PE fund flow in healthcare may rise to $1 bn this year

Even as the seemingly recession-proof healthcare sector had seen many a new hospital selling out to bigger players or taking on PE investments, PE funds remain gung-ho about investments in the healthcare sector in India.

In the process, many of the smaller players are being acquired, and are being consolidated into bigger entities. This has been indicated by the significant rise in PE investments being expected into the healthcare sector in the next few months of 2013.

According to Alok Gupta, Managing Director, Gerken Capital, “With a liberal FDI policy, and with no cap on healthcare FDI, buyouts are possible.” Gupta sees a significant potential for growth in tier-II and tier-III locations. While they have primary healthcare centres, they lack quality healthcare services, he added.

There have already been two PE investments in 2013. Norvest Venture Partners invested Rs 58 crore in Perfint Healthcare, the Chennai-based medical equipment maker; and Artiman Ventures has invested Rs 27 crore in Core Diagnostics.

Perhaps it’s the possibility of good returns the sector has been giving to the investors that’s making it attractive. In 2006, ICICI Venture had invested Rs 35 crore in Metropolis Healthcare and then sold it to Warburg Pincus for Rs 392 crore, an over 10-fold return on its investment.

Meanwhile, Temasek is likely to exit from its 2005 investment in Medreich. It may be recalled that Temasek had invested Rs 52 crore in Apollo Hospitals in 2005 and sold its 5.26 per cent stake for Rs 133.7 crore.

What’s leading to the highly-positive mood is the potential of the sector in India which is seen as being highly under-served. Some of the recent investments in hospital chains is also an indication of the highly positive mood. In 2012, Olympus Capital invested in DM Healthcare which is expected to help it expand from 900 beds to 3,000 beds by 2015. Meanwhile, in 2012, India Value Fund has committed $180 million — Manipal Health Enterprises.