Inside Manipal Health IPO

**Krishna** (0:04)
Today, I have two interesting stories for you. In the first one, I talk about Manipal's IPO, and in the second one, I talk about why manufacturing has started to look like services. Welcome back to The Daily Brief show by Zerodha, where we cut through the news to help you understand what's actually happening in the most important stories from business and markets. I'm your host Krishna, and today is Friday, 31st of July. You see, hospitals are a strange business.
We don't visit them because we want to. We visit them because we have to. When a family member is critically ill, you don't ask the receptionist for a price list or compare rates across different hospitals on your phone. You simply hand over your credit card. That urgency exists because access to quality hospital beds can make all the difference. And India doesn't have enough of them. The country has just 16 hospital beds for every 10,000 people. The global average is almost double at nearly 30 Even Vietnam has more hospital beds per person than India. Now, India does have a vast public health care system with government hospitals spread across the country. But that doesn't reduce the need for a strong private health care system to share the burden of caring for our population. Now, that's where large private hospital chains come in. Several are already listed, and another is on its way to the stock market. We are talking about Manipal Health, whose 97 crore IPO closes for subscription today. So, if you are planning to apply, or you are simply curious about how the hospital business works, this story is for you. A hospital's business can broadly be split into two parts, the outpatient department or OPD, and the inpatient department or IPD. While both treat patients, they operate like two very different businesses. The OPD is where patients come for routine consultations, blood tests, x-rays, or other minor procedures before heading home the same day. Naturally, this department sees a lot of footfall. But despite the high volume, it isn't very profitable. That's because most OPD treatments aren't specialized enough to command high prices while the costs are substantial. Hospitals need to maintain clinics, hire large administrative teams to manage patient flow, and pay doctors to be available throughout the day.
Now, at the same time, the DRHP points out that hospitals have very little pricing power here. Charge too much for an OPD consultation or diagnostic test, and patients can simply walk across the street to a standalone clinic or lab because the competition is too fragmented. The inpatient department or IPD is a completely different story. This is where patients are admitted overnight for surgeries, intensive care or longer treatments. It's also where hospitals make most of their money. Now, around 70% of hospital revenue comes from IPD services, and this segment is growing much faster than OPD. Now, the reason is pretty simple. Once a patient is admitted, every part of the treatment becomes billable. Hospitals charge for room rent, nursing care, operating theatre time, anesthesia, diagnostic scans, and they can also earn from drugs, implants and consumables, such as tents. More importantly, inpatient admissions are often driven by emergencies or serious medical conditions. Now, at that point, the priority is getting the treatment right, not comparing prices. Now, that gives hospitals far greater pricing power than they enjoy in the OPD.
Now, coming back to Manipal. Like most hospital chains, it doesn't run its OPD to make money on a standalone basis. Instead, the OPD acts as a funnel into the much more profitable IPD. For instance, a doctor may diagnose a complex condition during an OPD consultation and schedule a surgery. What began as a low-ticket outpatient visit can turn into a high-value inpatient admission.
Once a patient enters the IPD, Manipal further optimizes its economics in two ways.
First, it avoids filling expensive hospital beds with patients who only need basic monitoring. Instead, it focuses on six high-value specialties. Now, these six specialties account for roughly 60% of Manipal's inpatient revenue. They also tend to involve more complex procedures that command higher margins.
More importantly, this share has been steadily increasing over the past two years. Second, a hospital bed costs almost the same to maintain whether someone is using it or not.
The lights stay on, the room needs cleaning, and the staff still has to be paid. So, the goal isn't just to keep the beds occupied throughout the year. It's also to free them up quickly for the next patient. Now, the DRHP offers an interesting insight here. A patient typically generates the highest revenue during the first 48 hours of admission. Now, that's when surgeries happen, expensive medicines are administered, and most diagnostic procedures are carried out. If the same patient stays for another week, they continue occupying a bed but contribute relatively little additional revenue. In other words, a longer stay isn't necessarily better for the hospital. It's far more efficient to treat the patient well and discharge them as soon as they're medically fit. Now, that likely explains why Manipal has one of the shortest average length of stay in the industry. On average, patients are discharged in under 3 days.