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BW Businessworld

A Healthy Trend?

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On 2 April, global PE firm Advent International invested $105 million (Rs 512 crore) in Hyderabad-based Care Hospitals, the fifth largest multi-specialty hospital chain in India. The investment will help the chain add another 1,000 beds to the 1,590 it already has across its hospitals in India.

"Our partnership with Advent provides us with the required resources to expand our presence to Tier-II cities", says B. Soma Raju, founder of Care Hospitals, which he set up in 1997.

Experts say the deal is the second largest investment by PE investors in the Indian healthcare services space, after Apax Partners acquired a stake in Apollo Hospitals Enterprise in 2007 for $118 million. About a dozen large deals happened in the past year worth over $460 million. Compared to this, the previous year witnessed 30-40 fairly smaller deals, mainly in start-ups and small innovative healthcare projects, worth under $400 million.

In mid-March, the Government of Singapore Investment Corporation, the sovereign wealth fund of Singapore, invested $100 million for a minority stake in Chennai-based eye care chain Vasan Healthcare. In January, Olympus Capital Asia Investments, a Hong Kong-based PE firm, invested $100 million in DM Healthcare, a Kochi-based specialty healthcare chain operating in India and the Middle East and promoted by non-resident industrialist Azad Moopen.

Sources say large PE deals will happen more frequently in the Indian healthcare space, mainly in specialty hospitals. Last week, reports said Asia's largest healthcare chain Fortis Healthcare is planning to sell 15-20 per cent stake to PE firms such as Carlyle Group and TPG Capital India to raise about $250 million. However, Fortis has denied the move.

Today, India is the world's diabetes capital with 61.3 million diabetics, a number projected to reach 101.2 million by 2030; coronary heart disease prevalence is projected to increase from 36 million patients in 2005 to 62 million by 2015, says a recent Ernst & Young report.

India has 0.9 beds per 1,000 people; the global average is 3.3. This means India needs to add 100,000 beds each year, which entails an investment of Rs 45,000 crore to Rs 50,000 crore a year for the next 10 years, estimates a CII-McKinsey healthcare report.

Besides, the financial health of many hospitals is not good and it is not easy for healthcare promoters to avail cheaper loans. A 250-bed hospital needs five to seven years to break even.

"In India, we face a large unmet need in terms of disease burden — both chronic and acute. Pursuing a strategy of moving our country towards a healthy outcome-based model will certainly be a critical enabler in achieving this. It will require the various stakeholders to develop paradigms and business models that are unique to our requirements," says Ajit Mahadevan, partner, life sciences, Ernst & Young.

(This story was published in Businessworld Issue Dated 16-04-2012)