Private equity(PE) firms are going beyond large corporates and super specialty hospitals to tap the Indian healthcare market. While ICICI Venture and Asian Health Alliance (AHA) are investing in a series of standalone regional hospitals, other PE firms are funding secondary hospitals in small towns.
Says I-Ven Medicare director-operations Somnath Chakravorty, “PE funds have to pay a huge premium for a small stake in corporate or big hospitals in the metro cities. Most of the investments in the last few years have been in these hospital majors. However, the growth in GDP and economy is now being driven by the middle class in tier II and tier III cities.”
Asian Health Alliance, a fund promoted by Mumbai-based Asian Heart Institute, is also planning to invest in small hospitals nationwide. The company plans to pick up stakes in over 40 hospitals over the next three years. Says E&Y healthcare analyst Dr Rakesh Kapur, ”Such funds are looking at small and mid-size hospitals by upgrading and expanding their network in smaller towns.”
According to a study by consultancy firm Technopak, India is expected to see around $5 billion funding between 2008-2011 in the sector, compared to $448 million in 2007. “About 70% of this investment will go in regional hospitals in small towns.
These hospitals offer better growth prospects for investors, especially when a consolidation is expected to happen in the next 3-5 years. Prior to 2005, there were few investments in such hospitals, “ says Technopak Healthcare VP Rana Mehta. The PE investment is also likely to diversify into other healthcare segments such as diagnostic and healthcare retail.
While most of these standalone hospitals need fund to expand, their promoters are not too keen on selling out ompletely. Most of them are promoted by doctors and face competition from corporate majors, who want to buy them out instead of investing in them for a minority stake. PE funds allow them to raise funds while retaining the control and identity of their hospitals.
Some of the recent investments in the sector already indicate the trend. World Bank’s private sector investment arm International Finance Corporation has invested $14 million in Delhi-based Rockland Hospitals. AIG invested Rs 400 crore in Narayana Hrudayalaya and UK-based Ashmore invested Rs 90 crore in Quality Care India.