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2012Section F
Group 4
[HEALTHCARESERVICES]Analysis of the Indian healthcare services industry
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INDEX
1.Introduction
2. Industry Overview
3.Major Players and their profiles
4.Government Policies and Incentives
5.Key factors driving the growth of Healthcare Industry
6.Mergers and Acquisitions
7.Provisions for Healthcare in union budget 2012-13and its general impact:
8.Key financial performance indicators such as assets,
EBITDA, PAT of major players
9.Recent events related to industry
10. References
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INDUSTRY ANALYSIS HEALTHCARE INDUSTRY
1. Introduction
An industry with a combination of medical technology and human touch, the healthcare industrydiagnoses, treats, and administers care around the clock, responding to the needs of millions ofpeoplefrom newborns to the terminally ill.
The healthcare industry consists of the following segments:
Hospitals One of the biggest service providers in the healthcare industry, hospitalsprovide complete medical facilities ranging from diagnostic services, to surgery, tocontinuous nursing care.
Nursing and residential care facilities It provides inpatient nursing, rehabilitation, and
health-related personal care providing a vast majority of direct care.
Home healthcare services This is the market segment providing skilled nursing andmedical care facilities directly at home, under a physician's supervision.
Ambulatory healthcare services It includes outpatient care center and medical anddiagnostic laboratories.
2. Industry Overview
2.1 Evolution of Healthcare Sector in India
Changes in the healthcare service demand as well as requirements over the period of time hasbeen shown below-
Years (Chronological
order)
Developments in Indian Market
Till early 1970s The healthcare services were largely government driven
and mainly government hospitals were the only source forpatients. It was considered as a charitable activity havingtedious process for even simple procedures.
From late 70s to early partof 90s
There was an introduction of corporate activity with theopening of nursing homes. India started to grow and westarted adopting technologies in providing services withhaving specialty and sub-specialty departments.
Late 90s to date There has been an emergence of specialty hospitals and
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people require high standards of medical services. Thesector is highly growth driven and people opting for newchanges like health insurance etc.
2.2 Growth of Healthcare sector in India
In India the healthcare services market is expected to grow from US$35bn in 2008 to US$62bnby 2013. Reports show that market for healthcare service has compounded nearly 15% in thepast 5 years. This is mainly because of the increased level of awareness among people regardinghealth. A split of different areas of expenditure in healthcare shows that people are gettingincreasingly aware towards insurance and other facilities and three-fourths of the market iscaptured by the private service providers.
The projected growth of the market by 2022 and the increasing share of private service providers
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As a result of the increased growth, India having a current capacity of around 1.22mm
beds, is estimated to require an additional 1.75mm beds by 2025, involving an estimatedinvestment of US$75bn.
In the private healthcare, around 61% of the expenditure is on outpatient care. Out of
which 57% is on acute infectious diseases.
The increasing competition in the industry has forced players to explore new and innovativebusiness models to tap into less-penetrated geographies as well as patient segments
Single specialty tertiary care hospitals, e.g. Healthcare Global
Hospital chains solely focused on primary/ secondary care in Tier II/ III towns, e.g.
Vaatsalya
Provision of Healthcare cities, e.g. DrTrehans Medicity
3. Major Players and their profiles
Major players in healthcare services can be divided into 2 categories
1. Hospital Players
2. Diagnostic Service Players
3.1 Among the hospital service providers, following is the list of major players
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Company CEO &Headquart
ers
Sales(US
$mm)
Business Description KeyInvestors
Chairman:Prathap ReddyHeadquarters:
Chennai
458.6 Founded by Dr. Prathap C Reddy in 1983, as
a 150-bed hospital in Chennai Largest hospital chain in India, it also
operates neighbourhood diagnostic clinics, an
extensive chain of Apollo Pharmacies,
medical BPO and health insurance services
and clinical research divisions with 53
hospitals (spread all over India and also in
Mauritius and Bangladesh), over 8,500 beds,
1,050 pharmacies and 100 neighbourhood
clinics
Alliance with AIG, ALICO, Vanbreda, Seven
Corners, International SOS, GMC services,
Emergency assistance (Japan), Companion
Global Healthcare, International Claims
Service and Prestige International
Promoter group(34%),
FIIs(24%),
Foreigncorporate bodies(21%)
CEO: BhavdeepSingh
Headquarters:New Delhi
219.9 Formed in 1996, was started by the
promoters of Ranbaxy Laboratories
Second largest hospital chain in India with a
pan India presence managing more than 51
hospitals and ~8,000 beds under
management
Successfully completed acquisitions-
2005: Escorts chain of hospitals
2008: Malar Hospitals, Chennai
2009: Wockhardt hospitals
Alliance with international partners such as
Aetna, Bupa, Cigna, GMC Services, HTH
Worldwide, Vanbreda, World Access &
Surgical Tourism (Canada)
Fortis HealthcareHoldings Ltd.(81%)
CEO: JaideepGupta
Headquarters:New Delhi
97.2 Integrated healthcare company running a
multi super-specialty hospital; part of Apollo
group
Operates through Indraprastha Apollo
Hospitals located in Chennai, Hyderabad,
Kolkata, Ahmedabad, Bangalore, Bilaspur
and Madurai
As of March 31, 2009, had performed around
2,000 cardiac surgeries, 400 joint
replacements, 1,000 onco surgeries, 90 liver
transplants and 135 renal transplants
Promoter group(51%),
Corporate bodies(18%)
CEO: NallaPalaniswami
Headquarters:
Coimbatore
29.3 Integrated healthcare company running a
multi super-specialty hospital; part of Apollo
group
Operates through Indraprastha Apollo
Hospitals located in Chennai, Hyderabad,
Kolkata, Ahmedabad, Bangalore, Bilaspur
and Madurai
As of March 31, 2009, had performed around
2,000 cardiac surgeries, 400 joint
replacements, 1,000 onco surgeries, 90 liver
transplants and 135 renal transplants
Promoter group(51%),
Corporate bodies(18%)
CEO: SonjoyMohanty
7.6 Operates in two segments: Ayurveda Promoter group
(59%)
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Headquarters:Alwaye
business & healthcare services and software
business
Introduced formulations such as Kashaya to
Kashayam Tablets, medicated oils to creams
and formulations for treating diabetes, namely
Trikantika Thailam, Kathakhadiradi Kashayam
Subsidiaries include Ayurvedagram Heritage
Wellness Centre Pvt. Ltd., Ayu Natural
Medicine Clinic, PS., Ayurvedic Academy,
Inc., Ayu, Inc, KatraSoft Europe GmbH and
CMS Katra Holdings, LLCMD: AmarAgarwal
Headquarters:Chennai
19.8 Engaged in operating eye care hospital
Services provided include intralase surgery,
zyoptix / lasik laser, cataract surgery and
phaco / zyoptix laser
In 2008, the company started 14 new
hospitals in Tamil Nadu and Andhra Pradesh
Promoter group(53%),
Corporate bodies(9%)
Chairman: DeviPrasad ShettyHeadquarters:
Bangalore
N/A Formed in 2001, was started by renowned
cardiac surgeon
Dr. Devi Shetty
One of the largest hospital chains in India witha pan India presence managing more than 35
hospitals and ~5,000 beds under
management
Services offered include cardiology,
paediatrics, neurology, gastroenterology,
general surgery, dental, nephrology, urology,
transplants, nuclear medicine, medical
imaging and radiology
In Feb 2008 J.P. Morgan Partners and AIG
Capital Partners made a combined INR4.0bn
($80mm) investment for a 25% stake in the
group
J.P. MorganCapital Partners
AIG Global Asset
Management
Chairman:Ramdas Madav
PaiHeadquarters:
Bangalore
~110.9 Formed in 1953, was started by Dr. T.M.A.
Pai as part of a university and healthcaretownship at Manipal
Provides tertiary, secondary and primary
healthcare delivery services with 15 hospitals,
9 primary care clinics and 55 community
health programs, 7 rural maternity and child
welfare homes including ~ 3,700 beds under
management
Provides services in cardiovascular,
neurology, nephrology, oncology, urology,
dental science, metabolic disorders,
andrology & various other diagnostic services
Kotak PrivateEquity Group,
ManipalEducation andMedical GroupInternationalIndia Pvt. Ltd
Chairman: P.Namperumalsamy
Headquarters:
Madurai
N/A Formed in 1976 by Dr. G. Venkataswamy with
an 11 bed hospital opened in Madurai
Comprises of 5 hospitals with ~3,600 bedsunder management,
3 managed eye hospitals
2.5mm outpatient visits and 300,000
operations performed in 200910 with two-
third of the outpatient visits and three-fourth
of the surgeries serviced to the poor, free of
cost
N/A
Chairman: B.Soma Raju
Headquarters:
N/A Formed in 1992, was started by Padmashri
Dr. B. Soma Raju
AshmoreInvestmentManagement
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Hyderabad Comprises of 12 hospitals with ~1,400 beds
under management, ~200 doctors and ~5,000
support professionals and ~45,000 patients
treated in 200607
Services offered include cardiology,
nephrology, chest diseases , neurology,
emergency medicine and critical care,
digestive diseases, oncology andorthopaedics
In Jan 2008, Ashmore Investment
Management made a INR900.0mm ($23mm)
investment to purchase a 19% stake in CARE
Hospitals
Limited,N Prasad,
RakeshJhunjhunwala
CEO: PervezAhmed
Headquarters:New Delhi
112.2 Operates eight facilities (with 1,100 beds) in
Delhi & NCR (National Capital Region),
offering services in over 30 medical
disciplines
Collaboration with Singapore General
Hospital in the areas of medical practices,
nursing, paramedical, research and training
Four new facilities to become operational by
2011: Max Hospitals in Bhatinda, Dehradun,Delhi, Mohali
Max India Ltd.,Warburg Pincus,LLC InternationalFinanceCorporation
3.2 Some of the major diagnostic service players are
Company CEO &Headquarters
Sales(US
$mm)
Business Description KeyInvestors
CEO: SanjeevChaudhryHeadquarters:Delhi
N/A Founded in 1996, is the largest pathology
laboratory network in India, servicing
nearly 4,000 hospitals / path labs
comprising over 50,000 doctors
Performs over 34,000 tests/day and caters
to approximately 8 million patients in a
year offering a comprehensive range of
over 3,500 tests covering 95 technologies
Geographic footprint extends to Gulf
countries, UK and SAARC
In July 2010, acquired Piramal's dignostic
business for INR600mm (US$129mm),
combined entity to have 170 dignostic
centers serving more than 12 million
customers
FortisHealthcareLtd.,ReligareEnterprisesLtd.
Chairman: ArvindLalHeadquarters:
N/A Established in 1949, is one of the largest
diagnostic service provider in the country
SequoiaCapital India,
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Gurgaon Offers more than 1,650 different types of
tests and has a pan India presence in all
important cities and towns of India, in the
form of laboratories and patient service
centres
Employee strength of over 1,000, serves
around 4 million customers every year
In August 2010, TA Associates bought a
16% for $35mm, also Sequoia capital
holds 16% stake in the firm
TA AssociatesInc.
Chairman: AjayPiramal (preacquisition)Headquarters:Mumbai
N/A Has 124 diagnostic centres over 85 cities
and over 00 collection centres visited by
more than 9900 patients per day
Offers a comprehensive range of tests in
radiology, spanning X-ray, ultra sound,
colour dooplers, mammography etc.
Super ReligareLaboratories
CEO: Sushil ShahHeadquarters:Mumbai
25.4 Founded in 1981 is one of the largest
laboratory chain
Service includes clinical laboratory
machine, radiology and image services,
hospital laboratory management and
central laboratory services for clinical trials
WarburgPincus LLC,Sushil Shah
GOVERNMENT POLICIES & INCENTIVES
Infrastructure status conferred on healthcare industry
Budgetary allocation to healthcare Rs 62 billion (USD 1.51 billion)
40 per cent depreciation limit on medical equipment imports
Income tax exemption for the first 5 years, to 100 bed hospitals set up in rural
areas
Reduced duties (between 58 per cent) on certain medical equipment and
devices
Customs duty exemption on specific personal medical aids like crutches, wheel-
chairs, walking frames, artificial limbs
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Customs duty, excise duty and CVD exemption on specific medical devices
such as talking books, Braille computer terminals, etc.
Regulatory Authorities
Poor supervision of small scale manufacturers Weak penalties for making and selling fakes and sub-standards India does not have list of essential drugs No compulsion to make and sell quality generics No supervision of detailing practices Prices kept relatively low Need for market competition to keep prices down
IMA-refusal to recognize crucial role pf unregistered practitioner Who could be trained to deal with limited illnesses accounting for large percentage ofDisease
Government PHCs and hospitals quite unregulated for quality of service, presence ofdoctors, overcrowding, hygiene, etc
Government accounting does not permit differential pricing No oversight over commercial hospitals & Nursing Homes
No supervision of practices at retail and wholesale level No pursuit of criminals in Trade & Manufacturers Making & Selling fake and sub-
standard drugs Drug Regulatory authorities understaffed, under budgeted, poorly motivated Pricing decisions poorly framed; No framework of essential cheap drugs for masses Need for system to pursue goal of Affordable and Safe Health for ALL
Some Issues
Health Governance is scattered over Ministries
High Private expenditures on Health Care Poor efficiency of Government expenditures India must retain large and efficient Public sector for Health Care
Accept large number of unavoidable illegal medical practitioners: Co-opt them withtraining
Minimize number of pharmaceutical manufacturers and ensure their quality
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Insist on Regular Re-training of all practitioners Make all offences non-cognizable Enforcement of Patent and Copyright Laws Severe Penalties for criminal acts of making and selling fake and substandard drugs, poorhygiene in hospitals and nursing homes, Make it easier to sue for poor quality health provision
Manufacturers Involvement in patent protection (eg, fmcg, movies, recordings, etc)
Expand and improve quality of Drug Regulatory personnel Accept WHO List of essential Drugs Impose proportion of Generics Patent Laws must guarantee quality, affordability and Availability of Medicines
KEY FACTORS DRIVING THE GROWTH OF HEALTHCARE
INDUSTRY
1. Domestic Demand
A. Treatment - The increase in the incidence of lifestyle-related diseases, including cardiac and
related disorders, among Indians has triggered a demand for specialised treatment. A higher
proportion of the Indian population is living in urban areas, where the propensity to seek
treatment for ailments is higher. This is primarily due to easy access to healthcare facilities and
higher disposable income, which make expensive treatment more affordable.
B. Tertiary and quaternary care- Lifestyle-related diseases are likely to assume a greater share of
the healthcare market. In-patient revenues of hospitals have increased since expenditure on
lifestyle-related diseases has risen substantially.
2. Increasing expenditure on Healthcare- Healthcare expenditure in India is expected to
increase by 15 per cent per annum.
This segment is expected to constitute 6.1 per cent of the countrys GDP and employ around 9
million people in 2012. Some section of society (urban) has a greater capability to spend money
on its healthcare needs due to its higher income levels and access to insurance.
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3. Demand-Supply Gap- There is a growing demand for improved public health infrastructure
due to the countrys high population and increasing disease profile. This highlights the need for
better healthcare delivery, which addresses accessibility and affordability issues.
4. Preference for Private treatment- In India, private healthcare accounts for nearly 80 per cent
of the countrys total healthcare expenditure, although it is more expensive than public
healthcare services. The preference for private healthcare can be attributed to better perceived
quality and accessibility.
5. Policy
A. 19832000- Subsidies worth US$ 13.54 billion (INR 650 billion) have been provided to
stimulate private investments. This includes exemption in customs duty for the import of
equipment and subsidised input, including land.
B. 2000 onwards- The benefit of section 10(23 G) of the IT Act has been extended to financial
institutions that provide long-term capital to hospitals with 100 beds or more.
The benefit of section 80-IB has been extended to new hospitals with 100 beds or more that are
set up in rural areas; such hospitals are entitled to a 100 per cent deduction on profits for five
years. Custom duty on life-saving equipment has been reduced to 5 per cent from 25 per cent and
exempted from countervailing duty. Import duty on medical equipment has been reduced to 7.5
per cent.
Presence of International players in IndiaJohnson & Johnson
American multinational medical devices, pharmaceutical and consumer packaged
goods manufacturer
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Employs more than 2000 people and the businesses span Consumer, Medical
Devices & Diagnostics, Pharmaceuticals and Vision Care
Pfizer
American multinational pharmaceutical corporation headquartered in New YorkCity
Pfizer Limited (India) has a turnover of US$ 184.96 million (March 2012)
Two of Pfizer India's brands -- Corex (Cough Formulation) and Becosules
(Multivitamin) -- continue to rank among the Top 15 pharmaceutical drug brands
Roche
F. Hoffmann-La Roche Ltd. is a Swiss global health-care company that operates
worldwide under two divisions:
Pharmaceuticals and Diagnostics
After a contractual relationship of 10 years with NPIL, it was decided by FHLR to end
the Frame Co-operation Agreement with NPIL in November 2003
GlaxoSmithKline
Originally from UK, established in the year 1924 in India GlaxoSmithKline
Pharmaceuticals Ltd. (GSK Rx India) is one of the oldest pharmaceuticals company
The GSK India product portfolio includes prescription medicines and vaccines
Mergers & Acquisitions- Recent highlights
In September 2011, Indias second largest hospital chain, Fortis Healthcare (India) Ltd,
announced that it will merge with Fortis Healthcare International Pte Ltd., the promotersprivately held company
Abbot acquired Piramal Healthcare solutions in 2010 at US $ 3.72 billion which was 9
times its sales
Fortis Healthcare one of the biggest healthcare chain of India acquired 23.9% stake in
parkway holdings of Singapore based for USD 685.3 million (INR 31.10 billion)
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Medfort Hospitals to merge with eye care chain maxivision (September 2011 report)
Mergers & Acquisitions- Summary
Industry Life Cycle
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Provisions for Healthcare in union budget 2012-13 and its general
impact:
Major Highlights
1. Healthcare spending to be increased from Rs.26,897 cr to Rs. 30,702 cr an increase of 14%.2. Proposed increase in allocation for National Rural Health Mission and launch of the National
Urban Health Mission to meet the needs of urban poor and slum dwellers.3. The Rashtriya Swasthya Bima Yojana (RSBY) , health insurance for the poor has beenextended to cover MGNREGA beneficiaries. This scheme will also include to cover people whowork in unorganized sectors in hazardous conditions mine workers.
Direct tax proposals1. Investment-linked incentives on specified business
Under section 35AD, weighted deduction of 150% of the capital expenditures are proposed to beallowed to hospitals (as against current availability of 100% deduction) subject to the followingkey conditions:
Hospitals with atleast one hundred beds for patients, anywhere in India
Hospitals commencing operations on or after 01 April 2012
Capital expenses not to include expenses on land, goodwill or financial instrument. Thisamendment will apply in relation to AY 2013-14 and subsequent AYs.
2. Expenditures on in-house scientific research and development
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Under section 35(2AB), weighted deduction of 200% of expenditures (not being in the nature ofcost of any land or building) incurred on approved in-house research and development facilities,have been extended for a further period of 5 years i.e up to 31 March, 2017.This will apply in relation to AY 2013-14 and subsequent AYs (upto AY 2017-18)
3. Expenditures on preventive health check-up
Under section 80D, a deduction of Rs 5,000 is allowed for expenditure incurred during the yearby an assessee on account of preventive health check-up of self, spouse, dependent children orparents.
The above deduction to be within the overall limits of Rs 15,000 / Rs 20,000 prescribed underthe said section of the Act
Indirect tax proposals
1. Service tax Rate of Service tax is proposed to be increased from 10% to 12%
All healthcare services exempted from service tax. However hospitals with twenty five or
more beds and central air conditioning will not get this exemption. Govt hospitals shallbe exempted from this tax.
2. Central excise
Basic rate of duty increased from 10% to 12% and merit rate increased from 5% to 6%
Exemption from Excise Duty is proposed on specified life saving drugs
3. Customs duty
Reduction in Basic Customs Duty on the following items:
Item Current rate Proposed rate
Probiotics 10% 5%Life saving
drugs
10% 5%
Iodine 5% 2.5%Isolated soya
protein
15% 10%
Soya protein
concentrate
30% 10%
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Key financial performance indicators such as assets, EBITDA, PAT of
major players
Apollo Hospitals
Particulars Mar12 Mar11 Mar10 Mar09
Net Worth 2506.82 1898.94 1653.47 1461.17
Return on Net
Worth(%)
8.88 10.04 8.31 7.01
Debt-EquityRatio
0.26 0.50 0.48 0.37
Revenue 2957.71 2463.66 1920.65 1531.07
EBITDA 539.03 425.95 323.07 228.43
Max Healthcare
Particulars Mar12 Mar11 Mar10 Mar09
Net Worth 3257.84 3285.37 1886.95 1070.63
Return on Net
Worth(%)
8.88 10.04 8.31 7.01
Debt-Equity
Ratio
0.24
0.98 0.81 0.45
Revenue 793.97 498.54 373.76 437.22
EBITDA 40.59 46.91 28.00 36.28
Fortis Healthcare
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Particulars Mar12 Mar11 Mar10 Mar09
Net Worth 3257.84 3285.37 1886.95 1070.63
Return on Net
Worth(%)
2.22 4.25 4.81 3.04
Debt-Equity
Ratio
2.00 0.37 3.63 0.72
Revenue 2984.04 1497.56 945.18 632.11
EBITDA 586.97 499.46 189.91 89.18
Major /Key events related to the industry in the last two or three years
1. The All India Institute of Medical Sciences (Amendment) Bill, 2012, replaces an ordinance
which allowed the six AIIMS-like institutes to become operational from Sep 15. The bill also
gives the central government authority to establish more AIIMS-like institutes. The six institutes
were approved for Patna in Bihar, Raipur in Chhattisgarh, Bhopal in Madhya Pradesh,
Bhubaneswar in Odisha, Jodhpur in Rajasthan and Rishikesh in Uttarakhand.
2. Fortis Healthcare, the leading private healthcare chain promoted by the erstwhile owners of
Indias largest drug firm Ranbaxy, has acquired the cream of rival Wockhardt Hospital chains
assets eight running hospitals and two green field projects - for Rs 909 crore
3. In September 2011, Indias second largest hospital chain, Fortis Healthcare (India)
Ltd, announced that it will merge with Fortis Healthcare International Pte Ltd., the promoters
privately held company. This will make Fortis Asias top healthcare provider with the
approximate total revenue pegged at Rs. 4,800 crore. Fortis India will buy the entire stake of the
Singapore based Fortis International
4. Private-Public Partnerships
http://www.livemint.com/2011/09/20005217/Fortis-India-to-consolidate-wi.htmlhttp://www.livemint.com/2011/09/20005217/Fortis-India-to-consolidate-wi.html7/30/2019 HealthCare Industry Analysis
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The Indian Government is focused on developing the PPP model to cover the demand-supply
gap prevalent in the healthcare sector. Private sector expertise coupled with efficiencies in
operation and maintenance would lead to improved healthcare services delivery to the masses.
REFERENCES
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1. Indian Brand Equity Foundation
2. FactSet
3. Equity research
4. indiafoonline.coM
5. Moneycontrol.com
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