Private Equity(PE) and Venture capitalists (VCs) players are keen to chip in into Indian healthcare sector going by the demand for hospitals and clinics in the country. According to Venture Intelligence , there have been 25 deals amounting to $351.5 million which is Rs 2,085 crore between January and July 2013.
The consulting firm Deloitte in India is seeing a positive environment for the PE players and VCs in Indian healthcare space as they have significantly enhanced their funding in the space to almost US$ 1.3 billion in 2012 from US$ 345 million in 2009.
Over the five years, the fund infusion has tripled with a rapid increase of private equity and venture capital funds into Indian healthcare. “This augurs well but the need is to further increase the investments for progressive and innovative development of the sector. Investors can prove to be important facilitators for these collaborations and innovations,” Charu Sehgal, senior director and life sciences leader, consulting firm Deloitte in India.
A majority of the investments have either been growth-stage deals or late-stage ventures which amounted to US$ 0.7 billion invested in late stage ventures of the total US$ 1.3 billion in 2012. The investors need to increasingly partner with entrepreneurs and explore early-stage investment to drive business model innovations and not just product innovations. Such innovations, going forward, will largely be achieved through collaborations amongst stakeholders, she added.
However the investment euphoria is mature. PEs have toned down their expectations. This is because healthcare is capital intensive and returns on investment are not easy to come by, points out Rajen Padukone, managing director and chief executive officer, Manipal Health Enterprises (MHE).
Healthcare providers along PE players and VCs are now reviewing the investments they have made and to see if they have paid off. The triggers for the review are the current subdued economic environment and the depreciating rupee, stated MHE chief.
In this industry, a new project needs five years to turn profitable. There are pressures on lowering the service cost from the patient and from the hospital. At the same time the cost of investment is increasing. The depreciating rupee is pushing up the cost of equipment imports and the infrastructure is getting more expensive. There is also pressure from patients who are looking for affordable healthcare and from PEs/VCs who looking to maximize returns on their investments, said Padukone.
“Going forward, the large investments made by the PEs and VCs will see a consolidation. It is a phase of strategic partnerships where small and medium hospitals could be part of large healthcare provider milieu driven by the inorganic growth model to maximize revenue generation. Although there is huge growth potential for this sector, we would see a visible openness for divesting of stake by the PEs back to the promoter. Moreover, there is also considerable willingness by the original promoter of a hospital to offload a majority stake to another healthcare provider. Such a shift in the healthcare business environment would only add value to patient care where the best of expertise is combined,” said the MHE chief.
Healthcare in India has historically been plagued with issues of inequitable access, limited affordability and below par quality of care. However, recent developments have put healthcare at a very interesting juncture where multiple entities are taking initiatives aimed at improving the country’s healthcare financing and delivery.
Both the government and the private sector are working towards innovative solutions to our healthcare issues. The Government has set out a vision of universal health coverage and is committing itself to increasing expenditure on health. The private players have been undertaking several innovative measures geared towards improving access, affordability and quality. The initiatives undertaken range from low cost hospitals for tier 2/3 cities to cheaper no-frills medical devices and diagnostics to increase usage of technology for home based care.