According to TVF Capital Advisors Founder and Managing Director Shiv Puri, successful hospital operators must master three critical areas to create lasting shareholder value. Speaking exclusively to CNBC-TV18 at the Market Forum event, Puri emphasized that hospital companies need to combine real estate execution, hospital operations and capital allocation to succeed in a business where expansion can create significant value or destroy it. As reported by CNBC-TV18, Puri stated that when these three elements work in conjunction, it represents a great business with a long runway of growth ahead.
The first challenge involves large upfront investments in hospital real estate, requiring operators to identify the right locations, acquire or develop properties, and bring them into operation on time. According to CNBC-TV18, delays can be expensive because capital is committed before facilities start generating meaningful revenue. Puri emphasized that hospital operators need to be 'good real estate developers' and ensure product delivery on time. The decision extends beyond bed count to include location, scale and economics of each project, where a cluster strategy can provide advantages by building stronger local brands and using networks more efficiently.
Once hospitals are operational, the focus shifts to three key operating factors: pricing, payer mix and volumes. As reported by CNBC-TV18, Puri highlighted that hospital profitability is not determined by occupancy alone, with the type of patients treated and treatments provided having significant impact on revenue and margins. He pointed to Max Healthcare as an example of an operator that has used payer mix to improve average revenue per occupied bed (ARPOB). This matters because two hospitals with similar occupancy levels can have very different financial performance depending on their case mix and realizations, requiring operators to continuously improve existing asset economics rather than relying solely on adding new beds.
The third critical area involves capital allocation, where hospital companies sit on strong cash flows with significant opportunities to reinvest. According to CNBC-TV18, Puri warned that 'more value and capital has been destroyed in this space just by pure expansion', emphasizing that having capital deployment ability doesn't guarantee value-accretive expansion. He believes this represents an area where the sector has made past mistakes. Regarding scale, Puri argued that remaining subscale is unlikely to work over the long term, whether operators focus on specialized or multi-specialty healthcare. He noted that a hospital chain operating across 70-80 cities could face greater challenges than one developing strong clusters in fewer markets, with the objective being to build meaningful scale within markets rather than simply increasing location count.
Puri's framework has significant implications for hospital company valuations, as reported by CNBC-TV18. He believes investors should not treat all hospital operators equally, stating that 'all EBITDA is not equal; all profits are not equal'. Well-run hospital operators can generate 20-25% or even higher ROCEs through disciplined capital deployment, brownfield expansion and improvements in payer mix. This ability to reinvest capital at high returns can justify premium valuations, as the business value comes not only from existing hospitals but also from its capacity to compound capital over many years. The framework suggests investors should ask three basic questions: can the company build or acquire hospital assets efficiently? Can it operate hospitals well enough to improve pricing, volumes and payer mix? Can it deploy additional capital at attractive returns? If all three answers are positive, expansion can become a powerful driver of shareholder value, while failure in any one area can make rapid expansion a liability rather than an advantage.
