Healthcare: An attractive sector for PE investmentThe hospital and diagnostic centres attracted FDI worth $2,793.72 million between April 2000 and January 2015.

The healthcare industry in India is growing at a rapid pace as the sector has been predominantly privatised and accounts for around $65 billion. It comprises of hospital services, diagnostic services, diagnostic products, medical technology, clinical trial services and clinical research organization.

Sharing his thoughts about the healthcare industry, Om P Manchanda, CEO, Dr Lal Pathlabs, says, "Healthcare industry so far has been very active in pharma space. Large domestic companies and pharma companies have been doing great business in the last 30-40 years catering to both Indian and international markets. But the delivery side of the market is highly fragmented and unorganized with the presence of a lot of mom-and-pop diagnostics and hospitals."

Healthcare delivery, which includes hospitals, nursing homes and diagnostics centres, and pharmaceuticals, constitutes 65 per cent of the overall market. "There are close to hundreds and thousands labs, but only 4-5 players have actually become larger not only growing the business organically, but have really rolled up these unorganized setups into large business. Another opportunity lying in healthcare is that somebody who can really roll up into a business by aggregating the smaller facilities," shares Manchanda.

Flow of PE capital in Healthcare

The hospital and diagnostic centres attracted foreign direct investment (FDI) worth $2,793.72 million between April 2000 and January 2015, according to a data released by the Department of Industrial Policy and Promotion (DIPP).

India is considered as one of the fastest growing healthcare market worldwide and is giving a fillip to the positive investment sentiment in this sector. Given the opportunities and significant RoI (Return on Investment) the sector is offering, private equity funds have been aggressively making its ways towards the healthcare sector.

The PwC report stated that the need for growth capital among healthcare start-ups is expected to push the number of transactions in the healthcare space. The average investment size by private equity funds in healthcare chains has increased to $20-30 million, which was around $5-15 million.

Speaking on the same lines, KV Ramakrishna, Partner, Kotak Private Equity, says, "Healthcare industry started attracting capital in the last 6-7 years probably after 2007. It is a highly capital intensive industry. People should look at asset like models rather than a capital intensive model to bring down its capital intensive nature."

DIPP还强调了一些主要的投资s in the Indian healthcare industry, which includes – Acquisition of female healthcare business Famy Care Ltd by Mylan for $750 million; Sanofi-Synthelabo India's investment of Rs 90 crore in Apollo Sugar Clinics; Acquisition of Punj Lloyd's 17.74 per cent stake by Temasek Holdings, Investment of $48 million by CDC – the UK's development finance institution in Narayana Hrudayalaya hospitals, and the acquisition of Nova Specialty Hospitals by Apollo Health and Lifestyle for Rs 135-145 crore.

"We made our first investment in India in 2007 in healthcare space in Apollo hospital. At that time, only 2-3 companies have been able to attract the capital. If we fast forward to 2014, about a billion dollars of private equity money went into healthcare. Over this period of time, these companies have scaled from the opportunity of a private equity and the reason for this is the growth of the market as the underlined demand is so strong," shares Shashank Singh, Partner and India Head, Apex Partners.

Emerging Trends

With the tremendous demand for tertiary care hospitals and speciality hospitals in India, the gap between the availability of beds and required beds looms large. India requires 600,000 to 700,000 additional beds over the next five to six years, which potentially throws an opportunity of more than $25-30 billion. In order to bridge the gap, the existing hospitals are aggressively looking to expand their capabilities.

As per a report, Apollo Hospitals Enterprise (AHEL) plans to add another 2,000 beds over the next two financial years, at a cost of around Rs 1,500 crore ($241.24 million).

"For instance, in US, top five hospital chains represent 10 per cent of the beds, which is still only 1 per cent in India. Two labs in US represent 25 per cent of the market, which is still only a small fraction in India. There are opportunities from a private equity prospective to all of the areas of healthcare – be it healthcare services, hospitals and labs, healthcare technology, medical devices. US represent 40 per cent of the private equity investment in healthcare," says Singh.

He adds further, "Another opportunity that we see in the healthcare space is the affordable healthcare because the marginalized sections of society cannot afford formal healthcare and therefore depend on the poor healthcare that they get from the public system. The more we crack the model, the bigger the opportunity for us."

Creating a new wave

With the technology playing a pivotal role, the future of healthcare is going to be information-rich and patient-centric. Besides, the asymmetry in the demand-supply game will make the sector an attractive one for PE investments.

"Our healthcare practice works closely with governments, funding agencies, payers, providers and private investors on engagements in every sector of the industry. We have helped implement major health reforms, public health policy initiatives as well as strategies and solutions for various clients," points Rana Mehta, Partner, PWC.

Today India has become a preferred destination for high-end diagnostic services with significant amount of capital investment happening in this space. Moreover, the requirement for the advancements in healthcare infrastructure, in both urban and rural India, is likely to pose opportunities for investors. Almost 1.8 million beds, 1.54 million doctors and 2.4 million nurses are required to meet the growing demand by 2025.

However, Sarath Naru, MD, Ventureast highlighted some of the future spoilers and uncertainties that may probably hamper the growth of the industry and produce fear among the healthcare players in India.

He says, "Non regulatory issue, lack of infrastructure and land availability, skilled workforce are likely to impede the healthcare industry in India. As an entrepreneur, we should be looking at calls for action."