Manipal Health Enterprises is now in talks with venture capitalists and private equity players to raise its next round of funds. The healthcare major is now opting for an asset light model where it will team up with leading real estate companies to avoid the upfront investments to construct their own hospitals.


“We are in talks with around six private equity and venture capitalists to pursue our future growth initiatives. At the moment no details can be disclosed,” Rajen Padukone, chief executive officer, Manipal Health Systems told Pharmabiz in an interaction at the sidelines of the FICCI and government of Karnataka healthcare meet.


The hospital major according to a recent media report was shortlisted among the two healthcare majors to bid for the Ahmedabad-based 700-bed Sterling Hospitals which has a presence in Tier II and Tier III towns of Baroda, Rajkot, Bhavnagar and Bhasena. “If we are in the final run to clinch the deal, then it would give us a big opportunity to expand to western India,” stated Padukone.


“The hospital distribution in India is skewed . There are around 14 lakh hospitals of which 60 percent is represented by the private sector and located in the urban region represented out of the 20 cities in the country to offer tertiary care. The Tier II and Tier III cities have only secondary care. The demand for healthcare centres in India exceeds the supply represented as 9:10,000 patients as against 33: 10,000 worldwide. Forty six percent of the patients travel to cities to access medical care. This is where Manipal Group is now seriously toying with the concept of asset light model where it is looking at Real Estate Investment Trust or REIT to provide a real estate investment structure, said Padukone.


Asset light model helps to spread risks and the healthcare provider does not have to lock up funds to buy property at skyrocketing prices. Even the Build-Own-Operate-Transfer (BOOT) or Build-Operate-Transfer (BOT) and Build Lease Transfer (BLT) arrangements would fast catch up in the healthcare space in India, he said.


The asset light strategy is win-win situation for healthcare providers as the hospital business has a high cost entry barrier and an impediment to growth. Almost 45 per cent of the cost is for building and land another 45 per cent for medical equipment cost and 10 per cent for other miscellaneous expenses this is where asset light business model would help healthcare providers cope with infrastructure rising costs, said Padukone.


Last year, the Manipal Health Enterprises has announced its strategy to increase its foot print nationally through its Manipal Cure & Care Clinics (MCC) and was looking to invest between Rs.100 crore to Rs.150 crore to explore opportunities to expand, through direct investment. In August 2010, the Manipal Education and Medical Group (MEMG), the holding company of Manipal Group, received PE funds to the tune of Rs.100 crore from Kotak Equity which was for its expansion across India. Currently the Group has 17 hospitals with a bed strength of 5,700 in Karnataka, Tamil Nadu, Andhra Pradesh, Kerala and Goa.


Now with Private Equity and venture capitalists keen to fund healthcare space and with the demand for high secondary care which attracts an affordable and accessible population in small towns. Tier II and III towns are becoming hubs for healthcare providers to either acquire hospitals or opt for asset light model.