Indian Healthcare The Takeoff Story

With the growth capital arriving from diverse sources, healthcare in India is all set to takeoff.


By Sharmila Das, Elets News Network (ENN)

According to the rating agency,Fitch, the Indian healthcare sectorwill to double its size to USD100 billion by 2015 from the presentsize of USD 50 billion. There are a lot offactors fuelling the growth of the sector- lifestyle related health issues, improvinghealthcare insurance penetration,government initiatives and increasingdisposable income. Amit Chander,Head-Investment Healthcare, BaringPrivate Equity Partners Ltd. says, Goingby past experience of other developingeconomies, India is expected toincrease its healthcare spend from 4.2 percent of GDP to 5 percent of GDP by theyear 2030.

T Ramoji, Chief Financial Officer and Company Secretary, Manipal Health Enterprises,feels, Indian healthcare sector has always been one of the preferred investmentdestinations mostly in Pharmaceutical and medical equipment segments. Oflate, investors are showing interest in healthcare delivery system like hospitals and
diagnostic chains.


To tap the vast potential of the sector, continuous capital inflow is required and Indias health start-ups may not be able to tap the market completely without somekind of capital infusion. Hence, the role of investors in the form of angels, venture capitalists (VCs), private equity (PE) players is crucial. Fitch is also of the opinionthat PE funding is expected to play a crucial role in the expansion of the healthcareindustry. The hospital sector, especially the super- specialty services, will continueto be the main area of interest to private equity investors.

While investing in healthcare investorsgenerally take into account the followingfactors:
Business plan
Revenue model
Management team
The product of the investmentseeking company.

To Do List
Before approaching an investor thehealthcare company should check theinvestors background. Does the investorfirm have enough knowledge of thedomain? Are they capable of remaininginvolved financially till the specified periodof time (may be till IPO)? It is alsonecessary for the healthcare companyto find out the broader financial agendaof the PE company.

Prashant Tandon, Co-Founder andJoint MD, HealthKart.com, explains,Any company going for funding needsto ensure it has a clear business model,validated unit economics and a goodunderstanding of the space and thereasons to be successful. It is also importantto have a good understanding ofhow the funds will be used, as per a detailedoperating model, which has realisticassumptions around the revenues,costs and working capital.

Apart from capital infusion, an investorbrings lot more value addition on table inthe form of strategy development, findingthe right talent and developing robustmarketing strategy for the company.

The Exit Route
An investment firm normally follows thefive year term period to be on board ortill the company breaks even or till it getslisted publicly. Whatever be the case,depending on the companys businessplans the investors choose their own exitpolicy so that it becomes a win-win situationfor them. Naresh Malhotra, Director,Modern Family Doctor Pvt Ltd, says,The investors normally prefer to stayeven after the company has entered thebreak even phase. Healthcare is a longterm play, and companies prefer to lookat the long term horizon. The normal exitroute for investors is an IPO.

How They Did It!
The Investment funding essentially gives us an opportunity to grow fast; usually weoperate by using both equity and debt.

Dr B S Ajay Kumar, Chairman &CEO, Healthcare Global Enterprises

The equity gives us an opportunity to put money to use rather rapidly and also toaccess to more debt. With this combination whatever business plans you may havebuilt over a period of few years, can now be uted in less number of years. Theother aspect is growth; when you seen an opportunity you can capitalise on it. Thiscan be an organic or inorganic growth opportunity. So the investment has made a bigdifference for a company like ours, where we have been able to grow rapidly with a lotof fiscal discipline. Before the investment we were a small group with very limited revenue,with three hospitals in 2007, after the investment there was an additional growth,we now have about 25 centres across India.

Rajiv Tewari, Director, Health &Wellness, Rockland Hospital.

In the first phase of the completion of its healthcare delivery model, the RocklandHospitals and IFC, World Bank came together due to a shared belief. IFC, World Bankhad invested in the Rockland initial plans of building increased tertiary care capacitiesin the Delhi NCR region. This plan has already been implemented with the expansionof the current facility and launch of two new hospitals in Dwarka and Manesar. Initialinvestment has almost been doubled in terms of value enhancement and the bedscapacity has been increased from 100 to over 800 ensuring even better uation oninvestment. The second phase, involving the creation of an Asset Lite Health Network,has begun with a successful trial in Delhi. Further trials are planned along with thelaunch of Rockland Manesar in Oct 2012.

Vikram Vuppala, CEO & Founder,Nephoplus

Financial constrain often cause a businessto fail. In our case, with capitalinfusion we were able to scale up ourbusiness further. We were able to explorenew geographies and the size ofour market increased manifold. Withfunding we are now more consciousabout our strategies and it has madeus more careful to look at the balancesheet. It is also a fact that the credibilityhas also increased with investmentfunding.

Kunal Sinha, CEO & Founder,HealthcareMagic

Positive changes after Bessemer VenturePartners Investment have beenmany.

No of employees have increased 5fold from 25 to 125
No of branches increased from 3to 12
No of clients/customers increasedfrom 75 to 500+

Prashant Tandon, Co-Founderand Joint MD, HealthKart.com

Our business requires upfront investmentsto create a scalable business.We do need to invest upfront capital tobuild the foundation for the business,which will then yield returns over thelong term. With funding support, wewere able to attract a high quality team,set up the operations (warehouse, customerservice, technology) in a muchmore organised way. Prior to funding,we focused our efforts on developinga product and proving the concept ina limited area for validating the model.

Amit Chander
, Head-Investment Healthcare, Baring PE Partners Ltd, is of the opinion that the Indian healthcare is encouraging investors more than ever before.,

Most of the capital is going to medium size companies where investors take up minority equity interest and partner with the entrepreneurs in taking the business to the next level.

How well is the Indian healthcare sector doing when it comes to attracting investment funding? What elements the sector has that make it investment worthy or vice-versa.

Indian healthcare sector is a preferred foreign investment destination for a variety of reasons. The sector is attractively positioned to grow at twice the growth rate of Indias GDP given favourable demographics, increasing affordability and improving access to healthcare over the next several years. Take demographics for instance, it is estimated that for the next 40 years almost 500 million people in India will either be below 15 years of age or be more than 60 years of age implying nearly 40 percent of the population will be in an age that is vulnerable to medical problems and will demand healthcare interventions of some nature or the other. International studies have shown that as a nation gets wealthier, it
spends more and more on the healthcare needs of its population.

In your opinion what kind of investment trend the Indian healthcare is showing? Is the sector able to attract good amount of funding both from domestic and overseas investment market?

There is no dearth of capital for healthcare ventures in India with investors actively allocating capital across the value chain from pharmaceuticals to hospitals and diagnostics. Most of the capital is going to medium size companies where
investors take up minority equity interest and partner with the entrepreneurs in taking the business to the next level. This could mean expanding manufacturing facilities or opening up new clinics or hospitals or for market expansion purposes. The availability of capital though is fairly scarce and limited for early stage, start-up ventures which are working on innovative technologies. Limited evidence of high returns being generated by ventures in this area has resulted in only a select group of investors to operate in this part of the value chain.

What are the criteria that an investor looks at in a healthcare company before investing? Apart from funding what other assistance do they offer to them?

There are four parameters that investors look for strong growth outlook for the business, high return on capital profile of the company, ability to scale the company to get a meaningful exit through an IPO within 5-6 years and strong corporate governance being followed by the entrepreneur. The first factor is typically external and a single entity can do little to influence it. PE funds assist the entrepreneur in the remaining three aspects. Helping identify scale efficiencies, operating best practices and good managerial talent can significantly improve the chances of successful scale-up. Designing strong board processes, augmenting the audit function, recruiting independent directors are all areas in which PE funds can contribute very positively.

Do the investors remain on board till the company breaks even? If not, what is the exit policy that such investment company follows in healthcare?

The decision to exit is driven by two considerations the life of the investors fund and the maturity of the business to support an exit event. All investors invest from funds with a finite life and have to exit their portfolio companies when the fund life comes to an end. Astute investors match the maturity profile of the business they are investing in with the life of their fund. They would prefer that the business model of the company is well established by that time in terms of scale, profitability and management depth to make it an attractive investment for either other financial investors or a strategic partner. If neither is possible then buyback of their shares by the company is an option. Given the strong interest of investors in the Healthcare sector more often than not an exit is feasible by selling to another financial investor.

Naresh Malhotra, Director, Modern Family Doctor Pvt Ltd, has a successful track record in launching and establishing multiple brands in various healthcare segments. He shares his insights.

How well the Indian healthcare sector is doing in terms of attracting investment funding?

The healthcare sector is attracting the maximum attention today from Private Equity and Venture Capital. The Investors see a huge potential, with a growing population and a highly underserved market. Add to this the higher incomes, more disposable incomes, lack of facilities provided by the Government and you can understand why everyone wants to invest in the healthcare sector.

What are the criteria that an investor looks at in a healthcare company before investing in? Apart from funding what other assistance they offer to such companies?

An investor wants to see rapid growth, profitability, faster scalability and will look at entrepreneurs who are either going into niche spaces or enjoy the advantage of being the first entrant in any niche market. They like to go to markets which have a huge potential. Other assistance which VCs, PEs provide is getting best practices, overseas tie ups, bench marking with best of breed and corporate governance.

Can you please mention a few healthcare companies got recently funded?
Nationwide, Nova, Express Clinics, Vatsalya, and Mulchand Hospital have received funding recently.

Meet The Risk Mitigator

Vishal Gandhi, Managing Partner and CEO, BIORx Venture Advisors Pvt Ltd, shares his thoughts on the investment scenario for Indian healthcare sector.

In your opinion, what kind of investment trend is Indian healthcare showing?

Healthcare as a sector started attracting private investment only about ten years ago. Before that it was regarded as a charity field wherein no profitable venture could be thought of. But thanks to healthcare enterprise chains like Fortis/Apollo, the scenario has changed. In these past few years, we have witnessed more and more private investment,
merger and acquisitions in the sector. This is a need of the hour considering we are a country where the bed to patient ratio stands at one bed for a thousand patients. In order to change this scenario, Private investment is the only way forward to change this scenario. The healthcare sector has huge potential to attract investment given we are a country of more than 1.2 billion population and 75 percent rural population still has to travel few hundred kms to get decent treatment for even most common diseases.

What criteria an investor looks at in a healthcare company before investing?

First and foremost , a start-up or a company should only approach the angel investors/ VC/PE once they have established a proof of concept from their own equity or money raised from family/friends. The investors look into the robustness of business plan the company has. They also look at the following areas:
b) How scalable the business in terms of entry barriers?
c) How well networked the promoters are
d) How is the management team of the company and also what retention policy the company has for their employees.

What are the steps a healthcare company opts before finalising a VC or PE funding?

Before finalising a VC make sure you have all the elements needed to make your venture attractive in the eyes of the investors. Right from a sound business plan to well planned out revenue model everything has to be in sync with the nature of the business so that the investors do not get a chance to turn down the proposal. Make sure the investors are from the same domain and they have domain expertise that would give value addition along with funding.

What is the role of BIO Rx?

We play the role of risk-mitigators. Because of my professional experience I can suggest ways to companies that they may not even think of. Sitting in a cabin you would assume you are the best, but we as an experienced party who has learnt the tricks of the trade by working for similar companies across the value chain and life cycle of company, BioRx can guide them about ways to avoid risks when choosing investment partners. Because many a times, a company needs a debt and ends up taking a private equity investment. So we can tell them if they should go for a debt or equity depending upon whats the best capital structure


The Investment Roadmap

Amit Mookim, Partner, Strategy Services Group, National Industry Head Healthcare, KPMG, feels the investment scenario for Indian healthcare is changing for good

How well is the Indian healthcare sector doing in terms of attracting investment funding?

Healthcare is emerging as one of the top interest areas for private equity and venture capital investors. Rapid growth prospects, lack of scale in businesses and increasing market size in India makes it an interesting avenue for funding.

In your opinion what kind of investment trend the Indian healthcare is showing?

The sector is attracting funding from both domestic corporate, domestic investors and overseas investors. The reference is across various delivery models both asset light and scalable, such as eye care, ambulatory care, IVF
clinics, dialysis centres as well as multispecialty hospitals

What are the criteria that a PE/VC/ Insurance company looks at in a healthcare company before investing in?

Management team, depth of talent, economic soundness of the idea and ability to deliver, scalability of the model, ability
to exit in a finite timeframe, are some of the criteria that an investor looks at in the healthcare company. Apart from
funding, some investors play an active role in influencing strategy, getting management personnel on board, opening
new market opportunities/ contacts and institutionalising processes.

What is the exit policy that such investment company follows in healthcare?

Growing companies need several series of funding, and this is the same in healthcare. Some investors dilute partially
during ensuing exit rounds, but at the same time, in a sector like healthcare, given the size of companies, exit through IPO etc is still a distance away.

List of companies that got funded recently


Lets Talk Funding

Ajay Kumar Vij, Co-founder & CEO, Asian Healthcare Fund, dives deep into the ocean of healthcare investment and brings out the following expert opinion

How well is the Indian healthcare sector doing in terms of attracting investment funding?

Indian healthcare, as compared to what they have in developed countries, has a long way to go. Facilitated by growth drivers like a rapidly growing middle class with enhanced affordability, increasing urbanisation and rising prence of chronic diseases, the Indian healthcare sector is expected to demonstrate sustained growth over the next 10-15 years and is expected to be one of the fastest growing healthcare sectors globally. This makes the sector an attractive destination for Private Equity investors who want to invest in companies which can demonstrate sustained earnings growth over the medium term.



Is the sector able to attract good amount of funding both from domestic and overseas investment market?

Investments in healthcare has been showing an increasing trend from both domestic and international investors with investments across the value chain from hospitals to specialty clinics, medical devices, pharmaceuticals and diagnostic
chains. Healthcare companies are getting funded both at the early stage (e.g. Wellspring Healthcare was funded by Reliance & Catamaran Ventures last year) and at a more mature stage (Funding of Vasan by GIC earlier this year)

What are the criteria that an investor looks at in a healthcare company before investing?

A PE / VC firm would look at a number of factors like strength of management team and its ability to ute, the size
and attractiveness of target market, uniqueness of business model, regulatory issues, entry barriers and competitive
landscape and potential exit options before investing in a healthcare company. PE funds like Asian Healthcare Fund
which have significant in-house operating capabilities are able to add significant value to companies that they invest
in by virtue of their in-house business building abilities. This value add is typically in areas like fine tuning business growth plans/strategies, establishing robust systems and processes to support faster expansion, business development, recruitment of senior management, M&A and fund raising etc.

Do the investors remain on board till the company break-even? What is the exit policy that such investment company follows in healthcare?

A PE investor typically takes a long term view of the companies they invest in with typical investment horizons of 3-5 years. Once this period expires and the company has uted its growth strategy, the PE investor would endeavour to exit the company. Whether the investors remain on board till the company reaches break-even or not depends on the stage of investment, type of investor and specific company situation. The preferred option of exit for a PE firm is an IPO. Secondary sale to other financial investors, strategic sale and company buybacks are some of the other exit options pursued by PE firms.

Give us the names of few healthcare companies got 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 is Evolvence, which has reportedly invested Rs 60 Crores in Dr Agarwal Eye Centre in July 2012. GIC has invested US$ 100 into Vasan Health earlier this year. Some of the successful healthcare organisations backed by investments include Apollo Hospitals, NovaMedical, Dr Lal Path Labs, Trivitron, Metropolis Healthcare, Mankind Pharma, Intas Pharma, Dabur Pharma etc.

Meeting the Challenges through Investment

By Group Captain (Dr) Sanjeev Sood, Hospital and Health Systems Administrator, Air Force Hospital, Chandigarh

National Accreditation Board for Hospitals (NABH) defines small HCEs as a healthcare facility that provides allopathic services by doctors registered with MCI or SMC either as a standalone/solo or a small nursing home up to 50 beds. These are mostly run by private entrepreneurs who invest their own capital and operate in highly fragmented and unregulated environment. Being run on savings of couples or few colleagues, they dont have deep pockets to acquire sophisticated technologies, hire legal experts or undertake massive expansion plans like corporate giants. So what are the financing options before them to realise their expansion plans?

Debt funding
Debt funding is by far the commonest available option .Public sector banks as well as private banks provide succour when it comes to debt funding. The interest rate and terms of payment are the most important factors governing the feasibility of the loan. Financial institutions are aggressive and willing to disburse higher bank credit in days of recession to rapidly push growth in recession proof healthcare sector. These institutions are willing to offer range of loans for raising working capital, term loans for capex, equipment funding, securitisation of receivables, services for private banking, trade finance for medical equipment vendors / hospitals as well as merchant banking services.

Leveraging PPP model
Land and building cost are up to 45 percent to 65 percent of capex cost of hospitals. Medical entrepreneurs can look at investors to fund the same so as to reduce capital cost per bed and reduce break even period to less than 18 months. They can obtain land at concessional rates from government in the outskirts or forge a public private partnership with land owners so as to mitigate the cost of these assets. Going for green and efficient building design for optimal land use and energy conservation in the long run is an imperative these days. Alternatively, small HCEs can consider setting up hospitals (with 100 beds or more) in rural areas to avail tax exemption under sec 80 1 B for the first 5 years. Entrepreneurs can also build public private partnership with state governments for management of primary and secondary health care units by is another great option. Diagnostic Imaging Centers can provide their services in teaching hospitals by forging PPP- as a win- win situation for all the stakeholders.

Funding the expensive equipment
Expensive medical equipment like MRI, cyber knife can also be funded by specialised companies/investors on a referral/commission basis in the hospital premises there by reducing capex cost. Cost of expensive equipment such as blood gas analyser and vacuum assisted closure can be further saved by convincing the vendors to simply park their machines in the hospital instead of outright purchase and buy consumables from them, thus benefitting both. Asset utilisation can be further enhanced by sharing expensive imaging equipment and other facilities such as laser equipment, cyber knife and blood bank with other hospitals and using them round the clock instead of 7-8 hours daily.

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