India's hospitals are avoiding the expansion trap
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In today’s edition of The Daily Brief:
What’s happening with India’s hospitals?
India’s illegal cotton seeds problem
What’s happening with India’s hospitals?
Today, we’re looking at three of India’s major hospital chains — Max Healthcare, Narayana Health, and Rainbow Children’s Medicare — and how they performed last quarter. All of them go by different playbooks, making them a good sample set to understand the broader hospital sector. We had done a deep dive into this space last quarter, which you can check out here. This time, we’re building on that foundation.
Here’s a quick recap of what we found the last time:
Running a hospital is more complex than it looks. There are the usual metrics investors track — like revenue, profit, and margins. But behind those are thousands of moving parts: the number of beds in the hospital, how many surgeries it performs, how long a patient stays, and so on. There are also softer issues, like whether a hospital caters to elective care or emergencies, how well you’re able to attract top doctors, and how much patient trust you command.
In other words, this is a business mired in peculiarities. It is at once capital-intensive, hyperlocal, and deeply dependent on one’s operational chops.
That complexity shows up when you compare these three companies. Max Healthcare is dominant in NCR, but it’s growing its footprint. Narayana is more spread out, and is focused on affordability and scale. Rainbow is a focused pediatric and maternity chain, so its customer profile is very different from general hospitals. Together, they give us a directional sense of where the sector is heading as a whole.
Let’s look at the numbers first.
Max Healthcare saw strong growth over the quarter. It reported a Q4 FY25 revenue of ₹2,326 crore — up 29% YoY. Its profitability went up in tandem. Its EBITDA stood at ₹632 crore, up 26% YoY. Meanwhile, its PAT for the quarter was ₹376 crore, also up 21% YoY.
Narayana Health reported a revenue of ₹1,475 crore for the quarter, up 15.3% from last year. Its EBITDA came up to ₹384.6 crore, a year-on-year growth of 20.8%. But a lot of that didn’t touch its bottomline; its PAT was somewhat stagnant since last year, coming in at ₹196.2 crore — up 2.8% year on year.
Rainbow Children’s Medicare saw healthy but not astronomical growth. It had a revenue of ₹384 crore in the quarter, growing 6.3% year-on-year. Its EBITDA was ₹114.7 crore — up 8.7% from last year. Its PAT followed a similar trend — at ₹56.5 crore, it was 10.7% year-on-year.
Beyond these core numbers, though, we wanted to understand everything else that’s happening with these companies. We’ll look at four themes, here.
Capacity expansion: a carefully calibrated push
The most striking theme across all three companies is their unprecedented wave of capacity expansion. Why they’re expanding, however, and how they’re going about it, varies across these companies.
Max Healthcare is pursuing what they call an "asset-light expansion strategy." This marks a fundamental shift from traditional hospital expansion — where companies would buy land and build from scratch. Instead, Max is partnering with developers who provide the infrastructure. Max, meanwhile, will just focus on running its operations, and maintaining clinical standards.
The company’s taking a very strategic approach to how it thinks about expansion. As as Chairman Abhay Soi explained:
"We have to be able to touch base or clear 2 of our filters. One is the 20-25% ROCE within 4 to 5 years, and in markets where we have at least 1 or 2 of our peers."
In essence, the company is extremely choosy about how it grows. It plans on capturing market share in proven markets, where it knows that it can achieve superior returns. If demand has already been validated by competitors, there’s a fair chance that Max, by adding capacity, will generate immediate returns — because they can bring their existing brand, doctor networks, and operational systems to bear.
Narayana Health's approach to expansion reveals a strategy built around geographic clustering, focused on clusters like Kolkata and Bangalore. They're more conservative in the pace of their expansion compared to peers, however. As Vice Chairman Viren Shetty acknowledged:
"If you consider the overall India growth opportunities, yes, ours is a very conservative company. We are not expanding to fully capture the entire India market, nor is the pace of our expansion in India, matching up to what the peer set is investing."
Quite like Max, this conservatism comes from a need to focus resources where they can achieve the best returns. But why try to cluster? Viren explained their expansion philosophy on their recent earnings call:
"Ours is a company that really focuses a lot on the return on capital and return on equity. So, our expansion is a lot more measured and focused on the cities where we have the strongest presence and where we're greater able to justify investments we make."
That’s why they cluster in specific geographies: they want to become dominant in markets where they already have a strong presence — rather than spreading themselves thin across multiple new markets. By doing that, they get to leverage their old infrastructure, share specialist doctors across facilities, and create referral networks. That wouldn't be possible if hospitals were scattered all around.
Rainbow Children's expansion strategy is perhaps the most focused — perhaps because of their specialization in pediatric and maternal care. They've adopted a "hub-and-spoke" model.
Here’s what that means. Rainbow has "hub" hospitals — large, fully-equipped facilities with all specialties, complex equipment like transplant capabilities, and the most senior doctors. Around these, they create "spoke" hospitals — smaller facilities that handle routine cases. These refer complex cases to the hub.
This model is particularly suited to pediatric care, because children's medical needs can vary dramatically. While routine vaccinations and common illnesses that can be handled at smaller spoke facilities, they may also require complex surgeries and rare conditions, which require the specialized equipment and expertise only available at hub hospitals.
Spoke hospitals allow them to capture routine, high-volume business in convenient locations, while referring high-margin complex cases to the hub. Together, they get steady patient flow, keeping both types of facilities profitable.
Capital discipline: balancing growth with returns
These strategic approaches all tell us one thing: the fact that these hospitals are expanding aggressively does not mean they’ve been profligate. If anything, they’ve been extremely sharp about how they invest their capital.
The hospital business has fundamentally changed how it thinks about spending money. In the past, hospital companies may have raised lots of debt to build hospitals, hoping that patients would eventually follow. This often led to empty hospitals burning cash for years. These companies have learned that lesson well, however, and are being much smarter about capital allocation.
Max Healthcare has developed the most systematic approach to avoid this trap. CEO Abhay Soi explained their philosophy:
"Any guidance that we give, is based on us already having acquired the asset, breaking ground or permissions, etc. What we do not tell you is that look, our belief is that over the next 5 years, we will generate, let's say, INR 15,000 crore. So we would look at tripling our capacity. No, that's not how we sort of guide."
We talked about the company’s ROCE targets for expansion above. Here’s the financial logic of it, as Soi revealed:
"We are cognizant of the fact that at 2.5x net debt to EBITDA, we can get money at 8-8.25% and we are able to deploy it at 20-25% ROCE."
Here's what this means in simple terms: Max can borrow ₹100 and pay ₹8 interest every year. But when they invest that ₹100 in a hospital, they net ₹12-17 in profit every year. Most companies would borrow as much as possible to take advantage of this arbitrage. But here's the key: you can only run a business on the back of these numbers if you’re confident of those 20-25% returns. That’s why Max restrains themselves — they know one bad investment can wipe out gains from several good ones.
Rainbow Children's takes an even more conservative approach — they fund everything from their own cash flow. As CFO Vikas Maheshwari said:
"Given our current cash and anticipated internal accruals in the coming years, we remain confident in our ability to complete all planned capital expenditures through internal accruals without any debt financing."
That is, Rainbow is keen to avoid debt if they can manage it. They pay more upfront for that, but that saves them from getting caught in a trap of constantly worrying if they can pay their loans off. Rainbow is essentially saying: "We'll only build new hospitals as fast as our existing hospitals generate cash." This might slow them down, but it's incredibly safe — and during tough times, could make all the difference.
This sort of thing requires operational excellence, however. For that, you need to create actual cash, and not just paper profits. Rainbow, in fact, converts 90% of their accounting profits into actual cash:
"Cash generation from the operations was INR 481.2 crores versus EBITDA of INR 489.8 crores, resulting in 90% conversion."
Narayana Health strikes a middle ground —- they maintain very low debt but are open to borrowing if needed. They have a debt-to-equity ratio of 0.15. That is, for every ₹100 of equity, they have only ₹15 of debt. Most companies operate with ratios of 0.5 to 1.0. This ultra-low leverage gives Narayana flexibility. They can fund growth internally during normal times, but can quickly access debt markets if a great opportunity emerges.
The underlying reason for all this caution, across the board, becomes clear when you understand the economics of hospital expansion. As Narayana's Viren Shetty candidly admitted:
"The return on capital for any new capacity, greenfield, brownfield, whatever you want to call it, is quite poor; has been for a very long time."
This is a shocking admission from a hospital CEO. Shetty is basically saying that new hospitals burn money.
Why are hospital returns so poor? That’s for several reasons:
Hospitals are expensive to build — a 300-bed hospital can cost ₹300-500 crores. Getting customers to trust a hospital, on the other hand, takes time. New hospitals take 2-3 years to reach meaningful occupancy levels.
That’s not for no reason. A hospital’s staff needs extremely high levels of skill. It’s hard to find that overnight. Hiring experienced doctors and nurses is extremely difficult and expensive. Meanwhile, insurance companies and government schemes put a constant downward pressure on pricing, making it harder to charge premium rates.
There are also a variety of other, smaller factors at play. For instance, the good locations in major cities are already taken, so new hospitals often end up in less optimal locations.
Given these challenges, the companies that will survive and thrive are those that can identify the few situations where hospital expansion actually makes sense — and have the financial discipline to say no to everything else. The fact that these hospital chains are following through represents a fundamental maturation of the Indian hospital sector, moving from growth-at-any-cost to sustainable, profitable expansion.
Specialty services: the race for clinical differentiation
The second major theme is an intense focus across the industry on developing specialty and super-specialty services. These hospitals, it appears, are making a strategic shift — from being general hospitals to becoming centers of clinical excellence in specific areas. This brings them better revenue, while helping them capture niches that separate themselves from the market.
This breakthrough moment from Rainbow Children's Medicare exemplifies this focus:
"I'm pleased to share that we successfully performed our first pediatric liver transplant at our Chennai hub hospital. Additionally, we secured a liver transplant license for our Bengaluru hub—a significant step in building Chennai and Bengaluru into tertiary and quaternary care hubs."
Specialty services command higher reimbursements and create stronger competitive moats. A pediatric liver transplant, for instance, cannot be easily replicated by general hospitals. If a company captures that niche, they start getting referrals from all over, driving volume across the entire system.
Narayana Health's approach to specialties is equally strategic, but broader in scope. Dr. Emmanuel Rupert highlighted their achievements:
"For example, we do the largest number of robotic cardiac procedures in the country and it is done largely in our flagship location in Bangalore. We again do the largest number of pediatric bone marrow transplants in the country; a lot of it is performed from our flagship locations."
The word "largest" here is crucial — Narayana isn’t just about offering these services, but about achieving scale. That sheer scale creates operational efficiencies and expertise that competitors cannot match. When you perform the most procedures in a category, you attract the best doctors, achieve better outcomes, and can negotiate better rates with insurance companies.
The bottomline
Put simply, India’s top hospital chains are entering a new phase — one that’s more disciplined, focused, and strategic than ever before. The days of reckless expansion and stretched balance sheets are behind us. What we’re seeing now is a sector growing smarter: choosing expansion only where it makes financial sense, sharpening its edge through specialized services, and building long-term resilience by staying capital-efficient. That signals a maturing industry — one that’s still complex and hyperlocal, but increasingly grounded in operational and financial discipline.
India’s illegal cotton seeds problem
India is home to a booming market for genetically-modified (or ‘GMO’) cotton seeds. Only, the entire market is illegal.
This is the market for “herbicide-tolerant Bt” (HTBt) cotton seeds — or seeds that are resistant to both herbicides, and certain insects. These are illegal under Indian law. And yet, according to estimates by various seed associations, they account for more than 15% of the total planted area for cotton in the country. Industry insiders estimate that the market for HTBt seeds is worth nearly ₹600 crore.
Why does this disjuncture exist? Why is the government so suspicious of these seeds? And if HTBt cotton seeds are deemed wrong to use by the government, why do farmers use them so prolifically? How is the Indian state machinery — from legislation to the courts — navigating this problem?
To answer these questions, we’ll need to dive into the complex interplay of policy that goes behind controlling Indian agriculture, and more specifically, our seed industry.
Cotton on steroids
India is the 2nd-largest producer of cotton in the world.
An important driver of India’s formidable cotton production is our use of an insect-resistant variant of cotton, called “Bt cotton”. See, the cotton plant is extremely vulnerable to a pest called the “cotton bollworm”. When these critters attack a cotton plant, it either produces lower amounts of cotton, or none at all.
Bt cotton, however, produces a protein that attacks the pest, keeping the plant safe. And that’s why it accounts for more than 90% of all cotton produced in India.
What makes this strain special, though, is that it is “genetically modified”. That is, these strains aren’t found in nature. Scientists modified the very biology of the cotton plant, editing its genetic material to make it pest-resistant. Bt cotton, in fact, is the only GMO crop that’s legal in our country.
Now, HTBt is a further genetic modification on top of Bt. Apart from attacking the cotton bollworm, it also makes it easier for farmers to deal with weeds. It does so by helping cotton plants survive a herbicide called “glyphosate”. Then, instead of going through their entire field and manually plucking weeds out, farmers can simply spray their entire field with a herbicide, killing everything but their cotton crop.
This saves farmers serious labour costs. With fewer weeds, their plants’ yields also shoot up. And that explains their incredible popularity.
In major cotton-growing states like Maharashtra, Gujarat, Andhra Pradesh, and Telangana, HTBt cotton’s presence is substantial — even reaching 25%-35% for Maharashtra. This is despite their immense upfront costs of the strain, selling at a whopping 60% premium over the price of Bt cotton itself. The economic case for using these seeds, to a farmer, simply makes a lot of sense.
The downsides of GM cotton
If they’re so useful, then, why are HTBt seeds banned?
There are many answers to this question — ranging from government inertia, to a general squeamishness around genetic modification. That said, there are some key reasons that we should approach these seeds with caution.
Many of those are to do with the dangers of using too much herbicide.
One concern, for instance, is the possibility that glyphosate can cause cancer among humans — especially for the farmers directly exposed to it. The International Agency for Research on Cancer (IARC), an organ of the WHO, classifies the herbicide as “probably carcinogenic to humans”. Now, this isn’t certain. There have been many studies that have thrown doubts into glyphosate’s health hazards. But even a small chance of cancer isn’t something to take lightly.
There are also environmental fears around HTBt.
One of them is the development of “superweeds”. If you keep spraying weeds down with glyphosate generation-after-generation, the argument goes, eventually, those that are resistant to the herbicide are the only strains that reproduce. Slowly, they could create new weed strains that won’t be affected by glyphosate at all. These new strains could lay waste to the farms of the future — only, we’ll have no way of dealing with them.
This could create a cycle: genetically-modified seeds make plants tolerant to more powerful herbicides. But as herbicide use goes up, that spawns more powerful weeds, resistant to those new herbicides. Every time this happens, crop productivity falls again. We’ve seen this cycle play out before:
And that is just the weeds. There’s also a larger cost for living things all around. Excess herbicide can pollute the soil. And it doesn’t just kill weeds — it can also kill all sorts of other plants and organisms in the vicinity.
But the biggest debate is around the socio-economic implications of these seeds.
These seeds have a history. Bt cotton was first developed by the American company, Monsanto, which had a strong patent on the technology. Even as it made cultivation easier, because Monsanto owned these seeds — and governed how they could be used — both farmers and suppliers became reliant on a single company for an input they couldn’t easily afford. And the company fought hard in Indian courts to protect its patent.
Monsanto’s monopoly meant that Bt seeds were expensive. Farmers would often take on debt to finance those needs. If they couldn’t recoup those costs — which became increasingly common as the bollworm (and other insects) developed a resistance to the GMO crop — they would find themselves in financial trouble. Many cotton farmers even committed suicide. Activist groups, as a result, began a bitter opposition to these seeds.
That said, this is a tenuous relationship. The link between the seeds and these tragic deaths is unclear.
The state’s attitudes towards HTBt seeds
In light of all the vocal opposition against GMO seeds, the Indian government machinery has generally adopted a stance of opposition and strict control towards GMO seeds.
There’s a mishmash of laws that govern the space. GMO seeds fall under the supervision of three different committees — the Food Safety and Standards Authority of India (FSSAI), the Genetic Engineering Appraisal Committee (GEAC), and the Review Committee on Genetic Manipulation (RCGM). Each comes under a different Ministry or department. The Supreme Court, too, has previously placed a moratorium on some GMO seeds.
To introduce any GMO seed, then, requires multiple stakeholders to come on board — to sign off on everything from the effect of the genetic modification itself, to its suitability for human consumption.
The difficulty in getting approvals, though, is one thing. If something isn’t approved, however, it’s the job of state governments to ensure that nobody uses them. State governments are also finding it hard to combat the rising tide of illegal trade in HTBt seeds, relying mainly on district authorities and local police to conduct raids on illegal trade hubs. And there is little coordination between all the different bodies involved in putting a stop to them.
Why is that? Partly because the politics of GMO crops is excessively murky. For example, while many farmer NGOs oppose the use of GMO crops, simultaneously, farmer groups based out of Vidarbha have demanded the Maharashtra government to allow HTBt cotton seeds. They even hosted a “GM crop satyagraha”. Every state also has different capacities when it comes to enforcement and they receive little support from the Centre.
The lack of coordination also exists because the Centre itself has expressed vague, confusing stances on GMO cotton. Farmer unions accuse the Centre of promoting organic cropping on one hand, but also taking the demand for HTBt seeds seriously on the other. While HTBt seeds are unapproved due to public influence, the agriculture ministry officially stated in 2019 that a deficit of scientific evidence on how the seeds work ironically hinders policy-making. On the more extreme end, Union Textile minister Giriraj Singh recently advocated to legalize HTBt seeds as soon as possible.
This complex web of interactions and public opinion has produced the unintended effect of paralysis in government policy-making. This inertia, in turn, has created a paper ban on GMO seeds, which—while allowing black markets to thrive—prevents legal entities from productively contributing to Indian seed technology and state tax revenue.
As we shall soon see, this doom loop is hurting a very important set of stakeholders that we haven’t addressed yet: India’s own domestic seed companies.
India’s private seed industry
India’s seed industry is fairly competitive, dominated by large domestic players such as Kaveri Seeds, Nuziveedu Seeds, and Mahyco. These firms maintain strong R&D capabilities, and actively incorporate new technologies like data science and the internet-of-things in agricultural practices.
These companies have been a major driver of the non-GM hybrid cotton seeds being used by Indian farmers. The share of the private sector in India’s seed landscape crossed 60% by 2021. But because GMO seeds are caught in such a legal quagmire, it is difficult for a company that plays by Indian laws to venture into this space.
In 2021, the industry’s profits took a hit. Kaveri Seeds reported a decline in sales and profit of its cottonseed segment. This was partly because COVID-19 shut down their supply chains. But this was also because these companies had no way of competing with a black market that sold seeds with customised properties, even as they were limited to non-genetically modified variants.
That’s why the FSII — the representative body for the seed industry — has been urging the state to control unregulated traders and operators selling HTBt seeds. But they aren’t entirely opposed to GMO seeds. Their suggestions, in fact, range all the way from setting quality controls at the seed production pit itself, to legalising GMO seeds, so that there’s a level playing field, where they can enter the market too.
Making seeds in India, for India, by India?
For the longest time, Indian players licensed Bt cotton technology from Monsanto at steep prices. However, Monsanto’s patent has since expired. Indian companies are now free to build on top of Bt cotton seeds, or even invent a new GMO variant that may be suitable for Indian conditions.
And that means that one of the key arguments against GMO seeds no longer holds water.
So what’s stopping them now?
Indian seed companies operate in a stifling legal framework. A lot of our policy around how these seeds would be regulated — from price control orders to antitrust cases — was improvised in reaction to Monsanto’s veritable monopoly. We won’t go into them in detail, but you’ll find many of them in this paper.
In their time, these policies prevented profiteering by Monsanto, and gave Indian farmers access to their enhanced seeds at cheap prices. However, there was no coherent framework behind them. They were, instead, a patchwork of many confusing directives, which offered little clarity on how one could build a legitimate business around genetically modified seeds.
Consider India’s intellectual property laws, for instance. Because India’s laws around patenting seeds were developed around the case of Monsanto, they leaned towards making such seeds unpatentable. But now, they act as a barrier for domestic innovation as well.
Biotech innovation in agriculture isn’t very different from that in the pharmaceutical industry. R&D cycles for new seeds can be as long as 10 years, with little guarantee of success. Companies need some sort of an incentive to undertake them. However, incentives are in short supply in Indian agriculture.
Surprisingly, for a country so dependent on agriculture for people’s livelihoods, India continues to lack a dedicated industrial policy for seeds. Such a policy would include quality control measures, research-linked incentives and subsidies, targeted investments, public-private partnerships and smoother licensing. Scientists and industry leaders have demanded that the state modernize the National Seed Policy from 2002 and the Seeds Bill from 2004 for the new age. But the government’s policy paralysis has not given way to this demand.
Private sector activity in agriculture has generally suffered from a public trust deficit. But it’s increasingly clear that the solution cannot be to shun them altogether. Their assistance will be required not just in combating illegal, low-quality GM seeds, but also in building climate-resilient cotton seed technology for us.
Tidbits
Adani’s MIAL Raises $750 Million from Apollo-Led Group to Refinance Debt
Source: Reuters
Mumbai International Airport Ltd (MIAL), operated by Adani Airport Holdings, has raised $750 million through four-year unsecured notes from a group led by affiliates of Apollo Global Management. The deal also includes a provision to raise an additional $250 million. The funds will be used to refinance existing debt, helping ease repayment obligations and improve financial flexibility. This follows a similar $750 million fundraising by Adani Airports earlier this month through a consortium of international banks. Adani Airport Holdings, a subsidiary of Adani Enterprises, currently operates eight airports, including Mumbai and the under-construction Navi Mumbai International Airport. The group has indicated a potential listing of Adani Airport Holdings by March 2027.
Edelweiss ARC Targets ₹6,000 Cr Recovery in FY26 After 53% AUM Drop
Source: Business Standard
Edelweiss Asset Reconstruction Company is aiming to recover ₹6,000 crore in FY26 after reporting muted performance in FY25. The company recovered ₹5,730 crore in FY25, with only 14% coming from retail accounts, while the majority stemmed from corporate debt. AUM declined sharply from ₹31,591.72 crore in FY24 to ₹14,716.63 crore in FY25 — a fall of over 53%. New acquisitions also dropped significantly, with only ₹757.56 crore worth of bad loans purchased in FY25 compared to ₹13,187 crore in FY24. Edelweiss attributed the slowdown to regulatory constraints and weak supply in the wholesale stressed asset market. For FY26, the company plans to invest ₹1,000 crore — equally split between retail and wholesale portfolios. This marks a strategic effort to revive its acquisition pipeline and improve recoveries across segments.
Kalpataru Raises ₹708 Cr from Anchor Investors Ahead of ₹1,590 Cr IPO
Source: Business Standard
Kalpataru Projects International Ltd has secured ₹708 crore from anchor investors ahead of its ₹1,590 crore initial public offering. The shares were allotted at the upper price band of ₹414 per equity share. The issue consists of equity shares amounting to ₹1,590 crore, with no Offer for Sale (OFS) component included. Notable participants in the anchor round include GIC Singapore, Bain Capital’s GSS Opportunities Investment, SBI Mutual Fund, ICICI Prudential MF, and Aditya Birla Sun Life, among others. The IPO price band has been fixed at ₹387 to ₹414. The issue will open for public subscription on June 25 and close on June 27. The strong anchor response comes ahead of the company’s broader market listing and indicates early institutional interest.
- This edition of the newsletter was written by Krishna and Manie.
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