Private equity all hearty about healthcare sector

Advent International, a private equity firm, invests about Rs 520 crore ($ 105 million) in CARE Hospitals, a multi-speciality hospital chain.

Government of Singapore Investment Corporation (GIC) invests about Rs 500 crore ($ 100 million) in Vasan Healthcare, which runs a chain of eye hospitals.

Olympus Capital Asia Investments invests Rs 500 crore in DM Healthcare, which runs hospitals in India and West Asia.

These three major investments by private equity firms in the healthcare sector this calendar year point to the growing importance of this sector for PE and venture capital firms.

Three of the six private equity investments so far this year worth over $100 million each were in the hospitals and clinics sector, according to the Chennai-based Venture Intelligence, which tracks PE investments The healthcare and life sciences industry attracted $581 million (31 per cent of the value pie) across 14 investments (16 per cent of investment volume).

The opportunities are huge as the demand for quality healthcare at affordable rates picks up, not just in cities but in tier-2 and tier-3 towns as well. While the emphasis is on tertiary care in the metros, in the smaller cities and towns, the need is for secondary healthcare. Hence, the initial investment in the hospitals and their operating expenses are not as high as those in the metros.

However, as Mr G.V. Ravishankar, Managing Director, Sequoia Capital Advisors India Pvt Ltd, points out, people in the smaller cities and towns want the best possible attention at affordable rates. “If you go to a rural area and say you are the best and the cheapest, they don't want it. They want the best, but not the cheapest,” he says, of patients in rural areas.

Sequoia has invested in Vasan Healthcare, which runs a chain of eye care centres, and in the Kolkata-headquartered Glocal Healthcare Systems Pvt Ltd, which runs half a dozen hospitals in West Bengal.

If a patient pays Rs 500 for a consultation in a metro, one in a semi-urban or rural area will be prepared to pay much less than that. The solution, therefore, is in giving them care without investing too much in costly equipment or attempting to treat all the diseases possible.

challenges

The challenges for these hospitals are many: Finding doctors and para-medical staff, deciding quickly the diseases they will focus on, being able to convince the local population that they are capable and that they have the best possible staff, and, more importantly, keeping both capital expenditure and operating expenditure under control without compromising on quality.

Invariably, in such hospitals, as Mr Ravishankar says, there is a team of entrepreneurs – one with a medical background and the other with management background.

Take the case of Glocal. It was started by Dr Sabahat S. Azim, a trained medical doctor, who joined the IAS, quit the civil service after nearly seven years, and hit upon the idea of starting a chain of rural hospitals. His management team includes Mr M. Damodaran, a former bureaucrat, and two former Indian Army majors and others with experience of working in rural areas.

According to Dr Azim, they studied the commonly prevalent diseases at the block level to help them decide on the kind of facilities they would offer. He says disease mapping at the block level helped in deciding what treatment facilities needed to be offered. There were nearly 42 diseases such as diarrhoea, infectious diseases, tuberculosis, malaria, cardio-vascular, cancer, trauma and cataract for which treatment had to be provided.

Glocal's model is to have hospitals with about 50 beds each, which would require an investment of Rs 3-4 crore. Capital expenditure, says Dr Azim, is not so difficult; it is operating expenditure that strains a venture such as theirs. Operating expenditure each year, he says, could nearly be the same as the capital expenditure.

Therefore, they had to spend considerable amount of time and effort on controlling operating expenditure – be ruthless in dealing with wastage and reduce waiting time for patients thanks to which the waiting rooms are smaller, because of which the hospitals save on electricity.

According to Mr Sanjeev Aggarwal, Senior Managing Director, Helion Advisors, 90 per cent of the healthcare is still in the hands of individual practitioners.

That is where the big opportunity lies, as more and more doctors look to expand from single clinics to a chain.

Helion's healthcare strategy, according to Mr Aggarwal, is to invest in specialities that require only day surgeries. It has invested in Eye-Q Super Speciality Eye Hospitals, which runs a chain of eye care centres in north India. Eye-Q was started by eye surgeon Dr Ajay Sharma and Mr Rajat Goel, co-founder, with a management background and who has worked in Bausch & Lomb.

The investment in centres that offer only day surgeries is not high, about Rs 5 crore. The model can be easily scaled up and will work well in tier-2 cities. Eye-Q, for instance, partners with a local doctor in a particular city and helps him or her scale up.

High competition

Mr Avnish Mehra, Director, Advent, says his firm looks for a strong brand name and good clinical excellence. The demand is huge so also are the growth opportunities. But, the challenges remain. From a sector perspective, competition is always high. Also, there is the need to combine clinical excellence with managerial and administrative capability.

The growth of medical insurance has both positive and negative points. On the positive side, health insurance makes medical care affordable to many more, while it also throws up the risks of litigation.

But, in the end, the model has to be adequately tweaked to suit the market conditions. Investing in expensive diagnostic equipment will work in the metros, where the revenue per bed, say, in a Delhi or Mumbai, could be as high as Rs 1 crore. But, in the smaller cities and towns, the need is to provide affordable healthcare without compromising on quality. That is where the growth opportunities lie.

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