PE, VC investments in health, life sciences see 62.36% growth

The health and life sciences (HLS) sector in the country has reported a healthy growth by attracting around $466 million (from January to year till date) from private equity (PE) and venture capital (VC) funds. It may be noted that the industry had reported a drop of around 12.23 per cent to $287 million in 2011.

Industry experts say that single-specialty hospitals, especially clinics, of late, have become the darling of wealthy investors for reasons like low capital and speedy returns. According to the data compiled by Venture Intelligence, a Chennai-based research company, the total PE/VC investments in the HLS sector in 2012 (YTD) stood at $466 million across eight deals, while the total investment was $287 million in 2011 (as a full year) across 23 deals, an increase of around 62.36 per cent.

Some of the major investments include Advent International’s investment of $105 million in multi-specialty hospital chain CARE Hospitals, Government of Singapore Investment Corporation (GIC)’s infusion of $100 million into eye hospitals chain Vasan Healthcare, 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 made so far this year, worth over $100 million each, were in the healthcare sector. The recent investment by Agnivesh Agarwal, 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 such deals were concluded with 3.5 times of a targeted company’s revenue as investment in the last one year.

Amit Chander, partner at Baring Private Equity Partners India, said low capital and availability of skills were the two major growth drivers for the clinics to attract funds.

K Ramakrishnan, executive director and head (investment banking), Spark Capital Advisors (India), added that single-specialty hospitals were more focussed, with an ability to expand faster and give higher profitability and superior returns.

The investments required to set up one bed in a multi-specialty hospital would be around Rs 40 lakh, while it would cost, on an average, around Rs 10 lakh to set up a clinic. “A clinic can start making healthy profits from the second year of operations, while it will take a minimum five years for multi-specialty hospitals,” Chander added.