The healthcare industry in India is attracting a significant amount of capital from Private Equity firms, as it is one of the few sectors that continue to witness steady growth in the current challenging economic environment. New and emerging business models in healthcare delivery, steady growth in demand for healthcare services that are largely unmet by the poor quality public healthcare system, and unique public-private partnership models adopted by several state governments are attracting Private Equity to the healthcare sector on an unprecedented scale.

DE-CENTRALISED HEALTHCARE

De-centralised healthcare delivery models are the flavour of the season among Private Equity investors. Chains of diagnostic centres, chains of single speciality hospitals, such as eye or dental clinics, chains of pharmacies, chains of day-care surgery centres — are all witnessing significant growth opportunities, which is a key attraction for Private Equity investors. De-centralised healthcare delivery models have lower initial investment requirements, shorter payback periods, and a wider geographic reach, all of which minimises the inherent business risk.

GROWTH DRIVERS

The rapidly growing demand for healthcare services from the large middle-class population far outstrips the supply from the public healthcare system, both in terms of quantity and quality of healthcare. This is the main growth driver for the private sector healthcare industry, which is estimated to provide more than 60 per cent by value of all in-patient healthcare services. Rationalisation of the cost of certain common procedures is also contributing to growth in this industry. A similar pattern is witnessed in non-invasive day-care surgeries, dentistry, ophthalmology, etc. which augurs well for growth in these sectors.

GOVERNMENT'S ROLE

Several unique initiatives by state governments such as those in Tamil Nadu, Andhra Pradesh and Chhattisgarh, have proved successful in providing access to good quality healthcare for economically weaker sections of society through private-public-partnership schemes. This is a good development for the sector, as it implicitly recognises the poor quality of the public healthcare delivery system in India, and instead utilises the private sector healthcare facilities, at competitive prices.

The proposed Cess for Universal Healthcare could catalyse significant growth opportunities for the healthcare industry in India. The key to the success of this scheme is in implementation.

(The author is ex-Director Ratings, CRISIL and Co-founder, RiverBridge Investment Advisors.)

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(This article was published on January 8, 2012)
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