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The Indian Health Care Sector

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A flurry of recent private equity (PE) investments in the Indian health care sector demonstrates strong investor appetite and opportunities. India is one of the fastest growing health care markets in the world, estimated to grow at a 12 per cent compound annual growth rate.

The recent health care deal flow has been impressive. General Atlantic has invested in KIMS Hospitals, which operates a chain of multispecialty hospitals with a focus on delivering low cost and affordable tertiary and quaternary care. General Atlantic also invested in CitiusTech, a leading healthcare technology services and solutions provider. KKR has invested in Radiant Lifecare, a leading Indian hospital company. Carlyle has invested in Global Health, which provides specialty care in Cardiology, Neurology, Gastro, Liver Transplant, and Orthopedics. Carlyle has also invested in Metropolis Healthcare, which operates a chain of diagnostic centers and laboratories. Advent has invested in Care Hospitals. Quadria has invested in a number of single specialty Indian health care assets. TPG has been the market leader for health care investments in India where its portfolio includes the market leader Manipal Hospitals and others such as Sai Life Sciences and Quality Care India. TPG has also invested in Asia Healthcare Holdings (AHH), a health care operating and investment platform. The AHH portfolio consists of Cancer Treatment Services International (CTSI), a network of single-specialty cancer hospitals across South Asia, and Bengaluru-based Rhea Healthcare, which operates a network of hospitals for women and children under the “Motherhood” brand. TPG’s other health care investments in India have included Sutures India, a manufacturer and exporter of medical consumables, which was sold to Apax Partners in 2018. There are a number of factors driving this growth and the consequent PE deal flow.

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Favourable Macro Indicators

India is now the world’s sixth largest economy, with US$2.6 trillion gross domestic product (GDP). According to the International Monetary Fund’s (IMF) April 2018 World Economic Outlook, the Indian economy is expected to grow at an annual rate of 7.4% in 2018 and 7.8% in 2019, making it one of the fastest growing large economies in the world. This has led to a rise in disposable income and an increase in prosperity, particularly for the Indian middle class, which HSBC estimates will increase to 550 million by 2025.

All the elements for investment opportunities are in place. India’s population is growing and is currently at 1.3 billion. The demographics are favourable to business, with nearly 50 per cent of its population under the age of 25. The political environment is reasonably benign; interest and inflation rates are stable; and the fiscal deficit is steadily declining and is expected to further decrease to 3.2 per cent of GDP. India is benefitting from a sustainable and predictable growth.

The recent legal and regulatory reforms have also led to higher investor confidence, reflected by India’s improved ranking in the World Bank’s ease of doing business category, where it has moved up 30 places to among the top 100 countries. As a result of these factors, Moodys has upgraded India’s sovereign rating to Baa2 with a stable economic outlook. Investor confidence in India has also grown as a result of legal and regulatory reforms and the government’s drive to reduce the nonperforming assets in the economy. The recent push towards growing the formal economy, increasing the tax base, and simplifying and unifying India’s indirect tax laws through the introduction of the national goods and services tax, have further helped in this regard.These economic and political factors, coupled with the rise of the middle class, have led to an increase in health awareness and subsequent demand for health care services and infrastructure.

Demand/Supply Gap

The Indian health care sector, while growing, remains under-funded. For example, according to a recent PwC report, the Indian health care system will require an investment of around US$245 billion over the next 20 years. The PwC report further estimates that India needs to add 3.6 million beds, three million doctors and six million nurses over the next 20 years.

Active PE Interest and Opportunities

There are a number of barriers in the way of local investment: Local debt financing costs are high, the domestic debt market is constrained, government budgets are limited, and the health care sector remains fragmented. This creates an opportunity for PE to provide growth capital, plus India would benefit from an injection of international experience and best practices from other parts of the world.

Global PE funds are focusing on Asia in general, as a result of strong interest from institutional investors and other clients, and Asia’s growing importance as a driver of the world economy. India, China and Japan, being Asia’s largest economies, benefit from this general increase in interest in Asia. According to Bain & Company, in 2017 India was an attractive destination for investments, with India-focused funds increasing 48 per cent in aggregate to US$5.7 billion, reaffirming the potential for investments in the Indian market. Health care, in particular, remains a bright spot for PE investments in the country.

No Foreign Investment Limits or Restrictions

India maintains a favourable foreign investment regime for health care, with generally no limits on foreign ownership in the health care sector, or the need to obtain any foreign investment approval requirements.

Benign Regulatory Environment

As one would expect, the health care sector is subject to a number of laws and regulations and approval requirements. While there have been some limited instances of price caps being introduced in some parts of the health care sector, the private sector continues to play a major role in providing health care services. The government is generally supportive of their involvement and, in fact, welcomes and supports private sector investment in health care.

The New National Insurance Scheme

This year, India introduced a new national health insurance plan to cover 500 million people, in what is expected to be the largest public funded health protection plan in the world. The Ayushman Bharat insurance scheme (often referred to as Modicare, after Prime Minister Narendra Modi) will provide insurance cover for the 100 million poorest households. The plan is expected to bring 500 million people into the health care mainstream. The plans will allow beneficiaries to receive “cashless” in-patient care at government hospitals or approved private facilities. It will be paid at fixed rates for treating various diseases.

The operational guidelines for the plan are under development, but it is expected to further drive up demand for health care services across the country, and a number of industry experts expect the plan to trigger a surge in health care investment in India.

The Proposed Integrated Digital Health Care System

The Indian Government has proposed a new integrated digital healthcare system—National Health Stack—as the country’s first health care information system, available for use across public and private sectors. This is to ensure digital health records of all citizens by the year 2022. The system is expected to improve the affordability of, and access to, health care; facilitate national health programmes; and boost medical research and analysis. It will also enable on-time payments for service providers, while reducing fraud and operational costs.

Retail Health Care

A number of Indian health care establishments are fragmented, with a wide range of health care providers, which provide an attractive opportunity for PE to undertake platform acquisitions and “roll up” and unlock value by standardising and replicating services across multiple locations. In fact, PE investors are now the main driving force for consolidation in health care and other high-growth sectors in India, while providing much needed growth capital.

As the market is generally reliant on self-paying patients, the sector relies more on consumer choice than insurance reimbursements, although it is complemented by the proposed national insurance plan. In particular, single-speciality chains and diagnostic laboratories are expected to be the main focus areas, as they are easy to set up and expand.

Increase in Institutional Interest

A key driver for growth has been interest from institutional investors who are particularly looking for investment opportunities in small hospital chains and specialised treatment facilities. This growth is expected to increase in the next few years.

Proven Exit Opportunities

India has a large and reasonably liquid domestic capital market that continues to provide exit opportunities. The number of secondary and strategic sales are also expected to increase in the next few years, given the timing of the investment cycle and fund life. The vibrancy in the capital markets and strategic mergers and acquisitions have enabled PE investors to undertake successful exits.


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