Article
Month:
Jan
2009



Brazil, Russia, India and China "BRIC" has maintained active attention of Private Equity (PE) players in multiple

verticals for quite some time. However, current economic turmoil, business slow down, and pessimism of economic

revival in near future has resulted in tightening of investments from investor's communities.

Interestingly one industry that surely is attracting safe and high returns on investment in the "BRIC" region is

"Healthcare".

Healthcare in BRIC region has experienced a robust growth in last couple of years and is predicted to maintain

buoyancy of "sustained high growth" in coming years.

The reasons for this robust growth and predicted consistency of high growth is due to:

1. 1. Robust economic growth

2. 2. Expansion of "the middle class" and increasing disposable income
3. 3. An aging population and greater health awareness.
4. 4. Government active impetus to this industry
5. 5. Aggressive penetration of insurance.
6. 6. Lower base and hence higher growth and returns potential.

China and India from BRIC have shown remarkable growth in last decade.

Going by the above reasons coupled with vast population (37% of world population!!) both countries have become

the most sought after destinations for investments in healthcare industry. While China has been ahead of India, the

investment community is getting bullish on India from long term investment perspective. Revenues from the Indian

healthcare sector account for 5.2 per cent of the GDP, making it the third largest growth segment in India.

(Pricewaterhousecoopers study)



Jeremy J. Siegel (Prof. of Finance at Wharton-UPENN) and Mukund Krishnaswami (managing director of Krilacon

Group) re-affirm on the long term investment edge in India. Ajit Thakur (Broadline capital;NYC) has set his eyes in

Indian healthcare sector. According to him, India offers good long-term investment possibilities.

Out of 40 richest people in India, 9 of them come from healthcare industry!

"Healthcare industry in India is capable of generating 10% net on sales and with a good capital to turnover ratio of

at least 4 could get a return on capital in excess of 25%" says suryanarayan (A leading healthcare venture

consultant, founder of medybiz and lifeken)

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.

Healthcare sector's growth in India will be driven by growing middle class, which can afford quality healthcare.

Over 150 million Indians have annual incomes of more than US$ 1,000, and many who work in the business

services sector earn as much as US$ 20,000 a year. It's estimated that most of India would be "middle income

group" by 2020. USD50 billion is projected as the investment required annually for next 20 years to meet this

growing demand.(CII) . India needs to add 2 million beds to the existing 1.1 million by 2027, and requires

immediate investments of US$ 82 billion as per the Technopak Advisors report.

Health insurance is one of the key drivers in increasing the quality healthcare access for the masses. Currently

only 10 per cent of the Indian population has health insurance. The Indian health insurance business is growing at

50 per cent. The sector is projected to grow to USD 5.75 billion by 2010, according to a study by the New Delhi-

based PHD Chamber of Commerce and Industry. According to a report by McKinsey on the Indian pharmaceutical

and healthcare sector, one-fifth of India's population is likely to have medical insurance by 2015, leading to an

estimated increase in consumer spending on healthcare from USD 2,054 per household in 2005 to US$ 3,514 per

household by 2015.

As per Technopak advisors, a US$ 35 billion healthcare industry in India, is expected to reach over US$ 75 billion

by 2012 and US$ 150 billion by 2017.

2006 attracted $379 million in healthcare industry. Thats 6.3 per cent of the total PE investment of $5.93 billion(

Report from Technopak). Experts predict that access to PE would help the $35 billion domestic healthcare sector

grow at 15 per cent year-on-year.

While most of the investment community is investing in quite a wide spectrum of healthcare ecosystem, there

are some verticals that will see major investment convergence. These are:

•Hospitals
•Diagnostics
•Pharmaceuticals
•Medical Insurance (TPA)
•Retail

I foresee major investments to converge to Hospitals (primary-secondary-tertiary), diagnostics and medical devices

sectors. This is where the major opportunity exists.

In another article we will explore Indian hospitals and diagnostic industry. We will analyze potential major

investment possibilities.

I would like to invite your views on why hospitals and diagnostics would attract major investments in India?