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PE / VC investment in life science up 62.36%

T E Narasimhan  |  Chennai 

Country’s (HLS) sector has reported a healthy growth by attracting around $466 million (from January to year till date) from private equity ô venture capital funds. It may be noted, last year the industry reported a drop of around 12.23 per cent to $287 million in 2011. Industry experts say, in the recent days single speciality hospitals, especially clinics, have become a darling of the wealthy investors. Reason: Low capital, speedy return among others.

According to data compiled by Venture Intelligence, a Chennai-based research firm, the total in HLS in 2012 (YTD) stood at $466 million across eight deals, while in 2011 as a whole across 23 deals, the total investment was $287 million, an increase of 62.36 per cent.

Some of the major investments include Advent International investment of $105 million in CARE Hospitals, a multi-speciality hospital chain. Government of Singapore Investment Corporation (GIC) investment of $100 million in Vasan Healthcare, which runs a chain of eye hospitals and Rs 500 crore investment by Olympus Capital Asia Investments in DM Healthcare, which runs hospitals in India and West Asia.

Three of the six private equity investments so far this year worth over $100 million each were in the hospitals and clinics sector. The recent investment by Agnivesh Agarwal, a member of the founding family of the Vedanta Group and son of Anil Agarwal, in Chennai-based Primex Healthcare had once again sent out a message that it is one of the best bets. He picked up a 60 per cent stake in his personal capacity for an undisclosed amount.

Industry observers pointed out that in the last one year such deals were concluded with 3.5 times of a targeted company’s revenues as investment. Amit Chander, partner, Baring Private Equity Partners India says low capital and availability of skills are two major growth drivers for the clinics to attract the funds.

K Ramakrishnan, executive director & head — Investment Banking, Spark Capital Advisors (I) Pvt Ltd added that single speciality hospitals are more focussed, with ability to expand faster and have higher profitability and give superior returns, and these are the factors driving investments to them.

Investments required to set up one bed in a multi-speciality hospital will be around Rs 30-40 lakh a bed, while it would cost around Rs 10 lakh on an average for a clinic.

Chander added that a clinic can start making healthy profits from the second year of its operations and it will take a minimum of five years for multi-speciality hospitals.

Challenges for the investors is mainly exit. Since there are not much avenues.

“A clinic going to an IPO will take a very long as compared to multi-speciality chain. Normally, for an investor exit can be through four different ways IPO, selling to strategic investor, Financial institution or promoter buy back. In this case only option is to other financial investor,” he added.

First Published: Wed, May 02 2012. 00:47 IST