BUSINESS PLAN

MIDAS HEALTH CARE Pvt Ltd

Submitted to Dr XYZ by

A B C D Dorm 13, IIM Ahmedabad Vastrapur, Ahmedabad 380015 079-66327317, 66326110 Submitted on 09 SEPT, 2010

Table of Contents
Table of Contents...................................................................................................2 Executive Summary...............................................................................................3 Statement of Purpose............................................................................................5 Finance............................................................................................................... 5 Operating Guide................................................................................................. 5 About the Company...............................................................................................6 Mission Statement..............................................................................................6 Basic product description...................................................................................6 Names of principals and brief background on each............................................6 Company location...............................................................................................7 Number of employees........................................................................................7 Customer highlights............................................................................................7 Our niche and unique qualities...........................................................................8 Strategic alliances..............................................................................................8 Products and Services............................................................................................9 Market Analysis....................................................................................................11 Industry............................................................................................................11 Customers........................................................................................................ 13 Competition......................................................................................................13 Marketing Plan.....................................................................................................14 Marketing Strategy...........................................................................................14 Relationship marketing.....................................................................................14 Internal Marketing............................................................................................15 Integrated Marketing........................................................................................16 Operational Plan..................................................................................................18 Location............................................................................................................18 Facilities Required............................................................................................19 Quality Control..................................................................................................19 Other issues......................................................................................................19 What is done Vs What needs to be done .........................................................20 Management........................................................................................................20 Organizational Structure...................................................................................20 Professional and advisory support:...................................................................22 Succession plan................................................................................................23

Financial Plan.......................................................................................................23 Finance requirements.......................................................................................23 Financing Sources.............................................................................................23 Fixed Asset Assumptions..................................................................................24 Revenue Sources..............................................................................................25 Doctor Consulting .........................................................................................25 Test Fees.......................................................................................................25 OTC Medicines Sales......................................................................................26 Doctors Registration & Appointment fees from our centre...........................26 Number of patients visiting the center.............................................................26 Inventory analysis.............................................................................................27 Operating Expenses..........................................................................................28 Ahmedabad Headquarter expenses..............................................................28 Pathology Centre Expenses...........................................................................28 Interest Payment Schedule...............................................................................29 Medicine Inventory...........................................................................................29 Depreciation.....................................................................................................29 Sales promotion................................................................................................30 Tax Rate...........................................................................................................30 Cash flows determination.................................................................................30 Sensitivity Analysis with NPV............................................................................31 Appendices..........................................................................................................32 Table 1: Competitive Analysis.......................................................................32 Organizational Structure................................................................................35 Consolidated Income Statement....................................................................35 Consolidated Balance Sheet..........................................................................37 Financial Ratios.............................................................................................38 Basic Profile of the districts where the centers would be established...........42 References...........................................................................................................44

Executive Summary
MIDAS Healthcare services Pvt Ltd is a venture that aims to provide quality healthcare services to the rural population. Today, even basic healthcare facilities are not available in

rural areas owing to non-availability of good doctors and infrastructure etc. Adding to this problem is the widespread illiteracy and lack of awareness amongst people about sanitation and diseases. Thus, rural people often cant spot the onset of a disease or epidemic and hence have no other option but to wait till the situations become worse after which they go to cities/towns which is actually a difficult financial proposition for them. We propose to fill that gap by establishing an IT infrastructure in villages (each serving a group of villages) where there is a broadband connectivity. Broadband has truly made this world a global village. Hence by using the power of Internet, we would be bringing in the quality expertise of doctors to their footsteps. This would save them the time and the financial burden that they would otherwise incur by travelling to cities or the nearest hospital in the respective district. According to the recent NHRM report on rural healthcare, the rural health centers are critically short of trained medical personnel. About 8% physical health centers dont have a doctor whereas 39% of the centers run without a lab technician and another 17% dont have a pharmacist at all. Moreover, the infrastructure in such PHCs is in a sorry state of affairs with lack of basic facilities like operation rooms, labour rooms etc. In Gujarat where we would be starting off our ventures operations, hospital bed availability stands somewhere close to 1 bed for every 700 population. As per the 2003 figures 331 out of every 1000 in rural Gujarat are illiterates and approximately only 470 people have received primary or higher education. Only 3 of every 1000 in rural Gujarat hold any sort of diploma or degree. In a nutshell the rural population of Gujarat like that of most other states in India is not highly educated. The latest available figures suggest that for rural Gujarat, According to Assocham reports the per capita income of Gujarat as per 2008 was approximately Rs.28000 per annum growing at about 8% annually. However the per capita income of rural Gujarat is expected to be much lower. Thus, there is a clear need to ensure that people in the rural areas get access to quality healthcare services just like their urban counterparts. With the increase in disposable income even amongst the rural demographic which has been found to be increasingly having aspirational values, we felt that here is an opportunity where there is a huge scope for growth. So, we believe that our venture will be a two way success, serving the rural populace and also earning fair profits owing to the existing supply demand mismatch. This company is wholly owned by the eight member team who would be holding equal stakes in the venture. We plan to start off the venture with an initial capital investment of INR 3000000. With a debt-equity ratio of 2:1, the debt of INR 2000000 will be financed by SIDBI

at an interest rate of 10% with the repayment schedule being 6 years along with an initial moratorium period of 18 months. With an estimated ticket size of INR 40 on an average, we expect to breakeven in about 3 years time. This essentially implies that we are targeting a sales figure of INR 1.5 lakh per year per village (or per facility) with an assumption of running costs that run to the order of INR 50,000 per annum which is an overestimate of costs. This implies that we need to cater to 4,000 patients annually or 8 patients per week per facility, which is a very conservative demand estimate.

Statement of Purpose
Finance
Midas Health Care private limited is a company that would be incorporated under the Indian companies act, 1956. Its headquarters will be at Ahmedabad. The company plans to setup 25 health centres in villages where broadband connectivity is available. An initial investment of INR 3000000 is required to setup this venture. Of the total capital investment, the debt-equity ratio would be 2:1 with the debt being taken in the form of a bank loan. We plan to take this loan from SIDBI which finances SME at an interest rate of 10% which is far below the market rate at which commercial banks give out business loans. Loans will be repaid across 6 years in equal amounts with a 18 month initial moratorium period which would help us in breaking even without the liability of repayments for the above mentioned moratorium period.

Operating Guide
We plan to continue business with 25 centres at least for the first five years and hence repay most of the loan liability after which plans would be made to scale up operations by expansion of the services to other villages. Our vision is to scale up initially in the state of Gujarat and then expand to other states depending on the feasibility and availability of the required resources and infrastructure. With regards to the inventory we have at each of the centres, we have a 45 day inventory cycle and supplies are ordered once 15 days inventory is left. This is to ensure that the inventory which consists of medicines, syringes and other equipments dont stay beyond their expiry date. Thus, we strive to provide the best quality healthcare services to the people and abide by the best practices in the pathology industry.

About the Company

Mission Statement
To provide affordable internet based consultation services (with video conferencing) to the rural people all over India to save time and cost of travel, which is sometimes prohibitive for these people.

Basic product description

We propose to venture into rural healthcare sector. Today, good healthcare facilities are not available in rural areas due to several reasons like lack of availability of good doctors, infrastructure etc. which force people to either wait till the situations have gone worse or go to cities/towns which is very difficult. Awareness will be spread amongst villagers about how important it is to consult doctors and get proper medication. In our health centre, when a patient comes to the laboratory, he would be communicating to the medical practitioner present in the nearest urban area with the help of IT features like voice chat and webcam, and thus gets quality consultation services. The in house pathology lab would be conducting elementary tests like the blood test, sugar test, urine test, blood pressure etc based on the diagnosis or instructions of the medical practitioner. A qualified pathologist would perform these tests & send these reports to the medical practitioner with the help of internet facilities like e-mail amongst others. Based on the results of these tests then the medical practitioner would diagnose the patients condition and either prescribe medicines or suggest him to visit him. This model essentially aims to replicate the normal process of how an urban patient is treated i.e. he visits the clinic where the Doctor either prescribes medicines or suggests some tests and on getting these test reports, he/she further suggests further course of action. The only difference here is that instead of physically visiting the clinic, the consultation process is virtually replicated through the IT infrastructure. All the people residing in rural areas will be targeted by spreading awareness, keeping price points which are affordable and providing convenience to villagers who now dont have to visit towns/cities for preliminary examination.

Names of principals and brief background on each

CEO A, Metallurgical Engineer and specializes in marketing CMO B, Mechanical Engineer. Both specialize in marketing

CFO C-. Both specialize in finance CTO D, Chemical Engineer, specializes in Finance VP-HR E, Instrumentation and Control Engineer, specializes in Marketing COO F, Mechanical Engineer and specializes in Marketing

Legalities
Midas Health care private limited would be a company incorporated under the Indian companies act, 1956 with all the eight founding member holding equal stakes in the company. We plan to go public after scaling our operations to a national level.

Company location
Ahmedabad, Gujarat The 25 centres would be based in the two districts of Kheda and Mahesana which are in close proximity to our headquarters and where there is a sufficient availability of electricity and broadband connections. We have also looked at the current level of healthcare infrastructure provided by the government there and found that there are need gaps which we can cater. Please refer to the exhibit 4 in the appendix to see the basic profile of the two districts. Further villages needs to be identified based on feasibility study of setting up the facility in a particular village.

Number of employees
To start with well take up 25 villages in Gujarat in the pilot stage. Well understand the business better with 2-3 years and then scale up with the new knowledge. For this we believe well need 25 employees for the pilot stage. These will be qualified pathologists who can carry out the basic tests in the in-house laboratories well set up in each of the villages.

Customer highlights
Our target segment is rural people SEC R1, R2 and R3 - of all age groups and income levels. Our product offers convenience and it will be availed by the rural rich and poor alike. The composition of rural areas is such that the majority of the population there is poor and we have to price our offering such that it is viable for these masses. What we are aiming for, in

essence, is a commercially viable social enterprise. We want to make rural healthcare available to each and every person in the villages. A lot of medical complications can be avoided if the people can get some firsthand advice from the doctors.

Our niche and unique qualities

We have members in our team whose parents are Doctors. Some of them have been raised and brought up in that environment where they understand and can empathise with the difficulties faced by patients. The presence of Doctors in the advisory board of our company would definitely help us in establishing contacts in hospitals across the country and negotiating with doctors to sign up for this venture. Arguably, no one in the team possesses any medical skills. But the business opportunity does not require that from us. We understand the demand and we can provide the supply. We believe we can understand the customer requirements because some members from our group have their origins in rural areas where they have been sensitized to the thinking and mindset of the rural people.

Strategic alliances
As mentioned above, well need to form strategic alliances with hospitals and doctors there in. We can also contact private medical practitioners and form alliances with them.

Company milestones
We plan to start the company upon graduating from IIM Ahmedabad. Well register the company in June-July 2011. Stage 1, June 30, 2011 Identification of the 25 villages for the pilot stage: Will be chosen based on the demographic profile that suits our business Stage 2, June Dec, 2011 Pool in owners equity, contact SIDBI and raise capital for the 25 facilities and payments to doctors and staff. Stage 3, July-Dec, 2011- We will start contacting the hospitals and doctors at one end and start recruiting attendants and staff for the 25 health centres. Stage 4, Nov & Dec 2011 Buying and testing the equipment for the facilities Stage 5, Jan 2012 Start taking in patients.

1-3 year plan future milestones to reach We wish to breakeven in 3 years time. Assuming fixed costs to be around Rs. 1 Lakhs for equipment and a fridge and variable costs to be split into operating costs (Rs. 2000/month), rental for the facility (Rs. 1000/month), doctors consultation fees (Rs. 50/patient) and pathologists salary (Rs. 7000/month). Fee structure for the various pathological services will vary from Rs. 20 to Rs. 60 with majority of the tests charged at Rs. 40. Thus average ticket size would be around Rs. 40/test. Well be charging INR 70/patient for consultation and the average cost of the tests to be done is INR 40. Taking a probability of 75% for the number of consultations that will lead to tests being done; well break even in 3 years (ignoring the time value of money) with approximately 260 patients per month. That is an average of 8.3 patients per day. According to our advisory panel, that is a very conservative estimate of demand. Apart from this there will be one time hiring for all the 25 hospitals health centres and after the pilot stage of 3 years well be recruiting for the other phase as we begin to gradually start expanding.

Products and Services

The main offerings are as follows:

Pathological services to the rural poor: The pathological services will be offered through pathology labs which will be setup in the rural areas as part of the health centre. The pathology lab will require a qualified pathologist and a support staff who will be preferably from the local population and should be able to maintain cordial relations with the local rural population.

The pathological services offered are as follows: 1. Hematology a. TLC Total leukocyte count
b. DLC differential leukocyte count

c. Hemoglobin d. ESR erythrocyte sedimentation rate 2. Biochemical test a. Blood sugar b. Blood urea c. Serum cholesterol d. Widal test
e. BMP Blood for malaria parasite testing

f. MT Monteux test g. Serum bilirubin h. Strip test TB, kala-ajar, malaria 3. Urine test a. Urine pregnancy test b. Routine urine test

Consultation with medical practitioners: A tie-up with medical practitioners will facilitate the process of preliminary medical consultation. The process will be facilitated through the setup of IT infrastructure and deploy services like video calls through voice chat services like Skype and a webcam.

Basic medicines and health care services to the rural poor in rural areas: Our model also aims to provide basic medicines such as those required for common ailments like fever, headache, cold and cough, stomach disorders, first aid etc. Both

the pathologist and the attendant would be able to identify symptoms and provide basic health care services accordingly. The competition in rural areas is quite low as very few villages have been touched upon by the multinational organizations in the health sector. Also, the level of services provided by the government in most of the rural areas are inadequate and it is difficult for the rural poor to avail the services provided by primary health care centres in blocks. The quality of these services is also not up to the mark and hence the rural poor have to travel long distances to get their health check up done. The quality and reach of the services can be a major strength of our rural health care model. The ease of accessibility of these pathological clinics and the credibility of the pathologists and the other staffs will add to the increase in demand for the services which we offer. The fee structure for the services will vary according to the service availed and also on the complexity of the disease. The services offered will be approximately priced at the same level as those in districts (where the availability of these services is easy). Also, people who need consultation with medical practitioners will have to pay extra fees. A tie-up with medical practitioners will enable the efficient working of the model. The consultation fees will be around INR 70 for normal diseases, of which INR 50 will be given to the medical practitioners while the fee structure for the various pathological services will vary from INR 20 to INR 60 with majority of the tests charged at INR 40. The medicines will be provided at the MRP (Maximum Retail Price) to the rural poor based on the medical practitioners prescription. The price points have been decided taking into account the current fee structure in most districts where the patients from the rural areas travel to avail the medical services. The cost of the services is taken into account and the profit margin has been reduced by almost half to arrive at the fee structure.

Market Analysis
Industry
About 75% of health infrastructure, medical man power and other health resources are concentrated in urban areas where 27% of the population live. Table 1 compares rural and urban India on some internationally accepted parameters of health and well being. The disparity clearly indicates that there is a general lack of healthcare facilities in rural India.

These arguments are reinforced by the facts stated in Table 2 which show that the rural population which comprises of about 30% of Indias population has only 31% of the hospitals available at its disposal in the rural areas. The number of beds available in rural areas, as shown in Table 2, is even smaller because of the smaller size of the hospitals and medical facilities present in rural areas. Also, a significant portion of the treatment options available to the rural population are not those which

use modern allopathic techniques and are instead based on traditional Ayurvedic and Unani systems of treatment. These facts are especially disturbing if you consider the fact that the incidence of almost all diseases is nearly twice as high in the rural areas as compared to urban areas according to some reports.

Customers
Segmentation Since our services are meant to cater to the needs of the rural sector, our target segment comprises of the residents of rural areas. The rural population is highly heterogeneous and may be divided into the following segments: SEC R1: Landlord farmers, educated, exposed to urban environment with their children studying in nearby towns, exhibit a lifestyle closer to urban areas, adopt modern technology, own customer durable products such as tractors, refrigerators and two wheelers. SEC R2: Rich farmers with about 5 acres of land. May not be educated but want their children to be educated, aspire to have social status and own some of the customer durable products like television, tractor and two wheelers. SEC R3: Landholding size between 2 and 5 acres, with children studying in village schools, conservative in technology adoption, own some customer-durable products. SEC R4: Agricultural labour with a low income, utilize subsidized food grains and other products distributed through the public distribution system. Target customers We will cater to each of the segments SEC R1, SEC R2 and SEC R3. Even though the services are nominally priced, the SEC R4 might not find them affordable. Population characteristics As per the 2003 figures 331 out of every 1000 in rural Gujarat are illiterates and approximately only 470 people have received primary or higher education. Only 3 of every 1000 in rural Gujarat hold any sort of diploma or degree. In a nutshell the rural population of Gujarat like that of most other states in India is not highly educated. The latest available figures suggest that for rural Gujarat, hospital bed availability stands somewhere close to 1 bed for every 700 population. According to Assocham reports the per capita income of Gujarat as per 2008 was approximately Rs.28000 per annum growing at about 8% annually. However the per capita income of rural Gujarat is expected to be much lower than this number.

Competition
The major competition for the business would come from the following sources.
1. District Hospitals

2. Private hospitals/clinics in cities and towns 3. Local medicine men/ Ayurvedic/ Unani remedies 4. Primary Health Care centers (PHC)

Competitor analysis Please refer to exhibit no 1 in the appendix for a detailed analysis of the competitors.

Marketing Plan
Marketing Strategy
A robust marketing strategy is based on the concept of holistic marketing which is based on marketing programs, processes & activities, recognizing their breadth & interdependencies. There are three broad components characterizing holistic marketing: Integrated marketing, relationship marketing & internal marketing.

Relationship marketing
One of the important goals of marketing is to build & nurture deep relationships with people that can directly or indirectly affect the success of the firms marketing activities. Relationship marketing helps develop long-term relationships with key stakeholders customers, employees, partners etc. Following are the key constituents for our venture and activities that can be carried forward as a relationship building exercise with them:

Internal Marketing
Internal marketing ensures that employees & partners who are providing services to customers are applying appropriate marketing principles. This is done by hiring, training & motivating these people well, as there is no point of promising good services to customers unless the staff is ready to provide it. Following are some of the ways to carry out effective internal marketing:

Integrated Marketing
The activities under integrated marketing are classified as a marketing mix tool of four kinds which are referred to as four Ps of marketing: product, price, place & promotion

Product: As explained earlier, the service has enormous benefits for rural population as the rural population will now be able to access good quality (equivalent to that present in urban areas) health facilities nearer to their homes & for affordable prices. The diagnosis of the disease, preliminary examinations & treatment can now be done in rural areas without a delay thereby worsening the situations sometimes. Through this, rural people can visit the health centre as soon as they are unwell where the pathologist would through IT connect them to the medical practitioner practicing in urban areas. The normal process of consulting doctors is thus replicated and in this way, the patient would be sure that unless the situation is bad, he need not travel far to the towns to visit the hospitals or the PHCs.

Pricing: As the idea is to establish a commercially viable social enterprise, so the pricing has been done according to that. The price points have been decided taking

into account the current fee structure in most districts where the patients from the rural areas travel to avail the medical services. The cost of the services is taken into account so as to make it commercially viable and the profit margin has been reduced by almost half considering the purchase power of rural people and to achieve social objective.

Placement: The parameters that are taken into consideration while deciding the location of these health centres are: Unavailability of good quality health facilities from government or private service provider in that location, road connectivity, electricity and broad band facility. For each centre, a catchment area needs to be identified so as to make sure that the potential demand of these services for a particular centre meets the costs of running it and making it commercially viable.

Promotion: The unique selling proposition of our venture is quality & reach of affordable healthcare services. Following are some of the ways through which we can promote the venture:

Taking local people (like sarpanch etc., whose opinions are

revered) into confidence. First step is to convince them about the need for this service. This will help us convince the masses easily and will increase our credibility

Organize a small meeting inviting rural people explaining the

importance of good health, highlighting unfortunate incidents due to delay in disease detection or wrong diagnosis due to the unavailability of a good doctor, amount of expenditure getting doubled due to late disease detection etc. This will help them make informed decisions and also be aware of the need to have easy access to good quality healthcare services

Getting pathological tests isnt a very routine thing for rural

people, so efforts need to be put to make them realize the importance, ease & affordability of these tests.

Clear differentiation/superiority yet affordability of the services

need to be established as compared to services provided by already existing government healthcare centers, district hospitals etc. Factors

like low quality services provided by untrained doctors at primary health care centers & complications caused due to that, the fact that Unani advice work only in conventional, controllable diseases & their inability to decipher what the symptoms mean and the fact that the treatment might not show any effect or much delayed leading to waste of time & earnings etc. need to be highlighted. Even the district hospitals/city hospitals etc. are very far, thereby making them less accessible & inducing prohibitively high travel costs. Mobile vans etc. can be used to establish the differentiation by

making announcements. Also, a recorded message from doctors practicing in urban areas can be streamed through IT infrastructure in place. This will increase the awareness & credibility

Trained attendant or the support staff should help in spreading

awareness about the service. These public meetings will help them establish their credibility & show their expertise better. As the support staff would be a localite, people will be able to connect with them soon.

Free medical check-up camps or free test camps will be

organized once or twice a year especially during monsoons when the chances of a disease outbreak are high. This will induce trials of our services & meet our social objective

Operational Plan
Location
While choosing the location of these health centres we have kept in mind few important parameters which are the following:
1.

Unavailability of the facilities: Currently the services we plan to provide are

unavailable either by government or private service providers in that location. This need gap brings up the opportunity and thus the business case for us. There are villages across India where people are ready to pay for the critical medical services

but due to a geographically disperse network private service providers are still not present in rural India.
2.

Road connectivity: Road connectivity is essential in cases of emergencies

when patients can be transported to the nearest hospital through the consultation done at our health centre.
3.

Electricity and broadband facility: Our pathological equipments require

electricity to operate. Though we will have our battery backup for emergency cases for providing uninterrupted services, we would prefer a location having access to uninterrupted electricity. Broadband connection is essential to our value proposition and to ensure high speed data transfer and smooth connectivity.
4.

Purchasing power of patients: A certain degree of purchasing power

amongst our customers required to make the business economically viable.

Facilities Required
For our business venture the physical facilities requirement is minimal and is readily available in many of the rural villages. We tried to keep our capital expenditure at a minimal level while buying the equipments and establish the facilities.
1. 2. 3. 4. 5.

Uninterrupted electricity to handle equipments as mentioned previously One battery backup for critical machines Broadband internet to handle calls with high speed data transfer 1000 square feet area at rent to facilitate the entire process 1 qualified pathologist trained in computer skills and one assistant from the local

community to handle other tasks like documentation, demand cycle/ordering etc

Quality Control
We promise our customers the best quality service at an affordable price. And to ensure the same following are the activities done as a part of QC namely:
1.

Monthly random sampling test of daily reports Daily MIS report on patient track record Coding and FIFO method to generate final reports for the patients Precautionary measures and regular servicing of equipments

2.
3. 4.

Other issues
Other important issues that need to be taken care are

1.

Stocking of basic medicine and disposables based on demand. We will try to keep

the operating cash flow as low as possible without affecting the operation. Certain medicines have longer shelf life as well as a lock up of cash which we will try to avoid to prevent cash traps
2.

In case of emergency, tie up with ambulance or transportation service providers to

transfer critical cases to the nearest physicians/ hospitals by road

What is done Vs What needs to be done

1.

Value added services like recommendation of low cost physicians, booking of Provision of basic medicines (over the counter drugs) to the patients. This will add to Dealing with emergency cases on a priority basis so that there is no life loss or major

appointments of Doctors in the nearest city/ town

2.

our revenue source as well as convenience to the end customers

3.

damage

Management
Organizational Structure
As has been mentioned above, we shall be setting up our corporate office in Ahmedabad and the health centers will be initially setup in the villages in and around Ahmedabad. The company has a relatively flat organizational structure. We have decided on keeping a flat organizational structure as we wanted to avoid any information asymmetry between the employees; more so because the operations at the ground level would be carried on by trained pathologists and not by us. Hence, it is necessary that they have free access to the top management in case of any emergencies or requirements in terms of the medicinal stock, other pathological equipments and issues with broadband connectivity. There would be 61 employees in total working for the company. The company has about five departments namely Finance, Sales and Marketing, Operations, Human Resources and IT. Each department is headed by the founding members and would be assisted by a mid level employee for day to day operations. Please refer to exhibit 2 in the appendix for the organizational structure. The details of each department are as follows: Finance: This department takes care of all finance related issues for the company and would be headed by Bhavik and Aliza who are the CFOs working in tandem and assisted by an accountant who would take care of all accounts and ledgers.

Sales and Marketing: The marketing of all health centers in terms of publicity and BTL activities would be supervised by this department that is headed by again two CMOs. Deeksha and Rachit would be the two CMOs heading this department. This department would also include a trained and experienced buyer who can procure the necessary medicines and equipments within the budget laid down for it. Operations: This is one of the most crucial departments for it ensures that the daily pathological operations at the health centre happen smoothly. Headed by Soumya who is the COO, he would be actively assisted by an operations supervisor who would be in constant touch with all 25 pathologists. He would also be the companys representative in transaction dealings with the doctors and registered medical practitioners with whom we have a profit sharing agreement. Human Resources: This department would take care of all human resource needs of the company and is headed by Sonam as the Vice President of HR. She would be assisted by a HR supervisor who would ensure that all employees get their salaries on time apart from addressing their needs pertaining to HR. Information Technology: Again one of the crucial departments which would be working in tandem with the operations department to ensure that all the centers are seamlessly connected to the broadband internet facility, which is essential to the daily operations and transactions with doctors and registered medical practitioners. Headed by Kartik Sharma who would be the CTO; he will be assisted by an IT engineer who will primarily look to ensure that all the centers are seamlessly connected. He would also do the firefighting in case an emergency crops up pertaining to the loss of Internet connectivity. Following is the job description of the pathologists and the assistant who would be running the health centre in a village: Pathologist: He is the person responsible for running the center and would be doing all pathological tests, administering common drugs and being in direct contact with the Doctors or the registered medical practitioners. It is his responsibility to run the centre according to the credo of our organization. He would be a fully trained pathologist equipped with complementary skills in Computers and English language communication.

Assistant: He would be primarily assisting the pathologist in the day to day running of the centre. He is also a person who would be trained in handling the equipments, working on computers and documenting daily activities and transactions.

Professional and advisory support:

Board of Directors: As this is a company that is wholly owned and promoted by the eight of us, hence all of us would be in the board of directors. The members of the board are: Sandeep Deeksha Bhavik Aliza Rachit Sonam Karthik Soumya

Management Advisory Board: The parents of two of our members in the Board of Directors are doctors by profession and we intend to avail their expertise to successfully run our startup. They have kindly assented to be the members of the management advisory board that shall be presided over by the CEO. The members of the management advisory board are as follows: Dr K.N.Kakkar Dr Kishor Kumar

Accountant: We are yet to hire an accountant but intend to hire an accountant who has about 10 years of experience in the pathological or the pharmaceutical industry and who is well versed with modern technology. Consultant/Key Advisors: Dr K.N. Kakkar and Dr Kishor Kumar would be advising us on key issues like the daily operations and the manner in which the pathologists have to deal

with the doctors and the registered medical practitioners. Their knowledge and expertise would definitely help us in the smooth running of the start-up and hence we have decided to assign them the role of Key advisors.

Succession plan
We have focused on a simple succession plan in case the CEO is lost, incapacitated or is deemed unfit to lead the company. In case of such a situation, each of the members in the board of directors would prepare a pitch describing how they would assume the leadership and lead the company to future successes and endeavours. This pitch would also incorporate their future vision for the company and hence the contender must also communicate his/her growth strategy for the company. This pitch would be evaluated by the members of the management advisory board excluding the erstwhile CEO, based on which the new CEO would be elected.

Financial Plan
All amounts in this report are in Rs.

Finance requirements
Fixed Asset Investments 1. Setup the Pathological sector at 25 centers in selected villages 2. Setup the head offices in Ahmedabad 3. Company registration Other 4. Pre-operating Travelling, Marketing & hiring costs 5. Purchase initial raw material & operating costs Fixed Asset + Pre operating expenses Cash in hand Total

2680000.00 100000.00 50000.00 20000.00 73750.00 2923750 76250.00 3000000.00

Total Investments required = 3000000 or 30 lakh

Financing Sources
Owners Equity Bank Loan Total Finances 1000000 2000000 3000000

Fixed Asset Assumptions

1. Our team is starting with 25 pathology centers in different villages and a Head Office

in Ahmedabad. We are not investing in any land or building. We will be renting the office space both in villages and at Ahmedabad.
2. Expenses in establishing a Pathology center are for equipments, furniture & IT setup

Equipment Costs Haematology Urine Biochemistry Microscope Others Total Furniture Costs(include fridge) IT setup Computer Broadcom Total Fixed cost per Pathology centre Total costs for 25 Pathology centres 10000 2200 107200 2680000 10000 36000 25000 10000 4000 85000 10000

3. Expenses to establish Head Office at Ahmedabad would be for furniture

Admin Head Office Office Furniture Office rent contract security Total

80000 20000 100000

4. Legal help for registration, documentation etc will be done in Rs 50000 5. Pre-operating expenses will happen for marketing, establishing contacts with doctors & travelling for bank loans and at pathology centers in villages and budgeted for Rs 20000 6. Expenses for initial month material and supplies purchases

Initial material purchases & other expense for first 1 month Supplies for pathology centre Room rentals Total expense per pathology centre

1300 1000 2300

Expense for 25 pathology centre Admin office rentals Total purchases & initial expenses

57500 5000 62500

7. Loan is taken from SIDBI bank which provides discounts to entrepreneurs under its

MSME scheme. Loan is of 20 lakhs with interest rate of 10% and repayment structure of equal amount in 6 years with first 18 months as moratorium period. Interest will be paid at the end of the year. Loan would be against fixed assets that the company would be investing in. 8. Our team has 8 members and each one of us will invest Rs 1.25 lakhs as owners equity 9. Total debt to equity ratio is 2:1 which is one of the criteria to get a bank loan

Revenue Sources
1. Doctor consulting 2. Test Fees 3. Over the counter medicines sales 4. Doctors registration fees Doctor Consulting A fixed fee is charged by the doctor per consulting; we forward these costs to the patients and charge Rs 20 etc for our contribution. So in our contract for the Doctors fees of INR 50 in the first year as consulting fees, our pathology centre price would be INR 70. If next year the Doctor increases his consulting fees to Rs 60, pathology centre prices would be Rs 80 for consulting. Hence our contribution will always be Rs 20 for the first five years. Test Fees Prices for different tests are different. Average charge per patient for these tests is INR 40 initially and increases with inflation in supplies and materials for test. We assumed only 75 % of the total patients will go for these tests. Assuming supply costs for 300 patients to be Rs 1300, we have calculated for 400 people per year expense as Rs 21000. (1300*400/300)*12. This amount increases with inflation as well as with number of patients.

OTC Medicines Sales More people will be buying OTC medicines than the patients coming for consulting and tests. We assumed an average expense of Rs 20 per person and the number of people buying OTC medicines is 1.5 times the people coming for consulting and tests. All these assumptions have been verified by the members in the advisory board. Doctors Registration & Appointment fees from our centre This is for medical cases that require visit to a doctor in the city. We would be doing the registration for the doctor from our centre and charge Rs 5 fees. These cases will be only 5% of our total patients visiting the centre.

Number of patients visiting the center

Following the assumption that, a pathologist can take care of minimum 15 patients per day or 450 patients per month, we will employ 2 pathologists per centre after second year. Hence assuming Cumulative annual growth rate as 25%. For 1 Centre No of patients per month No of patients annually 400 4800 500 6000 650 7800 800 9600 900 10800 2011 2012 2013 2014 2015

Doctor Consulting Fees per patient Centre Fees Revenue Dr's fees Centre Contribution

50 70 336000 240000 96000

55 75 450000 330000 120000

60 80 624000 468000 156000

65 85 816000 624000 192000

70 90 972000 756000 216000

Revenues from Test Test Fees expense per month revenues(75% of total 40 1,750 1 40 2,188 1 45 3,199 2 45 3,938 3 50 4,922 40

patients) Expenses(inflation+ No of patients) Centre Contribution

44,000 21,000 1 23,000

80,000 26,250 1 53,750

63,250 38,391 2 24,859

24,000 47,250 2 76,750

5,000 5 9,063 34 5,938

OTC medicines sales 144,00 Revenue Contribution is 20% of sales 0.0 28,80 0.0 0.0 0.0 36,00 0.0 180,00 0.0 46,80 0.0 234,00 0.0 57,60 0.0 288,00 0.0 64,80 324,00

Registration margin No of patients registering(5% of total) Fees per patient Centre Contribution 0.00

24 0.00 5 1,200 .00 .00

30 0.00 5 1,500 .00

39 0.00 5 1,950 .00

48 0.00 10 4,800 .00

54 10 5,400

Inventory analysis
Purchase of Material for tests Test material is purchased for 45 days and ordered when 15 days inventory is left. Assuming all bills are paid at the time of order and inventory is received just the next day. Schedule of order and inventory at the end of the month is shown below and schedule for 5 years is given in exhibit 3. Inventory Purchases(45 2011 days) 1st Jan 1st Feb 15th March 1st may 15th June 1st Aug 15th Sep 1st Nov 15th Dec 2625 2625 2625 2625 2625 2625 2625 2625 2625 Jan Feb Mar Apr May Jun Jul Aug Sep @ end of month 875 1750 2625 875 1750 2625 875 1750 2625

Oct Total purchases 23625 Nov Dec

875 1750 2625

Operating Expenses
Ahmedabad Headquarter expenses We would rent the space for Headquarter Office at a floor area of 500 sq ft. This would require a rent payment of Rs 5000 per month. Also the office staff which is employed, will be paid Rs 2500 monthly (increment after 2 years) and we have assumed Rs 2000 as miscellaneous expenses. We have also accounted for marketing expenses to the tune of Rs 1000 for promotional expenses. These costs are increasing after the second year taking inflation into account. 2011 2012 2013 2014 2015 5% of gross 5% of gross 5% of gross 5% of gross 5% of gross Management Fees Rent(Electricity included) Office staff Misc(Telephone + Travel) Marketing Total (Excluding Management Fees) margin 60,000.00 30,000.00 24,000.00 12,000.00 1 26,000.00 26,000.00 margin 60,000.00 30,000.00 24,000.00 12,000.00 1 40,400.00 margin 66,000.00 36,000.00 24,000.00 14,400.00 1 40,400.00 margin 66,000.00 36,000.00 24,000.00 14,400.00 1 46,400.00 margin 72,000.00 36,000.00 24,000.00 14,400.00 1

Pathology Centre Expenses We would rent the space for the Pathology centre for a floor area of 1000 sq ft. This would require a rent payment of Rs 1000 per month. Also the pathologist fees would be Rs 7000 initially and the support staff which is employed, will be paid Rs 2500 monthly both of which would be increased after the first 2 years. We have assumed Rs 500 as office supplies. The electricity expenses are Rs 300 per month. 2011 2012 2013 2014 2015

Rent Pathologist Fees Support Staff Office supplies Electricity Total

12,000.00 84,000.00 30,000.00 6,000.00 3,600.00 1 35,600.00

12,000.00 84,000.00 30,000.00 6,000.00 3,600.00 1 35,600.00

12,000.00 96,000.00 36,000.00 6,000.00 3,600.00 1 53,600.00

12,000.00 96,000.00 36,000.00 6,000.00 3,600.00 1 53,600.00

12,000.00 96,000.00 36,000.00 6,000.00 3,600.00 1 53,600.00

Interest Payment Schedule

We are taking a loan of 20 lakhs at the rate of 10% interest per annum. We would be repaying the loan after the first 18 months and the repayment would be completed in 6 years time. Based on this, the table below shows the final schedule Time Repayment Remaining loan@ end of year Interest Interest rate 000 200 ,000 10% ,333 2,000, ,667 183 ,000 Dec-11 ,333 1,666 333 150 ,667 Jun-12 333 ,333 1,333, 000 116 333 Jun-13 333 ,333 1,000, 667 83, 000 Jun-14 333 Jun-15 333, 333 666, 333 50, Jun-16 333, 333 333, 333 Jun-17 333,

Medicine Inventory
For the medicines which we would be selling, there would be a direct payment made to the supplier based on the volume of the medicines sold. We would be keeping a margin and paying the rest to the supplier. No initial upfront payment is required and inventory cost is also avoided. If there is any excess stock left, then it would be sent back to the supplier.

Depreciation
We have used different rates for depreciating the General Equipment (@25%) and for the office furniture (@10%) based on the rates applicable currently.

Depreciation ( SLM method) 2,430, Equipment (25%) Depreciation per yr for 4 years Furniture (10%) Depreciation per yr for 10 years 000 607 ,500 330,00 0.00 60,75 0.00

Sales promotion
As mentioned in the marketing plan previously, we would be treating a fixed number of patients each year without charging them for anything. This would effectively help us in spreading the awareness about our company. 2011 400 4,800 100 144,000 3,000 2012 500 6,000 150 180,000 4,500 2013 650 7,800 200 263,250 6,750 2014 2015 800 900 9,600 10,800 300 350 324,000 405,000 10,125 13,125

No of patients per month No of patients annually Free patients Test Revenue Allowance

Tax Rate
We have assumed 30% tax rate based on the data available for Domestic Corporations / Private Limited Companies in India.

Cash flows determination

2,935,975. PAT Dep WC Loan Repayment CF(+dep- WC-loan repay) Annual Cash Flow per 00 668,250 .00 65,625 .00 3,538,600. 00 3931 .25 333,333 .33 10,197,530. 21 11330 .33 14,806,108. 54 16451 .00 16,406 .45 333,333 .33 19,758,169. 56 21953 79 668,250 .00 37,939 .55 333,333 33 23,869,755. 68 26522 9,879,019. 14,509,131. 33 668,250 .00 27,685 06 333,333. 19,450,938. 44 668,250 00 36,914. 24,179,253. 07 60,750.

patient in all centres Monthly cash flow per patient in all centres Monthly cash flow per patient in each centre 328 13 944 38 1370 55 1829 73 2210 88

The cash flow analysis above shows that as the scaling up of the operations is being done, the amount of cash flow generated per patient increases with a maximum of INR 88 which is very reasonable and is according to the conservative demand estimate and assumptions we have made while coming up with the cash flow analysis, sensitivity analysis and consolidated income statement as well as the consolidated balance sheet.

Sensitivity Analysis with NPV

Initial Cash Flows Investment (3,000,000. 00) Discount factor NPV IRR 10% 48,085,004. 44 210% 12% 44,928,582. 90 15% 40,687,382. 85 18% 36,958,709. 99 20% 34,719,959. 09 2011 3538600 2012 10197530.21 2013 14806108.54 2014 19758169.56 2015 23869755.68

Please refer to the exhibit 3 in the appendix for the consolidated income statement, consolidated balance sheet, financial ratios and other graphs which show inventory analysis, breakup of contribution according to various heads and cash flow analysis.

Appendices
Exhibit 1:
*Columns 3,4,5,6 suggest where the competitors stand in comparison to us. Column 7 suggests the importance of the factor to the customer. The rating is as follows: 1 = critical; 5 = not very important. Table 1: Competitive Analysis Private hospitals/clinics in cities and towns Local medicine men/ Ayurvedic/ Unani

Factor

Company Details

District Hospitals

Primary Importance Health to care Customer centers (PHC)

Product variety

Refer to the section products and services Refer to the section products and services Refer to the section products and services Refer to the section products and services One of the major selling propositions

Higher

Higher

Lower

Lower

Lower

Higher

Lower

Lower

Price

Lower

Higher

Lower

Lower

Quality

Lower

At par/Higher

Lower

Lower

Service

Reliability

Lower

At par/Higher

Lower

Lower

Factor

Company Details

District Hospitals

Private hospitals/clinics in cities and towns

Local medicine men/ Ayurvedic/ Unani

Primary Importance Health to care Customer centers (PHC)

of our services is that we would be more reliable than the PHCs that might be available in the villages locally. We intend to expand our business in the rural areas throughout the country and sustain them as running concerns over the years. We intend to rope in the best possible medical practitioners from cities and towns. Higher depends depends Higher 2

Stability

Higher

Higher

Lower

Depends on avail. Of doctors

Expertise

We intend to build our reputation as a provider of Company Reputation quality health services in the rural areas.

Lower

Higher

depends/ higher

Lower

Factor

Company Details

District Hospitals

Private hospitals/clinics in cities and towns

Local medicine men/ Ayurvedic/ Unani

Primary Importance Health to care Customer centers (PHC)

Our services would eliminate the cost of travel for patients and Location encourage Advantage them to seek treatment at more preliminary stages of their diseases. We would seek to create Appearanc an ambience e that reflects

Lower

Lower

At par/ Higher

Lower

Worse

Better

Worse

Worse

Advertising Image

Worse

Better

depends

Worse

Exhibit 2:

Organizational Structure

Exhibit 3:
Consolidated Income Statement

2011 No of patients No of centres 400 25 8,400 Doctor revenue Test Revenue Medicines sales Registration margin ,000 3,600 ,000 3,600 ,000 3 0,000 15,630 Sales Revenue Less: Sales returns and allowances Net sales ,000 7 5,000 15,555 ,000 000 ,500 500 ,500 000 000 000 500 25

2012 650 25 11,250, 000 4,500, 250 4,500, 000 37 ,750 20,287, 000 112 ,750 20,175, 250

2013 800 25 15,600, 000 6,581, 000 5,850, 000 48 ,000 28,080, 000 168 ,125 27,911, 875

2014 900 25 20,400, 000 8,100, 000 7,200, 000 120 ,000 35,820, 000 253 ,125 35,566, 875

2015

24,300, 10,125, 8,100, 135

42,660, 328 42,331,

Cost of goods sold Inventory 65 In beginning In end Goods Purchased COGS Doctor's Fees 6 5,625 59 0,625 525000 6,000 ,000 9,030 Gross margin OPERATING EXPENSES Ahmedabad Head Office Management fees(5% of GM) Rent(Electricity included) Office staff Misc(Telephone + Travel) Marketing Total Pathology Centre Expenses 30 Rent Pathologist Fees Support Staff 0,000 2,100 ,000 75 000 750 ,000 2,100, 000 900 300 ,000 2,400, 000 900 300 ,000 2,400, 000 900 300 ,000 2,400, 300 1,500 6 0,000 3 0,000 2 4,000 1 2,000 57 7,500 656 ,000 1,098, 873 ,000 12 ,400 1,483, 683 ,000 24 ,000 14 ,400 1,853, 783 ,000 30 ,000 24 ,000 14 ,400 2,181, 45 ,656 60 ,000 36 ,000 24 ,000 14 972 473 66 ,000 36 ,000 24 1,343, 283 66 ,000 36 1,713, 383 72 2,035, ,000 58% 125 96% 000 19,453, 453 96% ,281 ,031 738 ,625 82 ,971 1,079, ,031 119 ,656 1,328, 82 ,971 147 ,570 1,661, 119 ,656 184 147

736 906 133 721875 1041796.875 1301220.703 1624218.75 8,250, 11,700, 15,600, 18,900, 000 26,869, 654 96% 000 34,265, 656 96% 000 40,707,

0,000 15 Office supplies Electricity Total 0,000 9 0,000 3,390 ,000 3,967 Total operation costs ,500 5,062 PBIT ,500 33% 66 Depreciation Interest 8,250 20 0,000 4,194 PBT Tax (@ 30%) PAT ,250 1,258 ,275 2,935 ,975 19%

,000 150 ,000 90 ,000 3,390, 000 4,488, 656 14,964, 469 74% 668 ,250 183 ,333 14,112, 885 4,233, 866 9,879, 020 49%

,000 150 ,000 90 ,000 3,840, 000 5,323, 873 21,545, 580 77% 668 ,250 150 ,000 20,727, 330 6,218, 199 14,509, 131 52%

,000 150 ,000 90 ,000 3,840, 000 5,693, 683 28,571, 972 80% 668 ,250 116 ,667 27,787, 055 8,336, 116 19,450, 938 55%

,000 150 ,000 90 ,000 3,840, 000 6,021, 783 34,685, 873 82% 60 ,750 83 ,333 34,541, 790 10,362, 537 24,179, 253 57%

Consolidated Balance Sheet

Assets Current Assets

Liabilities Current Liabilities

3,614, Cash Accounts Receivables Less: Allowances for uncollectible accounts Inventory Prepaid expenses(reg) Total current assets 850.00 0 0 65,625 163, 750.00 Total current 3,844,225 liabilities Bank loan Total liabilities 0 330, 000.00 60,750.00 2,430,000 Contributed capital 1,000, Owner's Equity Retained earnings 000.00 2935975 0 2,000, 000.00 2,000,000 Fixed Assets Land & Building Furniture Accumulated depreciation Equipment Accumulated depreciation Total fixed Assets 607,500 2,091,750 Government subsidy Total owner's equity Total liabilities and Total Assets 5,935,975 owner's equity 5,935,975 0 3,935,975 Accounts payable Taxes payable repayment 0 0 0

Financial Ratios

Inventory Turnover

8.00

Fixed Asset Turnover Total Asset Turnover

0.18 0.38

Debt Ratio

0.34

Debt-to-Equity Times Interest Earned

2.00 25.31

Gross Profit Margin Operating Profit Margin Net Profit Margin

0.58 0.33 0.19

Return on Total Assets (ROA) 0.49 Return on Equity (ROE) 2.94

Exhibit 4:

Basic Profile of the districts where the centers would be established

References

Government of India, Census 2011. (nd). Retrieved on November 9, 2010 from http://www.censusindia.gov.in/ India Statistics. (nd). Retrieved on November 7, 2010 from http://www.indiastat.com/default.aspx