THE LADY'S OUT to draw blood. Backed by $85 million (Rs 381 crore) from Warburg Pincus India, a private equity firm, Ameera Shah, CEO of the Rs 250 crore Metropolis Healthcare, is looking at partnering, rather than buying out, as many diagnostics laboratories as funds permit. Her contrarian approach may just pay off.

Warburg has a history of backing dark horses. In 1999, it put in $300 million in an outfit that went on to become India’s largest telecom company—Airtel. This time it’s betting that the next big opportunity lies in consolidating the diagnostics industry. Of the 40,000-odd diagnostics labs in India, 85% is owned by technicians, doctors, and pathologists.

Larger labs generally prefer to buy out competition. In July, Super Religare Laboratories acquired Piramal Diagnostics Services for Rs 600 crore to create India’s largest lab. Even Dr Lal PathLabs, a Delhi-based player roughly Metropolis’ size that’s being backed by private equity fund TA Associates, makes a case for buyouts. “A buy­out makes more sense if we’re sure the entrepreneur can’t add much value,” says O.P. Manchanda, CEO.

Shah’s been down that road and doesn’t want to repeat the experience. Metropolis had bought Delhi-based PathLabs in 2005, an acquisition “we’ll always regret”. She learnt that keeping the erstwhile owner on as an executive was a bad idea. The former owner quit to start another lab, taking customers with him. “Non-compete clauses didn’t help,” she adds.

She’s now looking for a series of deals that’ll give her controlling interest, and also keep the earlier owner engaged, even if that means retaining him as the face of the business.

Multiple relationships are never easy, but Shah says the partnerships will be their strength. “The involvement that goes into even a blood test differs between the founder pathologist running the show and an executive running it.”

She’ll be closely watched. Rana Mehta, senior VP of Technopak Advisors, a consultancy, says the $4 billion diag­nostics sector could cross $10 billion by 2015. According to Niten Malhan, MD, Warburg Pincus India, the bigger players could better the industry average to grow by 35% annually. Warburg is hoping Met­ropolis will match or even beat this rate.

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