Investments In Healthcare Part 2india.doc

Article Month: Jan 2009

India's rapid growth has induced ‘health transition' in terms of shifting demographics, socio-economic transformations and changes in disease patterns. The new found prosperity of many Indian households are spurring demand for high-quality medical care, transforming the healthcare industry into a profitable industry.

Other factors that is driving overall growth include strong penetration of medical insurance, ageing population, improving infrastructure, higher awareness, skilled professionals, low-cost treatments, government support, bank funding, telemedicine, business process outsourcing and health tourism.

The hospital bed to population ratio in India is currently 1:3,500, while in developed economies, it is 5:1,000.The country had 15,393 (2005) hospitals, which had about 88 million hospital beds. According to the WHO report, India needs to add 80,000 hospital beds each year for the next five years to meet the demands of its growing population.

The corporate hospitals came into existence after the government allowed private participation and investment in hospitals in the early 1980s. The Apollo Hospital,established in Chennai in 1987, was the first of its kind in India. In the following years, a number of corporate groups such as Max, Medica Synergie and Wockhardt entered the fray. These hospitals are now expanding at a frenetic pace. The market place continues to attract newer hospitals in this segment. The entry of corporate sector into the Indian healthcare industry has improved infrastructure and raised the quality of services.

The allied service around hospitals have started gaining momentum. One service that one cannot ignore is Medical tourism. Medical tourism is changing the face of traditional healthcare industry in India. India's excellence in the field of modern medicine and its ancient methods of physical and spiritual wellbeing make it the most favorable destination for good health! The cost advantage and explosive growth of private hospitals, equipped with latest technology and skilled healthcare professionals has made it a preferred destination for medical tourism.

This growth is further being fueled by new found interest of investor's community in healthcare. Private equity player's interest in healthcare was affirmed when 2006 saw a major deal of $33 billion acquisition of HCA (USA's largest hospital chain). Same year saw another major deal in UK. General Healthcare Group (GHG) was sold by BC Partners to a consortium headed by Apax Partners, and the South African hospital Group Netcare for £2.2 billion.

In last few years , many domestic and international Private equity players have already evinced interests in India healthcare industry. $41 million investment in Indian healthcare in 2006 to $100 million in 2007 has been considerable jump. Players like ePlanet Ventures, Groupe Limagrain, Lightspeed Advisory, Ajay Piramal Group, Singularity Ventures, Bluewater International Investment, Daninvest, Barings Private Equity Partners India, Reliance Life Sciences, Carlyle, Fidelity International, UK-based CDC Group, Blackstone, IDFC, HSBC, JP Morgan Private Equity Fund, American International Group Inc (AIG), Evolvence India Life Sciences Fund, and George Soros's fund Quantum and Blue Ridge have already evinced interests in Indian healthcare sector.

The biggest of all announcements has been US-based Global Healthcare Investments and Solutions (GHIS), which declared a $500-million fund to invest in the booming Indian healthcare sector. GHIS will invest in companies providing hospital services, including diagnostics, radiotherapy, wellness, health insurance and loyalty programmes (behavioural modifications).

This is followed by IVen-with corpus of $250 million. IndiaVenture Advisors have $200 million corpus for healthcare segment. The investments would mainly be targeted at hospitals, specialty clinics, nursing homes, wellness chains and health city projects.

To add to this momentum, the Government of India is taking active steps in healthcare sector. To mention some- It has announced tax holiday for next five years for setting up new hospitals in Tier II and Tier III cities. It has introduced a medical visa aimed at assisting overseas visitors to travel to the country for cut-price hospital treatment. An initial visa is available for up to a year and can be used for up to three visits during the 12month period.

The government is investing heavily in setting 140 trauma centers across 6500KM stretch of golden quadrilateral project.

One area to look at is the emergence of integrated health cities. This will play an important role of placing India on unique front from medical tourism perspective. In the next three years (2009-12), major hospitals such as Apollo and Fortis are planning to come up with health cities in major metros by offering facilities such as hotels, residential facilities, Recreational facilities of spa, gym and even golf courses. They are emphasizing the importance of education and R&D.

Another area to look at is setting up primary and secondary hospital chain. These can be smaller units but conform to the highest standards of quality. The progression in this sector is getting evident. Vaatsalaya for instance is a 20 bedded hospital that plans to have 100 hospitals in next three years, Similarly New Era hospital (30 bedded) in Sultanpur (small town near Lucknow city.) is planning to set up chain across the country in semi-rural segment. The small set up gives enough flexibility to penetrate rural India using telemedicine. No wonder its being estimated that telemedicine in India will see a major growth in coming years.

With a robust growth in the economy in near past, fairly manageable performance in the recession period, continued growing spending power of the middle class, and the demand for quality healthcare; the investors will surely want to bet on the good returns on this sector in this recession period.