Buisness Plan
Content
EXECUTIVE SUMMARY
The Business Idea High-end medical treatment facilities in India are scarce and concentrated only in selective cities. Figures confirm the fact that outstation patients account for 65 to 70 percent of the occupancy. Affordable lodging and dinning near the hospitals is the prima concern for these patients and their relatives/visitors. Providing a solution to this need forms the basis of our business plan. Hence we will like to venture into the ‘hospital-ity’ industry. We plan to provide accommodation facilities near hospitals for the relatives of outstation patients who come for treatment, at a low cost. We name these accommodation centers as ‘Aashray’.
Our Mission statement: “We envision to provide clean, convinent quality accommodation with friendly service at affordable price to exceed customer’s expectation and thereby ensuring financial success and growth opportunities for the company and its shareholders” The suggested business plan is feasible, profitable, risk-free and affordable.
How do we start??? We have identified a few parameters on the basis of which we will shortlist various hospitals and locations for ‘Aashray’.These are: • • • Capacity of the hospitals (should be high) Ability of the hospital to attract non-local patients(very important) Cost of land near the hospital. (Preferably low).
•
Customers (patients) insights. the above mentioned criteria’s we find that cities like
Considering
Ahmadabad, Patna, Bhopal ,Indore, Jodhpur ,Pune , Bhubaneswar,Vijaywada etc,(which act as ‘medical centers’) are perfect locations to start with because they attract high number of patients from all the corners of their states. Also, land availing is relatively easier and cheaper. Apart from these medical centers, we will also target a number of speciality and super-speciality hospitals (like heart centers, kidney and cancer center) depending on the above mentioned short listing criteria. Aashrays can also be built, strategically located between two hospitals, ensuring higher occupancy and profits, as they will derive its customer’s base from both the hospitals. The possibility of tie ups with hospitals should also be explored. Having selected the hospitals and location, we plan to provide lodging and dinning facilities to outstation patients and their relatives as near the hospital as possible.
Concept of ‘AASHRAY’ • These lodging places – we will call them ‘AASHRAY’- will be a cross between a traditional Indian dharmashala and a hotel. • It will ensure the cleanliness and hygiene of a hotel but will work on a very small number of employees. • As it is a low cost service it shall cut down on the frills and ensure minimum overhead costs. • These lodges will be strategically located as near to the hospitals as possible and will be more hygienic and ergonomically built.
•
Aashrays will derive their demand from the hospitals and therefore will be non cyclical, rescission proof business.
•
The number of rooms/beds in these Aashrays will be linked to (lets say, around 20%) total number of beds in the hospitals- thus ensuring near hundred percent occupancy rates.
• • •
Aggressive cost cutting practices shall ensure profitability. Also, tie ups with the hospitals will ensure higher occupancy. Though relatives of patients are ‘the only priority’, in case of low occupancy, rooms may be let out to others for short durations, the extensions of which shall be daily reviewed.
•
The most important challenge for the project is availability of land. The options available are as follows: o o Outright purchase of land. Purchase of land on lease-transfer basis.
Porter’s five forces analysis:
High initial investment and first mover advantage ensures high entry barriers. Threat of substitutes is low. Bargaining power of supplier and customers is low. Exit barriers are very low as fixed investments (land and building) are easy to recover.
Revenue Model:
Cost=cost of land (fixed and high) +construction cost (fixed and high) +employee salary (variable and moderate)+electricity and other maintenance costs(moderate).Revenue=rental charged from customers+income from canteen.
The payback period comes to around 5-6 years in case of outright purchase of land. Profits depend on selection of city, medical centre and rent charged, apart from occupancy rate. Lease- transfer seems to be good alternate in case we want to start showing profits from the very beginning. The uniqueness and scale of the plan coupled with affordability to the needy lodgers will ensure “Aashray” attaining an iconic brand status in 8 to 12 years. Once the efficency and expertise as gained we will gradually move on to the bigger cities.
THE BUSINESS IDEA
High- end medical treatment facilities in India are scarce and concentrated only in selective cities. Figures confirm the fact that outstation patients account for 65 to 70 percent of the occupancy. Affordable lodging and
dinning near the hospitals is the prima concern for these patients and their relatives/visitors.
HOW DO WE START?
Location of Aashray, type of rooms, number of rooms and rentals charged will depend on the following factorsQUANTITATIVE INFORMATION: • • No. beds in the hospital Occupancy rate of the hospital better • • • Percentage of outstation patients F.S.I in the area Cost of land near hospital better • Cost of construction in the city The lower the The higher the
QUALITATIVE INFORMATION: • • Relative cost of services charged in the hospital. Relative income group of patients.
Considering the above mentioned criteria, we find that cities like Ahmadabad, Patna, Bhopal, Indore, Ranch, Pune, Bhubaneswar, Cochin etc, (which act as ‘medical centers’ for their respective states) are perfect locations to start because they attract high number of patients from all the corners of their respective states. Also, land availing is relatively easier and cheaper. Apart from theses medical centers, Multi-speciality and super-speciality hospitals (like heart centers, kidney and cancer hospitals) also satisfy the above mentioned requirements. They are equally good locations to start hospitals. Having selected the hospitals and locations, we plan to provide lodging facility to outstation patients and their relatives as near the hospital as possible. TYPES OF ROOMS-The rooms can be classified into three types. Type A – rooms with beds only. Type B – rooms with toilets attached. Type C – rooms with toilet and kitchens attached
Apart from the above mentioned 3types of rooms, we plan to provide a single bed accommodation in a big hall at minimum price for an overnight stay. This shall depend on the type of the hospital. For example, if ‘aashray’ is built near a low cost government hospital, we expect more people from lower strata of the society with lower per capital income to come to such hospitals. For these kind of customers, the hall facility will be best suited. Number of rooms of each type and rentals charged will be determined on a case to case basis and shall not be standardized.
MARKET DYNAMICS & COMPETITIOR ANALYSIS
Currently the industry is in introductory phase: hence the completion is most likely to be from unorganized, local accommodation providers. The market is largely unattended & differentiation is low. • Some competition exists from unorganized players like those who rent out flats in areas nearby these hospitals. But these are unable to carter to a major part of the demand and hence people have to go to various dharamshalas and hotels which may not be in the nearby area. • Also, though food id available nearby the hospitals at a cheaper cost, the level of hygiene and cleanliness is very low. SWOT ANALYSIS Strengths First mover advantage. Stable returns. Exit barriers are low. Weakness Differentiation is low, easy to imitate. Availability of required land. Few growth avenues. Entry barriers are low. Opportunities Market size. Tie ups with hospitals in metros. Franchise Threats Unorganized players. Hospitals may venture into this field. Demand is derived from hospitals.
MARKETING & SALES
The main thrust of the marketing plan is to create awareness about Aashray. Tie-up with NGOs /social workers There area several NGOs and social work groups who help people get medicines, blood and other necessary requirements in the hospitals. Tie-ups with such NGOs can help create awareness among the target audience.
BRANDING AND AWARNESS Aashray should leverage on the first mover advantage by selecting the prime hospitals. Growth can be attained in the form of tie ups with hospitals (in metros), and franchises if possible. Spending on awareness is important because of the following reasons• Occupancy in Aashrays cannot be expected to be very high in the initial phase of the launch. As the service is new and in its introductory phase, awareness will definitely add to the customer’s base. • Aashray as brand is likely to deter the prospective competitors to enter the fray.
• •
It helps to keeps the option of franchise open. Owners may expect more returns in case of exit.
FINACIAL PLANNING & FINANCING NEEDS
INTIAL CAPITALOUTLAY/FINACING NEEDS The real estate cost & legalities shall have a bearing on the organizational performance. The capital expenditure and financing structure (debt, equity) will have an impact on the accounting statements. There are three ways of going ahead with the property acquisition: 1. Outright Purchase of Land • • In case of sufficient initial capital. Insulates from fluctuations in interest rates and rise in property prices. 2. Bank Financing • • • Low equity does not hinder ownership. Monthly cash outflows. Ownership retained.
3. Leasing Property • • Minimum cash outflow. Fluctuation in interest rates & property prices may jeopardize the budget. • Deal can be structured for right to purchase at the end of lease period or for purchase at determined price.
Apart from the above three options , other option with various mixtures of debt and equity could be considered.
REVENUE Revenue will be mainly contributed by the rentals of the rooms.
Rentals=f (cost of land, cost of construction, expected payback period, percent of outstation patients)
Revenue is also expected from canteen if outsourced. The suggestion is to outsource canteen only if reduction of overhead costs is of utmost importance. OUTSOURCING THE CANTEEN WILL RESULT IN RISKING Hygiene and quality- the core competencies of Aashray. COSTS The expenditure incurred by Aashray can be divided into two broad categories-fixed and semi-fixed. The variable component is linked to the occupancy and the facility usage. Fixed costs included• • • • Administrative and general expenses (a small portion is variable) Property taxes Insurance Payroll
Semi-fixed expenses include• • Energy costs Operation and maintenance expenses
SALES FORCAST AND REVENUE GROWTH
Number of rooms in Aashray=f(number of beds in the hospital, percentage of outstation patients, occupancy rate in the hospital).
The revenue is expected to be fairly stable as the industry is recession free and non cyclic in nature. Revenue growth can be expected from any of the following• • • Increase in rentals. Expansion. Increase in occupancy.
BUSINESS RISKS
Competition: The idea is simple and easy to initiate. Competition can be from the following• • Big players may enter the fray. Competition from unorganized and domestic players (Dharmashalas, paying Guest services and rented flats) may intensify. • Few hospitals may find it profitable to start their own accommodation facilities.
Demand: • Competitions may results in price reduction and fall in occupancy.
Construction: • • Rise in cost of raw materials (overshooting of budgeted cost). Delay in construction due to various factors like labor strike force, major change in government policies, and irregularly in supply of Raw material.
MEASURE TO COUNTER RISKS: • Judiciously identify lucrative locations and try to leverage on first mover advantage. Thus discouraging the big players to enter competition. • Create awareness about the brand and advertise on few attributes like low cost with hygiene environment, tie ups with hospitals will help in countering the competition from unorganized players.
•
Valve added services like-emergency bus service, air coolers and early booking discount etc. will help in negating competition and ensure occupancy.
•
One way to counter the risks in construction (monerty and time delay)is to insure the complete process.
ACTUALS
The following is the preliminary research finding of five different kinds of hospitalsS.NO Hospital Type Relative Treatment Cost 1 Apollo Hospital, Hyderabad 2 Narayan Hrudyalaya, Bangalore 3 IGIMS,Patna SuperSpecialty Medical Center 4 RIMS,Ranchi Medical Center 5 Govt.Med.Hosp,Nagpur Medical Center Low Moderate High Moderate Multi-specialty High
Now the distribution of each type of room A, B & C is dependent on the type of people who come for treatment is such hospitals. This is determined by the Qualitative factors: • • Relative cost of services charged in the hospital Relative income group of patients
We have divided the distribution of rooms for the above mentioned hospitals in the following way depending on the qualitative factors: Apollo A(Beds 20% Naryana 20% IGIMS 30% RIMS 50% GMH 65%
only) B(toilets attached) C(Toilet and kitchen) 45% 40% 25% 20% 10% 35% 40% 45% 30% 25%
The total no. of rooms to be built is taken as 50% of target customers.
Target Customer = Total no. of beds in hosp. X Avg. Occupancy of Hosp. X Avg. no. of outstation patients
The final figures come out to be Apollo A B C Total 17 30 38 85 Naryana 21 43 43 107 IGIMS 64 96 53 213 RIMS 105 63 42 210 GMH 207 80 32 319
Now the total floor space required to build A,B & C types of rooms are: Room Type A B C feet 125 150 175 Floor space in sq
The total capital required to build these five Aashrays depends on: • • Cost of land near the hospital Floor Space Index (F.S.I)- FSI means Floor Space Index, which is the ratio between
the built up area allowed and plot area available. Like if FSI is 1 then on a plot of 100 sqmts, one can build 100 sqmts of built up area and with the setbacks and open spaces, the building can be higher than one floor. Simply it means that higher the FSI, higher built up area is possible
• •
Cost of Construction in the city Total Floor Space Required
Actual figures of the above (as confirmed from real estate agents in respective cities) Come out as: Hospital No. of Beds Cost of land (sq.feet) F.S.I Total Floor Space required Apollo Naryana IGIMS RIMS 550 500 1000 990 1000 1550 750 700 2.25 2 2.5 2.5 18992 15671 31343 28400.6 25 GMH 1500 900 2.5 39046.8 75 450 316 Cost of constructi on in city(sq. feet) 500 500 450 450 155 190 235 207 Total cost (in lacs)
F A C L IN N IA S R oom in H s ospita l Outsta tion patients Avera e O upa yin H g cc nc ospitals No of room in Aa s shra y (Functions of the a bove 3fa ctors) Avera e O g cupancyR te of Aa a shra y No.of room Oc s cupied 10 50 5 .0 % 0 0 8 .0 % 5 0 39 1 H ospita nam l e T ype of H ospital C in hospitals ost Outsta tion pa tients C bined Fac om tor T ype of R oom s A B C G MH 3 L 1 5 27 0 8 0 3 2 Type of Fina ncing Outrig of Purcha ht se Of L nd a
8% 0 25 5
C Of land ost c onstruc tion c per squa feet ost re T lC ota onstruction C ost T l Intia Investm ota l ent Initial Investm in ca of lease ent se Opera tingC osts per m onth: F e Cs ix d o t
16 5 40 5 1535 9439 3184 5707 1535 9439 Tp o Ro s ye f om A B C R eqiured per m onth 4 4 6 .2 023 220 710 1397 393 Bs p y ak ae a b c 5 D ilyR a enta ls 8 1 12 4 13 8 N p yb c ew a a k
Pa bac period y k E ployee c m ost Propertytaxes Adm inistrative a g nd enera expenses l S i-fix c s em ed o t E nerg cost y Opera tinga Ma nd intanenc expenses e T ta O era gC s p m n o l p tin o t er o th 100 000 100 00 200 300 100 000 100 00 100 00
Inc s o O tr h p r h s o la d a e f u ig t u c a e f n Annua C shflow requiredto ac l a hieve the ba paybac se k Monthly C shflow reqiured a Monthly revenues required tom the c shflow eet a
7369 050 5 6 0 .8 830 8 6 0 .8 130
Inc s o B n F a in a e f a k in c g Actual revenues per m onth 8 6 0 .8 130 Opera tingC ost 5 6 0 .8 830 Invest pa ent per ym m onth 2 4 2 .3 350 Opera tingca shflow 3 1 8 .5 570
Inc s o le s o L n ae f ae f a d Actua revenues per l m onth 8 6 0 .8 130 Opera tingProfit 5 6 0 .8 830 Lease R entals per m onth 164 8 5 3 .8 Opera tingProfit c ashflow 4 9 5 .9 293
TOTAL NUMBER OF ROOMS:
The total number of rooms to built will be dependent The total number of beds in the hospital Number of Outstation patients Average occupancy rates of the hospitals. The calculation for total number of rooms for a location near Government Medical Hospital , Nagpur as seen from the above diagram comes out to be 1500(total number of beds in hospital) X 80% (Average occupancy rates of hospital) X, 50% (Number of outstation patients) X 0.5 (Factor for scaling to estimate demand)
RENTALS
As you can see from the above diagram the rentals charged for room type B is a function of Total rentals required for a pay back period of 5 years Total number of rooms of type B Total number of rooms in ‘Aashray’ and Type of hospital i.e. whether it is s super/multi specality or medical center and whether it is a high cost, low cost or medium cost hospital. For example considering pay back of 5 years(out right purchase of land). The rentals of Type B (rooms with toilet attached) comes out to be 142 Rs. Per day. However, the payback period will change once the way of financing is changed to bank Finance or lease of land.
PAYBACK PERIOD The base payback period is assumed to be 5 years in case of outright purchase of land and accordingly rentals have been decided. The ‘New Payback period’ heading will give the payback period as we change our financing options. For example, In case of ‘Lease of Land’ option, the pay back period will be Initial cost of construction/ (Operating cash flow- Lease rentals). Here we will not consider the cost of land our calculation for initial investment.
PROFIT & LOSS STATEMENT
L c tio oa n B su ila p r Ao p llo 1 H 40 0 5% 0 8% 5 10 40 2 .5 40 5 B n lo e P tn ag r a a N r y n IG S aa a IM 2 M 50 0 5% 0 8% 5 20 50 2 40 5 3 H 10 00 5% 0 8% 5 70 5 2 .5 40 5 Rnh aci R S IM 3 M 90 9 5% 0 8% 5 70 0 2 .5 40 5 Ngu ap r GM H 3 L 10 50 5% 0 8% 5 90 0 2 .5 40 5
C ateg (Type) ory cost wise(H ,M) ,L Total No of B eds Averag %of Outstation e patients Averag oc e cupa ra ncy te C of L ost and(per squa feet) re F.S .I. C of c nstruc per ost onstruc tionper ton sq.feet Total c of land ost Total c onstruction c ost Total Inta Investm il ent R evenues (per m onth) Total operatingc ost (per m onth) Interest pa ent/lea rentals ym se (per m onth) D eprecia tion(per m onth) PB T Ta xes PAT/Net rofit Net ca flow before taxes sh Paybac period(in years) k
7350 1755 9882 470 9 5 8 9 4 2 1 .5 8 9 9 2 1 6 4 8 336 5368 5752 7119 14228 1409 1535 966 120 4241 3926 9439 1446 2876 3102 6698 2771 2845 3184 303 1829 5706 4 3 6 .7 557 200 300 847 92 484 9 9 0 .6 835 4 4 3 .9 230 8 5 0 .7 505 93 679 779 200 300 651 217 200 300 543 977 200 300 1 5 9 .1 485 1 2 1 .1 149 1 6 3 .5 042 397 4 1 2 .0 746 2 4 9 .4 860 130 200 300 2 4 2 .3 350 1 2 6 .3 681 1 8 1 .1 899 565 4 6 7 .7 1 2 4 .4 323
1 9 1 .8 1 8 4 .8 719 506 8 5 2 7 8 1 8 3 .1 9 6 .5 155 6 2 9 1 .1 1 8 3 .1 042 155 6 683 3 350 5 2 2 .6 5 6 .5 1 6 8 .5 8 9 4 1 458 2 7 .6
1 4 4 .6 2 8 7 .7 2 7 7 .3 2 8 4 .6 3 1 8 .5 310 669 300 1 182 570 8 333 8 333 8 333 8 333 8 333 .3 3 3 .3 3 3 .3 3 3 3 .3 3 3 .3 3 3
The above figure shows our sample Profit/Loss statement cum hospital related data.The figures for revenue and profit as well as costs and depreciation are on monthlybasis. Total operating costs includes: • Employee costs(wages and salaries): The number of employees would be proportional to the number of rooms in Aashray and as possible. For convenience, we used 1,00,000 per month as employee salary. • Property taxes: Property taxes will be charged as per the municipality regulation. Each city has its own property tax structure. • Administrative & General expenses: Administrative and general expenses would include expenditure on maintaining cleanliness in premises, rooms cleaning, telephone charges etc. The average administrative and general expenses are assumed to be Rs.10,000 per month for each’ Aashray’. • Operation & Maintenance expenses: Operation and maintenance expenses would include electricity cost and costs on annual repairs, maintaining drainage system, repainting the building if required etc. Some of these expenses will occur on an annual basis but for the purpose of monthly Profit and loss, they are taken proportionately as monthly expenses.
ORGANIZATIONAL ROADMAP
Phase 1: • • Shortlist locations for Aashray. Identify 15-25 hospitals for launch of Aashray over a period over three to four years.(Identify hospitals on the basis of quantitative and qualitative information as described above). • Depending upon the capital available choose the best property acquisition mode and build Aashraya. • Spread awareness (through NGOs, social workers and local television advertising)and try to establish brand name.
Phase 2: • This is the expansion phase. Using flows from existing Aashrays get into newer locations. • Having achieved learning curve;explore the possibility of venturing into metros. • Possiblity of building Aashrays in areas located centrally between big hospitalsin the metros to carter to all of them simultaneously. • • Explore the possibility of catering to ‘medical tourists’. Keep the options for franchising open.
Phase 3: • • The industry is in maturity phase. Choose between milking the cash cows and venturing into new avenues.
•
Learning curve may help in venturing into following Identifying educational centers without hostels and providing dormitory for students. Working women hostel. Residential facility for BPO employees.
BIBLOGRAPHY
THANK YOU
The Business Idea High-end medical treatment facilities in India are scarce and concentrated only in selective cities. Figures confirm the fact that outstation patients account for 65 to 70 percent of the occupancy. Affordable lodging and dinning near the hospitals is the prima concern for these patients and their relatives/visitors. Providing a solution to this need forms the basis of our business plan. Hence we will like to venture into the ‘hospital-ity’ industry. We plan to provide accommodation facilities near hospitals for the relatives of outstation patients who come for treatment, at a low cost. We name these accommodation centers as ‘Aashray’.
Our Mission statement: “We envision to provide clean, convinent quality accommodation with friendly service at affordable price to exceed customer’s expectation and thereby ensuring financial success and growth opportunities for the company and its shareholders” The suggested business plan is feasible, profitable, risk-free and affordable.
How do we start??? We have identified a few parameters on the basis of which we will shortlist various hospitals and locations for ‘Aashray’.These are: • • • Capacity of the hospitals (should be high) Ability of the hospital to attract non-local patients(very important) Cost of land near the hospital. (Preferably low).
•
Customers (patients) insights. the above mentioned criteria’s we find that cities like
Considering
Ahmadabad, Patna, Bhopal ,Indore, Jodhpur ,Pune , Bhubaneswar,Vijaywada etc,(which act as ‘medical centers’) are perfect locations to start with because they attract high number of patients from all the corners of their states. Also, land availing is relatively easier and cheaper. Apart from these medical centers, we will also target a number of speciality and super-speciality hospitals (like heart centers, kidney and cancer center) depending on the above mentioned short listing criteria. Aashrays can also be built, strategically located between two hospitals, ensuring higher occupancy and profits, as they will derive its customer’s base from both the hospitals. The possibility of tie ups with hospitals should also be explored. Having selected the hospitals and location, we plan to provide lodging and dinning facilities to outstation patients and their relatives as near the hospital as possible.
Concept of ‘AASHRAY’ • These lodging places – we will call them ‘AASHRAY’- will be a cross between a traditional Indian dharmashala and a hotel. • It will ensure the cleanliness and hygiene of a hotel but will work on a very small number of employees. • As it is a low cost service it shall cut down on the frills and ensure minimum overhead costs. • These lodges will be strategically located as near to the hospitals as possible and will be more hygienic and ergonomically built.
•
Aashrays will derive their demand from the hospitals and therefore will be non cyclical, rescission proof business.
•
The number of rooms/beds in these Aashrays will be linked to (lets say, around 20%) total number of beds in the hospitals- thus ensuring near hundred percent occupancy rates.
• • •
Aggressive cost cutting practices shall ensure profitability. Also, tie ups with the hospitals will ensure higher occupancy. Though relatives of patients are ‘the only priority’, in case of low occupancy, rooms may be let out to others for short durations, the extensions of which shall be daily reviewed.
•
The most important challenge for the project is availability of land. The options available are as follows: o o Outright purchase of land. Purchase of land on lease-transfer basis.
Porter’s five forces analysis:
High initial investment and first mover advantage ensures high entry barriers. Threat of substitutes is low. Bargaining power of supplier and customers is low. Exit barriers are very low as fixed investments (land and building) are easy to recover.
Revenue Model:
Cost=cost of land (fixed and high) +construction cost (fixed and high) +employee salary (variable and moderate)+electricity and other maintenance costs(moderate).Revenue=rental charged from customers+income from canteen.
The payback period comes to around 5-6 years in case of outright purchase of land. Profits depend on selection of city, medical centre and rent charged, apart from occupancy rate. Lease- transfer seems to be good alternate in case we want to start showing profits from the very beginning. The uniqueness and scale of the plan coupled with affordability to the needy lodgers will ensure “Aashray” attaining an iconic brand status in 8 to 12 years. Once the efficency and expertise as gained we will gradually move on to the bigger cities.
THE BUSINESS IDEA
High- end medical treatment facilities in India are scarce and concentrated only in selective cities. Figures confirm the fact that outstation patients account for 65 to 70 percent of the occupancy. Affordable lodging and
dinning near the hospitals is the prima concern for these patients and their relatives/visitors.
HOW DO WE START?
Location of Aashray, type of rooms, number of rooms and rentals charged will depend on the following factorsQUANTITATIVE INFORMATION: • • No. beds in the hospital Occupancy rate of the hospital better • • • Percentage of outstation patients F.S.I in the area Cost of land near hospital better • Cost of construction in the city The lower the The higher the
QUALITATIVE INFORMATION: • • Relative cost of services charged in the hospital. Relative income group of patients.
Considering the above mentioned criteria, we find that cities like Ahmadabad, Patna, Bhopal, Indore, Ranch, Pune, Bhubaneswar, Cochin etc, (which act as ‘medical centers’ for their respective states) are perfect locations to start because they attract high number of patients from all the corners of their respective states. Also, land availing is relatively easier and cheaper. Apart from theses medical centers, Multi-speciality and super-speciality hospitals (like heart centers, kidney and cancer hospitals) also satisfy the above mentioned requirements. They are equally good locations to start hospitals. Having selected the hospitals and locations, we plan to provide lodging facility to outstation patients and their relatives as near the hospital as possible. TYPES OF ROOMS-The rooms can be classified into three types. Type A – rooms with beds only. Type B – rooms with toilets attached. Type C – rooms with toilet and kitchens attached
Apart from the above mentioned 3types of rooms, we plan to provide a single bed accommodation in a big hall at minimum price for an overnight stay. This shall depend on the type of the hospital. For example, if ‘aashray’ is built near a low cost government hospital, we expect more people from lower strata of the society with lower per capital income to come to such hospitals. For these kind of customers, the hall facility will be best suited. Number of rooms of each type and rentals charged will be determined on a case to case basis and shall not be standardized.
MARKET DYNAMICS & COMPETITIOR ANALYSIS
Currently the industry is in introductory phase: hence the completion is most likely to be from unorganized, local accommodation providers. The market is largely unattended & differentiation is low. • Some competition exists from unorganized players like those who rent out flats in areas nearby these hospitals. But these are unable to carter to a major part of the demand and hence people have to go to various dharamshalas and hotels which may not be in the nearby area. • Also, though food id available nearby the hospitals at a cheaper cost, the level of hygiene and cleanliness is very low. SWOT ANALYSIS Strengths First mover advantage. Stable returns. Exit barriers are low. Weakness Differentiation is low, easy to imitate. Availability of required land. Few growth avenues. Entry barriers are low. Opportunities Market size. Tie ups with hospitals in metros. Franchise Threats Unorganized players. Hospitals may venture into this field. Demand is derived from hospitals.
MARKETING & SALES
The main thrust of the marketing plan is to create awareness about Aashray. Tie-up with NGOs /social workers There area several NGOs and social work groups who help people get medicines, blood and other necessary requirements in the hospitals. Tie-ups with such NGOs can help create awareness among the target audience.
BRANDING AND AWARNESS Aashray should leverage on the first mover advantage by selecting the prime hospitals. Growth can be attained in the form of tie ups with hospitals (in metros), and franchises if possible. Spending on awareness is important because of the following reasons• Occupancy in Aashrays cannot be expected to be very high in the initial phase of the launch. As the service is new and in its introductory phase, awareness will definitely add to the customer’s base. • Aashray as brand is likely to deter the prospective competitors to enter the fray.
• •
It helps to keeps the option of franchise open. Owners may expect more returns in case of exit.
FINACIAL PLANNING & FINANCING NEEDS
INTIAL CAPITALOUTLAY/FINACING NEEDS The real estate cost & legalities shall have a bearing on the organizational performance. The capital expenditure and financing structure (debt, equity) will have an impact on the accounting statements. There are three ways of going ahead with the property acquisition: 1. Outright Purchase of Land • • In case of sufficient initial capital. Insulates from fluctuations in interest rates and rise in property prices. 2. Bank Financing • • • Low equity does not hinder ownership. Monthly cash outflows. Ownership retained.
3. Leasing Property • • Minimum cash outflow. Fluctuation in interest rates & property prices may jeopardize the budget. • Deal can be structured for right to purchase at the end of lease period or for purchase at determined price.
Apart from the above three options , other option with various mixtures of debt and equity could be considered.
REVENUE Revenue will be mainly contributed by the rentals of the rooms.
Rentals=f (cost of land, cost of construction, expected payback period, percent of outstation patients)
Revenue is also expected from canteen if outsourced. The suggestion is to outsource canteen only if reduction of overhead costs is of utmost importance. OUTSOURCING THE CANTEEN WILL RESULT IN RISKING Hygiene and quality- the core competencies of Aashray. COSTS The expenditure incurred by Aashray can be divided into two broad categories-fixed and semi-fixed. The variable component is linked to the occupancy and the facility usage. Fixed costs included• • • • Administrative and general expenses (a small portion is variable) Property taxes Insurance Payroll
Semi-fixed expenses include• • Energy costs Operation and maintenance expenses
SALES FORCAST AND REVENUE GROWTH
Number of rooms in Aashray=f(number of beds in the hospital, percentage of outstation patients, occupancy rate in the hospital).
The revenue is expected to be fairly stable as the industry is recession free and non cyclic in nature. Revenue growth can be expected from any of the following• • • Increase in rentals. Expansion. Increase in occupancy.
BUSINESS RISKS
Competition: The idea is simple and easy to initiate. Competition can be from the following• • Big players may enter the fray. Competition from unorganized and domestic players (Dharmashalas, paying Guest services and rented flats) may intensify. • Few hospitals may find it profitable to start their own accommodation facilities.
Demand: • Competitions may results in price reduction and fall in occupancy.
Construction: • • Rise in cost of raw materials (overshooting of budgeted cost). Delay in construction due to various factors like labor strike force, major change in government policies, and irregularly in supply of Raw material.
MEASURE TO COUNTER RISKS: • Judiciously identify lucrative locations and try to leverage on first mover advantage. Thus discouraging the big players to enter competition. • Create awareness about the brand and advertise on few attributes like low cost with hygiene environment, tie ups with hospitals will help in countering the competition from unorganized players.
•
Valve added services like-emergency bus service, air coolers and early booking discount etc. will help in negating competition and ensure occupancy.
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One way to counter the risks in construction (monerty and time delay)is to insure the complete process.
ACTUALS
The following is the preliminary research finding of five different kinds of hospitalsS.NO Hospital Type Relative Treatment Cost 1 Apollo Hospital, Hyderabad 2 Narayan Hrudyalaya, Bangalore 3 IGIMS,Patna SuperSpecialty Medical Center 4 RIMS,Ranchi Medical Center 5 Govt.Med.Hosp,Nagpur Medical Center Low Moderate High Moderate Multi-specialty High
Now the distribution of each type of room A, B & C is dependent on the type of people who come for treatment is such hospitals. This is determined by the Qualitative factors: • • Relative cost of services charged in the hospital Relative income group of patients
We have divided the distribution of rooms for the above mentioned hospitals in the following way depending on the qualitative factors: Apollo A(Beds 20% Naryana 20% IGIMS 30% RIMS 50% GMH 65%
only) B(toilets attached) C(Toilet and kitchen) 45% 40% 25% 20% 10% 35% 40% 45% 30% 25%
The total no. of rooms to be built is taken as 50% of target customers.
Target Customer = Total no. of beds in hosp. X Avg. Occupancy of Hosp. X Avg. no. of outstation patients
The final figures come out to be Apollo A B C Total 17 30 38 85 Naryana 21 43 43 107 IGIMS 64 96 53 213 RIMS 105 63 42 210 GMH 207 80 32 319
Now the total floor space required to build A,B & C types of rooms are: Room Type A B C feet 125 150 175 Floor space in sq
The total capital required to build these five Aashrays depends on: • • Cost of land near the hospital Floor Space Index (F.S.I)- FSI means Floor Space Index, which is the ratio between
the built up area allowed and plot area available. Like if FSI is 1 then on a plot of 100 sqmts, one can build 100 sqmts of built up area and with the setbacks and open spaces, the building can be higher than one floor. Simply it means that higher the FSI, higher built up area is possible
• •
Cost of Construction in the city Total Floor Space Required
Actual figures of the above (as confirmed from real estate agents in respective cities) Come out as: Hospital No. of Beds Cost of land (sq.feet) F.S.I Total Floor Space required Apollo Naryana IGIMS RIMS 550 500 1000 990 1000 1550 750 700 2.25 2 2.5 2.5 18992 15671 31343 28400.6 25 GMH 1500 900 2.5 39046.8 75 450 316 Cost of constructi on in city(sq. feet) 500 500 450 450 155 190 235 207 Total cost (in lacs)
F A C L IN N IA S R oom in H s ospita l Outsta tion patients Avera e O upa yin H g cc nc ospitals No of room in Aa s shra y (Functions of the a bove 3fa ctors) Avera e O g cupancyR te of Aa a shra y No.of room Oc s cupied 10 50 5 .0 % 0 0 8 .0 % 5 0 39 1 H ospita nam l e T ype of H ospital C in hospitals ost Outsta tion pa tients C bined Fac om tor T ype of R oom s A B C G MH 3 L 1 5 27 0 8 0 3 2 Type of Fina ncing Outrig of Purcha ht se Of L nd a
8% 0 25 5
C Of land ost c onstruc tion c per squa feet ost re T lC ota onstruction C ost T l Intia Investm ota l ent Initial Investm in ca of lease ent se Opera tingC osts per m onth: F e Cs ix d o t
16 5 40 5 1535 9439 3184 5707 1535 9439 Tp o Ro s ye f om A B C R eqiured per m onth 4 4 6 .2 023 220 710 1397 393 Bs p y ak ae a b c 5 D ilyR a enta ls 8 1 12 4 13 8 N p yb c ew a a k
Pa bac period y k E ployee c m ost Propertytaxes Adm inistrative a g nd enera expenses l S i-fix c s em ed o t E nerg cost y Opera tinga Ma nd intanenc expenses e T ta O era gC s p m n o l p tin o t er o th 100 000 100 00 200 300 100 000 100 00 100 00
Inc s o O tr h p r h s o la d a e f u ig t u c a e f n Annua C shflow requiredto ac l a hieve the ba paybac se k Monthly C shflow reqiured a Monthly revenues required tom the c shflow eet a
7369 050 5 6 0 .8 830 8 6 0 .8 130
Inc s o B n F a in a e f a k in c g Actual revenues per m onth 8 6 0 .8 130 Opera tingC ost 5 6 0 .8 830 Invest pa ent per ym m onth 2 4 2 .3 350 Opera tingca shflow 3 1 8 .5 570
Inc s o le s o L n ae f ae f a d Actua revenues per l m onth 8 6 0 .8 130 Opera tingProfit 5 6 0 .8 830 Lease R entals per m onth 164 8 5 3 .8 Opera tingProfit c ashflow 4 9 5 .9 293
TOTAL NUMBER OF ROOMS:
The total number of rooms to built will be dependent The total number of beds in the hospital Number of Outstation patients Average occupancy rates of the hospitals. The calculation for total number of rooms for a location near Government Medical Hospital , Nagpur as seen from the above diagram comes out to be 1500(total number of beds in hospital) X 80% (Average occupancy rates of hospital) X, 50% (Number of outstation patients) X 0.5 (Factor for scaling to estimate demand)
RENTALS
As you can see from the above diagram the rentals charged for room type B is a function of Total rentals required for a pay back period of 5 years Total number of rooms of type B Total number of rooms in ‘Aashray’ and Type of hospital i.e. whether it is s super/multi specality or medical center and whether it is a high cost, low cost or medium cost hospital. For example considering pay back of 5 years(out right purchase of land). The rentals of Type B (rooms with toilet attached) comes out to be 142 Rs. Per day. However, the payback period will change once the way of financing is changed to bank Finance or lease of land.
PAYBACK PERIOD The base payback period is assumed to be 5 years in case of outright purchase of land and accordingly rentals have been decided. The ‘New Payback period’ heading will give the payback period as we change our financing options. For example, In case of ‘Lease of Land’ option, the pay back period will be Initial cost of construction/ (Operating cash flow- Lease rentals). Here we will not consider the cost of land our calculation for initial investment.
PROFIT & LOSS STATEMENT
L c tio oa n B su ila p r Ao p llo 1 H 40 0 5% 0 8% 5 10 40 2 .5 40 5 B n lo e P tn ag r a a N r y n IG S aa a IM 2 M 50 0 5% 0 8% 5 20 50 2 40 5 3 H 10 00 5% 0 8% 5 70 5 2 .5 40 5 Rnh aci R S IM 3 M 90 9 5% 0 8% 5 70 0 2 .5 40 5 Ngu ap r GM H 3 L 10 50 5% 0 8% 5 90 0 2 .5 40 5
C ateg (Type) ory cost wise(H ,M) ,L Total No of B eds Averag %of Outstation e patients Averag oc e cupa ra ncy te C of L ost and(per squa feet) re F.S .I. C of c nstruc per ost onstruc tionper ton sq.feet Total c of land ost Total c onstruction c ost Total Inta Investm il ent R evenues (per m onth) Total operatingc ost (per m onth) Interest pa ent/lea rentals ym se (per m onth) D eprecia tion(per m onth) PB T Ta xes PAT/Net rofit Net ca flow before taxes sh Paybac period(in years) k
7350 1755 9882 470 9 5 8 9 4 2 1 .5 8 9 9 2 1 6 4 8 336 5368 5752 7119 14228 1409 1535 966 120 4241 3926 9439 1446 2876 3102 6698 2771 2845 3184 303 1829 5706 4 3 6 .7 557 200 300 847 92 484 9 9 0 .6 835 4 4 3 .9 230 8 5 0 .7 505 93 679 779 200 300 651 217 200 300 543 977 200 300 1 5 9 .1 485 1 2 1 .1 149 1 6 3 .5 042 397 4 1 2 .0 746 2 4 9 .4 860 130 200 300 2 4 2 .3 350 1 2 6 .3 681 1 8 1 .1 899 565 4 6 7 .7 1 2 4 .4 323
1 9 1 .8 1 8 4 .8 719 506 8 5 2 7 8 1 8 3 .1 9 6 .5 155 6 2 9 1 .1 1 8 3 .1 042 155 6 683 3 350 5 2 2 .6 5 6 .5 1 6 8 .5 8 9 4 1 458 2 7 .6
1 4 4 .6 2 8 7 .7 2 7 7 .3 2 8 4 .6 3 1 8 .5 310 669 300 1 182 570 8 333 8 333 8 333 8 333 8 333 .3 3 3 .3 3 3 .3 3 3 3 .3 3 3 .3 3 3
The above figure shows our sample Profit/Loss statement cum hospital related data.The figures for revenue and profit as well as costs and depreciation are on monthlybasis. Total operating costs includes: • Employee costs(wages and salaries): The number of employees would be proportional to the number of rooms in Aashray and as possible. For convenience, we used 1,00,000 per month as employee salary. • Property taxes: Property taxes will be charged as per the municipality regulation. Each city has its own property tax structure. • Administrative & General expenses: Administrative and general expenses would include expenditure on maintaining cleanliness in premises, rooms cleaning, telephone charges etc. The average administrative and general expenses are assumed to be Rs.10,000 per month for each’ Aashray’. • Operation & Maintenance expenses: Operation and maintenance expenses would include electricity cost and costs on annual repairs, maintaining drainage system, repainting the building if required etc. Some of these expenses will occur on an annual basis but for the purpose of monthly Profit and loss, they are taken proportionately as monthly expenses.
ORGANIZATIONAL ROADMAP
Phase 1: • • Shortlist locations for Aashray. Identify 15-25 hospitals for launch of Aashray over a period over three to four years.(Identify hospitals on the basis of quantitative and qualitative information as described above). • Depending upon the capital available choose the best property acquisition mode and build Aashraya. • Spread awareness (through NGOs, social workers and local television advertising)and try to establish brand name.
Phase 2: • This is the expansion phase. Using flows from existing Aashrays get into newer locations. • Having achieved learning curve;explore the possibility of venturing into metros. • Possiblity of building Aashrays in areas located centrally between big hospitalsin the metros to carter to all of them simultaneously. • • Explore the possibility of catering to ‘medical tourists’. Keep the options for franchising open.
Phase 3: • • The industry is in maturity phase. Choose between milking the cash cows and venturing into new avenues.
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Learning curve may help in venturing into following Identifying educational centers without hostels and providing dormitory for students. Working women hostel. Residential facility for BPO employees.
BIBLOGRAPHY
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