Most of the capitalÂ is going to mediumÂ size companies whereÂ investors take up minorityÂ equity interest and partnerÂ with the entrepreneurs inÂ taking the business to theÂ next level.
How well is the Indian healthcareÂ sector doing when it comes toÂ attracting investment funding? WhatÂ elements the sector has that make itÂ investment worthy or vice-versa.
Indian healthcare sector is a preferredÂ foreign investment destination for aÂ variety of reasons. The sector is attractivelyÂ positioned to grow at twiceÂ the growth rate of Indiaâs GDP givenÂ favourable demographics, increasingÂ affordability and improving access toÂ healthcare over the next several years.Â Take demographics for instance, it isÂ estimated that for the next 40 yearsÂ almost 500 million people in India willÂ either be below 15 years of age or beÂ more than 60 years of age implyingÂ nearly 40 percent of the population willÂ be in an age that is vulnerable to medicalÂ problems and will demand healthcareÂ interventions of some nature orÂ the other. International studies haveÂ shown that as a nation gets wealthier, it
spends more and more on the healthcareÂ needs of its population.
In your opinion what kind ofÂ investment trend the IndianÂ healthcare is showing? Is the sectorÂ able to attract good amount ofÂ funding both from domestic andÂ overseas investment market?
There is no dearth of capital for healthcareÂ ventures in India with investors activelyÂ allocating capital across the valueÂ chain from pharmaceuticals to hospitalsÂ and diagnostics. Most of the capital isÂ going to medium size companies where
investors take up minority equity interestÂ and partner with the entrepreneursÂ in taking the business to the next level.Â This could mean expanding manufacturingÂ facilities or opening up new clinics orÂ hospitals or for market expansion purposes.Â The availability of capital thoughÂ is fairly scarce and limited for earlyÂ stage, start-up ventures which are workingÂ on innovative technologies. LimitedÂ evidence of high returns being generatedÂ by ventures in this area has resultedÂ in only a select group of investors to operateÂ in this part of the value chain.
What are the criteria that an investorÂ looks at in a healthcare companyÂ before investing? Apart fromÂ funding what other assistance doÂ they offer to them?
There are four parameters that investorsÂ look for â strong growth outlookÂ for the business, high return on capitalÂ profile of the company, ability to scaleÂ the company to get a meaningful exitÂ through an IPO within 5-6 years andÂ strong corporate governance being followedÂ by the entrepreneur. The first factorÂ is typically external and a single entityÂ can do little to influence it. PE fundsÂ assist the entrepreneur in the remainingÂ three aspects. Helping identify scale efficiencies,Â operating best practices andÂ good managerial talent can significantlyÂ improve the chances of successfulÂ scale-up. Designing strong board processes,Â augmenting the audit function,Â recruiting independent directors are allÂ areas in which PE funds can contributeÂ very positively.
Do the investors remain on boardÂ till the company breaks even? IfÂ not, what is the exit policy that suchÂ investment company follows inÂ healthcare?
The decision to exit is driven by twoÂ considerations â the life of the investorâsÂ fund and the maturity of the business toÂ support an exit event. All investors investÂ from funds with a finite life and have toÂ exit their portfolio companies when theÂ fund life comes to an end. Astute investorsÂ match the maturity profile of theÂ business they are investing in with the lifeÂ of their fund. They would prefer that theÂ business model of the company is wellÂ established by that time in terms of scale,Â profitability and management depth toÂ make it an attractive investment for eitherÂ other financial investors or a strategicÂ partner. If neither is possible then buybackÂ of their shares by the company isÂ an option. Given the strong interest ofÂ investors in the Healthcare sector moreÂ often than not an exit is feasible by sellingÂ to another financial investor.
Â Naresh Malhotra, Director, Modern Family Doctor Pvt Ltd, has a successful track record in launching andÂ establishing multiple brands in various healthcare segments. He shares his insights.
How well theÂ Indian healthcareÂ sector is doingÂ in terms ofÂ attractingÂ investmentÂ funding?
The healthcareÂ sector is attracting the maximum attentionÂ today from Private Equity andÂ Venture Capital. The Investors see aÂ huge potential, with a growing populationÂ and a highly underserved market.Â Add to this the higher incomes, moreÂ disposable incomes, lack of facilitiesÂ provided by the Government and youÂ can understand why everyone wants toÂ invest in the healthcare sector.
What are the criteria that anÂ investor looks at in a healthcareÂ company before investing in? ApartÂ from funding what other assistanceÂ they offer to such companies?
An investor wants to see rapid growth,Â profitability, faster scalability and willÂ look at entrepreneurs who are eitherÂ going into niche spaces or enjoy theÂ advantage of being the âfirst entrant inÂ any niche marketâ. They like to go toÂ markets which have a huge potential.Â Other assistance which VCs, PEs provideÂ is getting best practices, overseasÂ tie ups, bench marking with best ofÂ breed and corporate governance.
Can you please mention a fewÂ healthcare companies got recentlyÂ funded?
Nationwide, Nova, Express Clinics, Vatsalya,Â and Mulchand Hospital have receivedÂ funding recently.
Â Meet The Risk Mitigator
Vishal Gandhi, Managing Partner and CEO, BIORx Venture Advisors Pvt Ltd, shares hisÂ thoughts on the investment scenario for Indian healthcare sector.
In your opinion, what kind ofÂ investment trend is IndianÂ healthcare showing?
Healthcare as a sector started attractingÂ private investment only about tenÂ years ago. Before that it was regardedÂ as a charity field wherein no profitableÂ venture could be thought of. But thanksÂ to healthcare enterprise chains like Fortis/Apollo, the scenario has changed.Â In these past few years, we have witnessedÂ more and more private investment,
merger and acquisitions in theÂ sector. This is a need of the hour consideringÂ we are a country where the bedÂ to patient ratio stands at one bed for aÂ thousand patients. In order to changeÂ this scenario, Private investment is theÂ only way forward to change this scenario.Â The healthcare sector has hugeÂ potential to attract investment given weÂ are a country of more than 1.2 billionÂ population and 75 percent rural populationÂ still has to travel few hundred kmsÂ to get decent treatment for even mostÂ common diseases.
What criteria an investor looks atÂ in a healthcare company beforeÂ investing?
First and foremost , a start-up or a companyÂ should only approach the angelÂ investors/ VC/PE once they have establishedÂ a proof of concept from theirÂ own equity or money raised from family/friends. The investors look into the robustnessÂ of business plan the companyÂ has. They also look at the following areas:
b) How scalable the business inÂ terms of entry barriers?
c) How well networkedÂ the promoters are
d) How is theÂ management team of the company andÂ also what retention policy the companyÂ has for their employees.
What are the steps a healthcareÂ company opts before finalising aÂ VC or PE funding?
Before finalising a VC make sure youÂ have all the elements needed to makeÂ your venture attractive in the eyes of theÂ investors. Right from a sound businessÂ plan to well planned out revenue modelÂ everything has to be in sync with theÂ nature of the business so that the investorsÂ do not get a chance to turn downÂ the proposal. Make sure the investorsÂ are from the same domain and theyÂ have domain expertise that would giveÂ value addition along with funding.
What is the role of BIO Rx?Â
We play the role of risk-mitigators. BecauseÂ of my professional experience IÂ can suggest ways to companies thatÂ they may not even think of. Sitting in aÂ cabin you would assume you are theÂ best, but we as an experienced partyÂ who has learnt the tricks of the trade byÂ working for similar companies acrossÂ the value chain and life cycle of company,Â BioRx can guide them about waysÂ to avoid risks when choosing investmentÂ partners. Because many a times,Â a company needs a debt and ends upÂ taking a private equity investment. SoÂ we can tell them if they should go for aÂ debt or equity depending upon whatâsÂ the best capital structure
The InvestmentÂ Roadmap
Amit Mookim, Partner, Strategy Services Group, National Industry HeadÂ â Healthcare, KPMG, feels the investment scenario for Indian healthcare isÂ changing for good
How well is the Indian healthcareÂ sector doing in terms of attractingÂ investment funding?
Healthcare is emerging as one of the topÂ interest areas for private equity and ventureÂ capital investors. Rapid growth prospects,Â lack of scale in businesses and increasingÂ market size in India makes it anÂ interesting avenue for funding.
In your opinion what kind ofÂ investment trend the IndianÂ healthcare is showing?
The sector is attracting funding fromÂ both domestic corporate, domestic investorsÂ and overseas investors. The Â reference is across various deliveryÂ models â both asset light and scalable,Â such as eye care, ambulatory care, IVF
clinics, dialysis centres as well as multispecialtyÂ hospitals
What are the criteria that a PE/VC/ Insurance company looks atÂ in a healthcare company beforeÂ investing in?
Management team, depth of talent, economicÂ soundness of the idea and abilityÂ to deliver, scalability of the model, ability
to exit in a finite timeframe, are someÂ of the criteria that an investor looks atÂ in the healthcare company. Apart from
funding, some investors play an activeÂ role in influencing strategy, getting managementÂ personnel on board, opening
new market opportunities/ contacts andÂ institutionalising processes.
What is the exit policy that suchÂ investment company follows inÂ healthcare?
Growing companies need several seriesÂ of funding, and this is the same inÂ healthcare. Some investors dilute partially
during ensuing exit rounds, but atÂ the same time, in a sector like healthcare,Â given the size of companies, exitÂ through IPO etc is still a distance away.
List of companies that got funded recently
Letâs Talk Funding
How well is the Indian healthcare sector doing in termsÂ of attracting investment funding?
Indian healthcare, as compared to what they have in developed Â countries, has a long way to go. Facilitated by growthÂ drivers like a rapidly growing middle class with enhanced affordability,Â increasing urbanisation and rising prevalence ofÂ chronic diseases, the Indian healthcare sector is expectedÂ to demonstrate sustained growth over the next 10-15 yearsÂ and is expected to be one of the fastest growing healthcareÂ sectors globally. This makes the sector an attractiveÂ destination for Private Equity investors who want to investÂ in companies which can demonstrate sustained earningsÂ growth over the medium term.
Is the sector able to attract good amount of fundingÂ both from domestic and overseas investment market?
Investments in healthcare has been showing an increasingÂ trend from both domestic and international investors with investmentsÂ across the value chain from hospitals to specialtyÂ clinics, medical devices, pharmaceuticals and diagnostic
chains. Healthcare companies are getting funded both atÂ the early stage (e.g. Wellspring Healthcare was funded byÂ Reliance & Catamaran Ventures last year) and at a moreÂ mature stage (Funding of Vasan by GIC earlier this year)
Â What are the criteria that an investor looks at in aÂ healthcare company before investing?
A PE / VC firm would look at a number of factors like strengthÂ of management team and itâs ability to execute, the size
and attractiveness of target market, uniqueness of businessÂ model, regulatory issues, entry barriers and competitive
landscape and potential exit options before investing inÂ a healthcare company. PE funds like Asian Healthcare Fund
which have significant in-house operating capabilities are Â able to add significant value to companies that they invest
in by virtue of their in-house business building abilities. ThisÂ value add is typically in areas like fine tuning business growthÂ plans/strategies, establishing robust systems and processesÂ to support faster expansion, business development, recruitmentÂ of senior management, M&A and fund raising etc.
Do the investors remain on board till the companyÂ break-even? What is the exit policy that suchÂ investment company follows in healthcare?
A PE investor typically takes a long term view of the companiesÂ they invest in with typical investment horizons of 3-5Â years. Once this period expires and the company has executedÂ its growth strategy, the PE investor would endeavourÂ to exit the company. Whether the investors remain on boardÂ till the company reaches break-even or not depends on theÂ stage of investment, type of investor and specific companyÂ situation. The preferred option of exit for a PE firm is an IPO.Â Secondary sale to other financial investors, strategic saleÂ and company buybacks are some of the other exit optionsÂ pursued by PE firms.
Give us the names of few healthcare companies gotÂ recently funded?
There is Orbimed, which reportedly acquired close to 12 percent stake in midsize drug-maker Shasun Pharmaceuticals
Ltd by investing Rs 50 crore in February 2012. Then there isÂ Evolvence, which has reportedly invested Rs 60 Crores in DrÂ Agarwal Eye Centre in July 2012. GIC has invested US$ 100Â into Vasan Health earlier this year.Â Some of the successful healthcare organisations backedÂ by investments include Apollo Hospitals, NovaMedical, DrÂ Lal Path Labs, Trivitron, Metropolis Healthcare, MankindÂ Pharma, Intas Pharma, Dabur Pharma etc.
MeetingÂ the ChallengesÂ through Investment
By Group Captain (Dr) Sanjeev Sood, Hospital and Health Systems Administrator, Air ForceÂ Hospital, Chandigarh
National Accreditation Board for Hospitals (NABH)Â defines small HCEs as a healthcare facility that providesÂ allopathic services by doctors registered withÂ MCI or SMC either as a standalone/solo or a small nursingÂ home up to 50 beds. These are mostly run by private entrepreneursÂ who invest their own capital and operate in highlyÂ fragmented and unregulated environment. Being run onÂ savings of couples or few colleagues, they donât have deepÂ pockets to acquire sophisticated technologies, hire legal expertsÂ or undertake massive expansion plans like corporateÂ giants. So what are the financing options before them to realiseÂ their expansion plans?
Debt funding is by far the commonest available option .PublicÂ sector banks as well as private banks provide succour whenÂ it comes to debt funding. The interest rate and terms of paymentÂ are the most important factors governing the feasibilityÂ of the loan. Financial institutions are aggressive and willingÂ to disburse higher bank credit in days of recession to rapidlyÂ push growth in recession proof healthcare sector. These institutionsÂ are willing to offer range of loans for raising workingÂ capital, term loans for capex, equipment funding, securitisationÂ of receivables, services for private banking, trade financeÂ for medical equipment vendors / hospitals as well as merchantÂ banking services.
Leveraging PPP model
Land and building cost are up to 45 percent to 65 percent ofÂ capex cost of hospitals. Medical entrepreneurs can look at investorsÂ to fund the same so as to reduce capital cost per bedÂ and reduce break even period to less than 18 months. TheyÂ can obtain land at concessional rates from government in theÂ outskirts or forge a public private partnership with land ownersÂ so as to mitigate the cost of these assets. Going for greenÂ and efficient building design for optimal land use and energyÂ conservation in the long run is an imperative these days.Â Alternatively, small HCEs can consider setting up hospitalsÂ (with 100 beds or more) in rural areas to avail tax exemptionÂ under sec 80 1 B for the first 5 years. Entrepreneurs can alsoÂ build public private partnership with state governments forÂ management of primary and secondary health care units byÂ is another great option. Diagnostic Imaging Centers can provideÂ their services in teaching hospitals by forging PPP- as aÂ win- win situation for all the stakeholders.
Funding the expensive equipment
Expensive medical equipment like MRI, cyber knife can alsoÂ be funded by specialised companies/investors on a referral/commission basis in the hospital premises there by reducingÂ capex cost. Cost of expensive equipment such as blood gasÂ analyser and vacuum assisted closure can be further savedÂ by convincing the vendors to simply park their machines inÂ the hospital instead of outright purchase and buy consumablesÂ from them, thus benefitting both. Asset utilisation can beÂ further enhanced by sharing expensive imaging equipmentÂ and other facilities such as laser equipment, cyber knife andÂ blood bank with other hospitals and using them round theÂ clock instead of 7-8 hours daily.