The healthcare sector in India is experiencing a boom phase and represents an attractive investment opportunity for private equity and venture capital firms. Demand is growing due to factors like rising incomes, an aging population, and lifestyle diseases. However, there is also a large supply shortage in terms of infrastructure and medical professionals. This mismatch will require over $40 billion in investments to address. Recent deals in the healthcare space have seen many large investments and provided healthy returns to investors. Going forward, PE/VC firms will continue to invest heavily in innovative new business models in the growing Indian healthcare industry.

1. Healthcare Sector in India as an Investment
Option
A PE/VC Perspective
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2. Evolution of Indian healthcare services
Growth
Boom Phase
 New corporate houses
Increased enter the sector with large
Corporatization investment plans
Improving  Consolidation and
Situation  Middle class emergence expansion of existing
and need for high medical corporate chains
Poor State of and service standards
 Well developed health
 Mushrooming nursing
Healthcare  Private insurance insurance system
homes
companies begin
 Improved healthcare in
 Largely govt. driven  First signs of corporate operations
rural India
activity
 Seen as a social/  Multifold growth in
 Need for long distance
charitable activity  Adoption of technology corporates, but a few
number of large hospitals travel eliminated
and emergence of sub-
 Long distance travel specialities
even for simple  Long distance travel only
procedures  Long distance travel only for sub-specialities
for secondary care
1947-1970s 1970s-1991 1991-Current Post 2010
Timeline
Healthcare Services in India has entered a boom phase 2
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3. Growth is driven by several demand
factors
Rising Household
Income
Increase in proportion of
middle class
Increasing Percentage of
Senior Citizens
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4. Growth is driven by several demand
factors
Prevalence of
lifestyle diseases
Growth of health
insurance
Treatment Cost USD India USA
Bone Marrow Transplant $30,000 $400,000
Growth of medical Liver Transplant $40,000 $500,000
tourism Open Heart Surgery $4,400 $50,000
Knee Surgery $4,500 $16,000
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Neuro Surgery $8,000 $290,000
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5. Along with a large demand-Supply
mismatch
Shortage of Medical Professionals in India Beds per ‘000
Doctors per ‘000 Nurses per ‘000
Global Global
Average 1.5 Average 3.0
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6. Which will drive large investments in
Healthcare
 Current healthcare spend of ~$75 Billion to double to $150
Billion in next 5 years
 650,000 beds to be added over next 10 years, 20% of which
will be for complex procedures
 More than $40 Billion in capital expenditure needed
 New and innovative business models (vs. multi-specialty
tertiary care hospitals) will get an increasing share of the
investment
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7. Key factors that PE/VC Firms look for
 Capital efficient and asset light business models
Business
Model  Examples: day care surgeries, hub and spoke models
Management  Demarcation of responsibilities between management and delivery
Quality  Capable second line of management under promoters
Verticalization
 Focus on building strong capabilities in verticals
 Examples: Orthopedics, Oncology
Brand  Balance of power shifting to hospital brands from doctor driven franchises
Strength
 Brand consciousness increasing among middle class
Corporate  Effective checks and balances to avoid revenue leakages
Governance  Strong MIS systems in place to track financial performance
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8. More than $1.6 Billion invested since 2008
Some representative transactions
Company Amount ($m) Investors Date
Max India 115.0 Goldman Sachs Dec-09
Narayana Hrudayalaya 100.0 JP Morgan, PineBridge Feb-08
Metropolis Healthcare 85.0 Warburg Pincus Jun-10
SevenHills Hospital 72.0 JP Morgan May-08
DM Healthcare 50.0 India Value Fund Feb-08
Thyrocare Technologies 45.5 CX Partners Dec-10
Radiant Life Care 44.4 Halcyon Group Jan-11
Sahyadri Hospitals 35.0 ICICI Venture Jan-08
Dr. Lal PathLabs 32.0 TA Associates Aug-10
Max Healthcare Institute 31.3 IFC Jul-09
Max India 30.0 IFC May-09
Manipal Health Enterprises 28.8 Kotak PE Sep-10
Max India 27.0 Temasek Dec-10
Vikram Hospital & Heart Care 24.0 ICICI Venture Jan-08
Super Religare Laboratories 23.0 Avigo Capital Apr-11
Care Hospitals 22.5 Ashmore Jan-08
Zulekha Hospitals Group-SPV 21.0 IFC Jan-10
Diwan Chand Medical Services 20.0 Asian Healthcare Fund Mar-10
HealthCare Global 20.0 PremjiInvest, Others May-08 8
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9. And have given investors healthy
returns
 Ranbaxy promoters sell their 34.8% stake for 10,000 Crore
to Daiichi
 Sequoia sell 16% stake in Dr. Lal Pathlabs. Company valued
at 1000 Crore
 Warburg Pincus invests 392 Crore in Metropolis Healthcare.
Used partially to buy ICICI Ventures stake which was
acquired in 2006 for 35 Crore
 Apollo and Fortis both valued at 15X-20X EBITDA compared
to ~6X in developed economies
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10. Summary
 Healthcare in India is an attractive investment destination
given the macro drivers
 PE & VC firms will continue to invest in this sector over the
next few years
 New, innovative business formats will get a higher share of
investments and also higher returns
 Upside will be shared by all shareholders: Financial
Investors, Promoters, Doctors & Employees.
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