Healthcare Sector in India as an Investment

Option

A PE/VC Perspective

© 2005 NEA Inc. All rights reserved.

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Evolution of Indian healthcare services

Timeline

Growth

1947-1970s

Mushrooming nursing

homes

First signs of corporate

activity

Adoption of technology

and emergence of sub-

specialities

Long distance travel only

for secondary care

Largely govt. driven

Seen as a social/

charitable activity

Long distance travel

even for simple

procedures

Middle class emergence

and need for high medical

and service standards

Private insurance

companies begin

operations

Multifold growth in

corporates, but a few

number of large hospitals

Long distance travel only

for sub-specialities

New corporate houses

enter the sector with large

investment plans

Consolidation and

expansion of existing

corporate chains

Well developed health

insurance system

Improved healthcare in

rural India

Need for long distance

travel eliminated

1970s-1991 Post 2010 1991-Current

Poor State of

Healthcare

Improving

Situation

Increased

Corporatization

Boom Phase

Healthcare Services in India has entered a boom phase

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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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Growth is driven by several demand

factors

Prevalence of

lifestyle diseases

Growth of health

insurance

Growth of medical

tourism

Treatment Cost USD India USA

Bone Marrow Transplant $30,000 $400,000

Liver Transplant $40,000 $500,000

Open Heart Surgery $4,400 $50,000

Knee Surgery $4,500 $16,000

Neuro Surgery $8,000 $290,000

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Along with a large demand-Supply

mismatch

Beds per ‘000 Shortage of Medical Professionals in India

Global

Average 1.5

Global

Average 3.0

Doctors per ‘000 Nurses per ‘000

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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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Key factors that PE/VC Firms look for

Business

Model

Management

Quality

Verticalization

Capital efficient and asset light business models

Examples: day care surgeries, hub and spoke models

Focus on building strong capabilities in verticals

Examples: Orthopedics, Oncology

Brand

Strength Balance of power shifting to hospital brands from doctor driven franchises

Brand consciousness increasing among middle class

Demarcation of responsibilities between management and delivery

Capable second line of management under promoters

Corporate

Governance

Effective checks and balances to avoid revenue leakages

Strong MIS systems in place to track financial performance

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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

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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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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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