October 2009
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Interest in healthcare mounts among PE, VC players

Private equity (PE) and venture capital (VC) investment in hospitals may surpass that in clinical research and drug manufacturing sectors, as hospitals currently offer more assured returns with lesser risks, is the feeling of informed observers.

The investors’ interest is not confined to corporate hospitals in large cities. They are also acquiring controlling stakes in small hospitals across the country.

Parvez Ahmed, CEO of the Delhi-based Max Healthcare hospital chain, says there has been tremendous increase in PE interest in healthcare investments recently. “This has become very visible in the last five to six months. They have begun to understand the potential in seeing healthcare as a long-term investment.”

Max Healthcare is planning to raise Rs 300 crore to fund its expansion projects in the National Capital Region around Delhi.

The Dubai-based healthcare investment firm, Dr Moopen’s Healthcare Management Services, has announced plans to acquire hospitals in non-metros of South India to enlarge its existing chain of hospitals in Kerala and West Asian countries.

Azad Moopan, chairman of Moopan’s Group, said the potential to set up greenfield (new) projects are tremendous. “We are looking out for both greenfield as well as brownfield (existing facilities) expansions in the region. The scope for world class tertiary and secondary care facilities are tremendous in the smaller cities,” he said.

Moopan’s Group has firmed up $250 million worth of investment plans in the hospital segment. Aluri Srinivasa Rao, managing director, Morgan Stanley Private Equity, agrees with these observations. According to him, investments in healthcare space are more promising than pharmaceuticals due to the fast-growing demand for quality healthcare in the country.

Prior to joining Morgan Stanley, Rao was heading ICICI Ventures and responsible for several equity investments in the healthcare segment, including companies like Metropolis and Onconova. “The opportunities lie not in the tertiary care or in the big cities, but in smaller towns,” he said. “An ideal investment opportunity will be a string of 200–300 bedded hospitals in tier-II cities.”

What has lowered the interest in pharmaceutical and clinical research investments is the increasing risk involved. “Generic business is no longer a money-spinning option. Clinical research and contract research businesses are dominated by established players, thereby limiting the options for equity investments. Small pharma companies offer less business potential as compared to the healthcare segment, which is still in an evolving stage in the country,” said an industry expert.

Technopack Advisors has projected India’s healthcare industry to more than double to $75 billion by 2012. Feedback Ventures, another consultancy firm, says healthcare providers will require $8-10 billion for infrastructure development in the next couple of years. It also suggests that half this equity infusion will come from PE and VC funds.

Raja Parthasarathy, managing director of IDFC Private Equity, says the investments funds bring in several strengths to the table.“It’s not just equity infusion. The dedicated healthcare funds also bring in technical expertise and professional management to doctor-run individual hospitals. These hospitals can also benefit from being part of a larger chain and bigger brand,”he said.

Investment experts say the next wave of acquisitions will not happen in metros but in smaller towns. “The transition taking place in the non-metros is significant. Five years down the line, no one would be surprised to find exclusive cardiac care hospitals in towns like Meerut or Gorakhpur,” a sector analyst said, adding that every major company is giving serious thought to entering the healthcare business.

Meanwhile, Apollo and Fortis, the established healthcare players, are on the lookout for further expansion. The Wockhardt acquisition has proven the value of having a string of hospitals. The PE firms will attempt to build up a regional brand with a string of hospitals having a cumulative bed strength of 1,000–2,000 before engaging in a discussion to exit. The exit could be through a stake sale to bigger players or an IPO. There are several options, experts say.

The leading investment entities with major interest in the healthcare sector include India Value Fund, Dr Moopan’s Healthcare Management Services, IDFC Investments, ICICI Venture, India Venture Advisors, Evlovence India Life Sciences Fund, Sabre Capital and Milestone Religare, among others.

“There is significant untapped potential for private equity and venture capital in India’s booming healthcare sector, poised for significant growth. Long-term capital of the kind provided by PE and VC firms will help in the development of an efficient and high-quality healthcare services industry in India,” explains Sanjay Arte, partner, India Value Fund Advisors.

Source: Business Standard

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