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Wellness firms eye PE route to fund buyouts

Size of the Indian wellness market is estimated at Rs 49,000 cr

Reghu Balakrishnan  |  Mumbai 

India's wellness industry has been a lucrative investment destination for private equity (PE) funds during the last few years and leading companies in this segment are likely to continue tapping these funds for domestic and foreign acquisitions. Beauty and wellness major Vandana Luthra Curls and Curves (VLCC) and homeopathy chain Dr Batra's Positive Health Clinic are among those looking to access PE funds for inorganic expansion.

The wellness market in India is estimated at Rs 49,000 crore and services account for 40 per cent of this market. Experts say the sector is recording healthy growth of 20-25 per cent yearly and is expected to maintain a similar growth trajectory over the next three to five years.

VLCC, which is eyeing acquisitions abroad as well as in the domestic market, uses internal accruals as working capital. The company is keen to grab acquisition opportunities through the PE route. Managing Director Sandeep Ahuja says, "Currently, we have a healthy cash flow and the company is relatively under-leveraged. However, we may explore fundraising routes, including private equity, to fund our proposed acquisitions."

After putting its plans for an initial public offering on hold, the company is now considering alternative ways to meet its Rs 200-crore foreign expansion plans. According to sources, VLCC has appointed JM Financial as an advisor for PE fundraising. The company, present across West Asia, Sri Lanka, Nepal and Bangladesh, is expanding into Singapore, Egypt and the UK markets. In 2007, Indivision (Everstone Capital) had invested about Rs 50-crore in VLCC.

Jaspal Singh Sabharwal, Partner, Everstone Capital, said, “Though the wellness industry is growing well in India, we still don’t have companies with reasonable scale and national footprint. About 99 per cent of the companies in the wellness services market are yet to cross Rs 50 crore of annual revenues.” VLCC has a projected turnover of more than 600 crore in the current fiscal, he said.

Pinaki Ranjan Mishra, national leader (retail and consumer products), Ernst & Young, says, "Investors are now considering how to scale up businesses and still maintain profitability levels in the long term."

Dr Batra's Positive Health Clinic is also eyeing the PE route to fund its acquisition plans. The homeopathy chain plans to add 20-25 clinics every year across the country. Founded in 1982 by Mukesh Batra, Dr Batra's has 92 clinics across 36 cities in India, Dubai and the UK.

Managing Director Akshay Batra says, "To fund inorganic expansion, we need about Rs 100 crore, and we will consider the PE route." He, however, adds there is no immediate need for PE funding, since the homeopathy sector is growing about 25 per cent annually in India, while the allopathy sector is recording growth of only about five per cent a year.

"Rising interest rates and perceived risks in the services model among the lending community lead to a high cost of debt. Service players are actively looking at private equity investment to fund their aggressive growth plans,&" stated a PricewaterhouseCoopers report. 

The wellness industry has seen deals such as Brand Equity Treaties' investment in Jawed Habib Hair & Beauty (JHHBL). JHHBL had filed a draft red herring prospectus with the Securities and Exchange Board of India to raise Rs 60-crore from the primary market. In 2009, Helion Venture Partners invested Rs 20-crore in You Look Good, a chain of salons and spas owned by Bangalore-based R & R Salon. In May, R & R recorded a second round of funding from Everstone Capital and Helion ventures.

EQUITY INVESTMENTS
Private equity and venture capital investments in wellness firms in India from 2006-2012, year-to-date                                                     (in $ mn)
Date Target Buyer

Value

Jan 24, 2007 VLCC Health Care Indivision I 22
Mar 24, 2009 Birla Pacific Medspa Brand Equity Treaty 2.92
Sept 16, 2010 Jawed Habib Hair &
Beauty Studio
Brand Capital 2.6
Sept 21, 2010 Global Resort & Spa Special Opportunity Fund I 7
Oct 14, 2010 Enrich Hair & Skin JM Financial India Fund 10
Sept 28, 2011 Mystic Cures Brand Capital -
May 22, 2012 R&R Salons Helion Venture Fund II,
Everstone Capital Partners II
-
Source: VCCedge

Ernst & Young’s Mishra says, “The high growth in the wellness space provides attractive investment opportunities for PE funds to invest in the early stage of these companies and guide them through this course of growth.”

The PricewaterhouseCoopers report stated the Indian wellness industry would touch the Rs 85,000-crore mark in the next three years. Indian youth (aged 15 to 34 years) account for about 34 per cent of the country’s population. This segment, expected to cross the 400-million mark by 2015, was the core target group for wellness products and services, the report added.

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First Published: Thu, July 26 2012. 00:15 IST
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