* Investors pumped $520 mln into India's primary healthcare
* India's healthcare a play on rising spending power
* Challenge to convince patients to switch from family
MUMBAI, Dec 27 (Reuters) - Private equity funds quadrupled
their investment in India's primary healthcare, betting the sick
and ailing will stop seeing family doctors in often cramped and
dingy quarters and check into modern chains sprouting up across
Asia's No.3 economy.
Goldman Sachs Group Inc, Warburg Pincus LLC,
Sequoia Capital and the Government of Singapore Investment Corp
are among investors that pumped $520 million into
India's basic healthcare industry this year, compared with $137
million in 2011, according to Thomson Reuters data. Some
analysts predict investment will surpass $1 billion in 2013.
Organised healthcare providers including Apollo Hospitals
Enterprise Ltd and Fortis Healthcare Ltd are
betting that growing numbers of patients will be willing to pay
two or three times more for better-equipped clinics - all under
a model that can be replicated fast and offers investors the
potential for quick returns.
"The family doctor concept is slowly phasing out as migrants
in cities look out for a brand rather than visiting a general
physician next door," said Santanu Chattopadhyay, CEO of
NationWide Primary Healthcare Services, in which U.S.-based
Norwest Venture Partners has invested $4.6 million.
The opportunity is vast: India's unorganised primary
healthcare system is worth $30 billion and is growing at least
25 percent a year. The challenge will be convincing the sick to
give up their trusted family doctors.
The country's primary healthcare sector will draw at least
$1 billion annually in private equity investment over the next
couple of years, said Shantanu Deb Mookerjea, executive director
at Mumbai-based advisory firm LSI Financial Services.
"Single-speciality chains and diagnostic laboratories will
be the game changer," he said, adding that they are easy to set
up and expand to suit demand.
Another attraction is that primary healthcare providers such
as outpatient clinics and diagnostic centres are not
capital-intensive, so investors don't have to write out big
Also, unlike many restrictive Indian industries, from
insurance to real estate and telecoms, there are no limits on
foreign ownership in healthcare.
THINK LIKE RESTAURANTS
Healthcare, like restaurant chains, is a play on rising
spending power in India, although valuations tend to be lower
than the retail sector. Investors pay single-digit multiples on
price-to-earnings in primary healthcare, compared with 15 to 18
for food and other consumer chains.
Valuations could improve if private healthcare operators
also adopted a restaurant franchise model.
Under such a model, a healthcare operator would allow a
franchisee to use its brand and provide expertise and support in
exchange for a fee. The franchisor would avoid forking out money
to set up new clinics - investments that will be borne by the
"We would prefer to value our company based on our
franchisee consumer model like a pizza (chain) rather than as a
pill made by a drugmaker," said Atul Bhide, director of finance
at Mumbai-based Vaidya Sane Ayurved Laboratories, which operates
160 clinics providing traditional ayurvedic treatment.
As a result, healthcare has been a rare bright spot for
private equity in India, where overall investment fell 17
percent this year to about to $3.3 billion.
"From small hospital chains and specialised treatment
facilities, we are witnessing increased institutionalised
activity, which could attract a lot of institutional investment
interest," said Vishakha Mulye, CEO of ICICI Venture, the
private equity arm of ICICI Bank Ltd.
Last year, Mulye's fund sold its stake in diagnostic chain
Metropolis Healthcare to Warburg Pincus for 3.92 billion rupees
($72 million), a 10-fold return on its 350-million-rupee
investment in 2006.
The biggest challenge will be convincing patients such as
Chandrashekhar Khandke, a 30-year-old software professional at
IBM in the western city of Pune, who said he has visited modern
clinics a few times but still prefers his family doctor.
"If I buy grains from a grocery store or from a supermarket,
it doesn't make much of a difference but when it comes to
health, a family doctor matters a lot," he said.
Overcoming the draw of a trusted doctor may prove harder
than it seems, even in a country where healthcare infrastructure
is poor, electronic medical records are rare, and the quality of
doctors and other medical professionals is patchy.
"Although branded clinics have potential, they find it tough
to pull patients from a strong local doctor. Also, if there is a
big hospital in the vicinity, then they lose out on patients,"
said Deepak Malik, analyst at Mumbai-based brokerage Emkay
Global Financial Services Ltd.
While fees at modern clinics range from 150 to 600 rupees
for treatment of routine illness, sole general practitioners
charge patients anything between 50 and 300 rupees per visit.
"While these chains have a unique brand, a trusted doctor is
even a bigger brand," said Anil Advani, a doctor who operates an
old but modest 800-square-foot (75-square-metre) clinic in
Thane, outside Mumbai.