Scope of Healthcare Investments in India for International Venture Capitalists

INVESTMENT DESTINATION
MERGER
PRIVATE EQUITY
Health Care
ACQUISITION
JOINT VENTURE

Agenda

Section - I
Healthcare Scenario in India – A review

Market Scenario
Public and private hospitals will contribute more than 70% of healthcare sector revenues by 2012
Hospital market in India is expected to reach USD 54.7 billion by 2012 with private sector contributing USD 45 billion
Increasing number of hospitals in Tier-II and Tier-III cities is the major driver for private sector growth
Market is fragmented with large number of independent, privately run hospitals
Demand for healthcare far exceeds supply due to dismal performance by the government
A huge shortage of beds is a major driver for investment in a growing industry
Current figures of 9 beds per 10,000 in India is far behind the world average of 40 beds per 10,000
India needs an investment of USD 14.4 billion by 2025 to increase the bed density to 20 per 10,000
Specialty hospitals in particular are expected to grow faster than overall industry due to rise in heart diseases and cancer
Market Size and Growth – Healthcare Sector (USD Bn)
Market Size and Growth – Private Hospital Sector (USD Bn)
+27%
Share of different Sectors
in Health Expenditure
Source - IBEF “Healthcare Industry Overview”, Jan 2010; Economic Times article “Healthcare to become $77-bn sector in India by 2012: Report”, Nov 2009; Business Standard article “Private hospital sector may touch Rs 2 lakhcrore by 2012: Study”, Dec 2009;

Continued….
Healthcare Segment’s Share
Public & Private Growth (2005-2015)
Public & Private Share in Hospitals
Private sector
2005-2015 CAGR
Source: McKinsey “India Pharma 2015 Prescribed Growth”, Aug 2007

Drivers & Challenges

Competition
Hospital industry is dominated by the private sector with 78% market share
Hospital industry in India is extremely fragmented due to the large number of nursing homes and small- to mid-sized hospitals
Large private players are leading industry growth:
Apollo
Fortis
Manipal Group
Max Healthcare
Global Hospitals
New players are also entering the market and competition is limited due to the large untapped potential of the market
Public Vs Private Sector
New Market Players
Source: E&Y “Healthcare in India, Emerging Market Report, 2007”, Healthcare Outlook “A Quarterly Report by Technopak” February 2007

Future Outlook
Favourable policies on FDI and taxations will increase foreign participation
Private equity investing significantly; investment set to increase, especially in regional hospitals
Large hospital groups making strategic acquisitions but future opportunities may be limited
Emergence of telemedicine for rural areas with participation from private sector and government
Evolving concept of “Health Cities”, which have scale and provide a host of satellite services
Despite increase in number of beds, supply constraints will remain in top cities

Section - II
Foreign investments in India – A Review

Overview
Source: IBEF and Ernst & Young “Healthcare: Market Size and Growth” Oct 2006, INBICS “Healthcare sector” Mar 2008, Investment Commission of India

FI’s in relation to healthcare
Government Policies
100% FDI is permitted for all health-related services under the automatic route
•Income tax exemption for 5 years to hospitals in rural areas, Tier II and Tier III cities
•Policies and attractive markets are combining to attract foreign service providers and Investors
Picking up of foreign investments
At least 20 international players are competing for a share of the Indian hospital market
•Early international entrants, particularly from Singapore and Malaysia are already taking advantage of the hospital market potential
Source: IBEF and Ernst & Young “Healthcare: Market Size and Growth” Oct 2006, INBICS “Healthcare sector” Mar 2008, Investment Commission of India

Section - III
Investment opportunities

Overview
Medical College
Hospitals
Diagnostic chain
Ayurveda & Homeopathy
Specialty Centers
Beauty & Wellness
IVF Centers
Nursing College
&
Allied Institutions
Eye Care Centers
Organ Transplantation
Psychiatric & Rehabilitation

Section - IV
Way Forward….!!

Deal Structuring – in detail
Exit Policies
Downside
Protections
Documentation
Stage
Selection of Appropriate
Instrument
IPO in India
Buy back/Put Option
ROFO/ROFR/Tag along/Drag along
Strategic Sale
Merger
Breakups
Portfolio sale
Holding Company Model
Ratchet
Mechanism
Entry level exchange
control Issues
Definitive transaction
agreement
Equity Share
Convertible preference Shares
Convertible debentures
Warrants
ADR’S/GDR’s
FCCB’s
Due Diligence
Automatic route
Post facto filings with RBI
MOU/LOI
Negotiations
Identification of potential
Investee
Source: Nishit Desai Associates “Private Equity Investments in Indian Companies” June 2010.

FAQ’s
1. What is the startup cost structure and CAPEX required for making a hospital?
2. What is ratchet mechanism?
Whenever the company issues additional shares to a third party at a price that is lower than the investor’s entry
price, then such investor would get issued such number of additional shares at no cost to ensure anti-dilution of the
investor at no additional cost.
3. Why PE firms using holding company model to create more exit options and reduce risk?
In the holding company model all the investments in a sector such as healthcare would be made by the
holding company. The advantages of having such structure includes:
Multiple hospitals under single focused management
Exit options like direct initial public offering, secondary stake sale, listing of individual companies
Investments are not limited by confident investors or limited partners
Economies of scale in procurement and top management bandwidth utilization.
e.g. PE firm Sabre capital invested Oyster & Pearl Hospitals in Pune under the holding company
Sabre Healthcare.

For Further Queries Kindly Contact..
Dr. VarunGoyal
Project Associate
EPOS HEALTH (INDIA) PVT. LTD.
445, UdyogVihar Phase-III
Gurgaon - 122016, Haryana, India
Ph #. 91 9650639318
Tel #: 91 124 4264900
Fax #:91 124 4264906
Email: varun.goyal@epos.in
Skype: varungoyal1984
Website – www.epos.in

Scope of Healthcare Investments in India for International Venture Capitalists

by Varun Goyal

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Scope of Healthcare Investments in India for International Venture Capitalists Presentation Transcript