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IBS Center for Management Research (2016)
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15 pages
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Abstract:
The case discusses the growth of Narayana Hrudayalaya (NH) - a social enterprise set up with the objective of providing affordable healthcare to the needy - its emergence as a chain of well-run hospitals across India, and its foray into foreign countries. The case further highlights the decision of the company to go in for an IPO and poses the question whether this would affect the social objective of the organization in view of the pressures it would face to achieve short-term results as a publicly listed company. NH was established in Bangalore in the year 2001 by Devi Shetty (Shetty) with a 225-bed hospital primarily providing cardiac care. By 2015, it had grown into a chain of 57 facilities with 5,600 operational beds - 56 facilities in India and one in the Cayman Islands. NH stood apart in the Indian healthcare market by providing quality healthcare to the masses at an affordable cost. In 2015, it had operational revenue (standalone) of INR13,075 million with a profit of INR289 million, treating patients from 25 countries. Shetty had plans to establish facilities with 30,000 beds by 2020. He pioneered several innovations to bring down the cost of treatment and the way in which the treatments were funded. Shetty had several firsts to his credit including a record for operating on a 9-day-old baby. By 2015, he had performed more than 4,000 pediatric heart surgeries. Shetty received several awards for his work in providing affordable healthcare including the Padma Bhushan - the third highest civilian award given by the Government of India - in 2012; Indian of the Year by CNN-IBN in 2010; Social Entrepreneurship Award by The Confederation of Indian Industry (CII) in 2005; and the Ernst & Young - Entrepreneur of the Year Award in 2003. By 2015, Shetty had successfully expanded the network of his hospitals to 57 facilities including the hospital in the Cayman Islands. The hospital in the Cayman Islands was set up in partnership with Ascension with the aim of attracting patients from the US who could get treatment at 50 per cent of the cost of similar treatment in their country. He was also planning to expand to Malaysia. In September 2015, Shetty announced his intention to go in for a public issue. The announcement attracted widespread interest in the media. Questions were raised about the reasons for the public issue since Shetty had been running his hospital chain successfully for fifteen years, achieving his social mission of providing treatment to any patient who walked into the hospital irrespective of his / her ability to pay for the treatment. There were doubts raised whether the pressure of shareholder expectations and quarterly results would distract Shetty from his social goals. The public issue that Shetty was proposing to launch was for the sale of 20,436,081 shares to investors and would constitute at least 10 per cent of the post-issue paid-up capital. The issue was for sale by existing shareholders and was not expected to result in the receipt of any proceeds by the company. The company was expecting the public issue to enhance its visibility and brand image and provide liquidity to the company's shareholders. Speaking about the reasons for the public issue, Kiran Mazumdar Shaw, founder of the company Bioconand non-executive director of NH, said, 'The immediate reasons are that Narayana’s current investors are looking for an exit.' To the question whether the public listing would put pressure on Shetty for quarterly results and divert his energies away from his first love - surgery and providing health care to the needy - RoopaKudva, Managing Director of Omidyar Network, an impact investor, said, 'Financial pressures are constructive for social businesses. From businesses with social goals, investors would expect discipline, not unreasonable profit.' In 2012, Shetty had stated, 'We are eccentric people. We are in the business because we want to help the underprivileged and the cost of healthcare to come down. For that, I need the freedom.' Will Shetty be able to enjoy that freedom and continue with his mission?
Learning objectives:
1. Evaluate the decision of a social enterprise to become a publicly listed company through an IPO. 2. Design a framework of governance for a publicly listed social enterprise to maintain focus on its social objectives. 3. Explore alternative funding strategies for a social enterprise to achieve its growth plans.
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