
He also pointed to the capital-intensive nature of healthcare.
“If you look at the healthcare sector overall, it’s operating at 8 to 9 percent net profit margin. It’s a capital intensive sector.”
For Soi, the sector’s profitability also needs to be viewed in the context of its continuing need for reinvestment.
“The fact of the matter is and it’s not a dividend paying sector. All of this money is being redeployed. How do we get from 3,500 beds to 6,000 beds? And for 6,000 beds we are building going up to 10,200 beds.”
“If you don’t have the capacity, we’re redeploying all of that. We’ve said it for decades to come we will just redeploy. Because that is the need of India.”
For Max Healthcare, the Saket expansion is therefore more than a 400-bed addition. It reflects a broader capacity-led growth strategy which is add beds, ramp up occupancy, let revenue build, allow EBITDA to follow and then redeploy the returns into the next wave of capacity.
That, in essence, is Soi’s expansion thesis which is scale first, occupancy next, EBITDA follows, and capital keeps moving into the next hospital opportunity.
