PE/VCs take over India's corporate healthcare scene

Dr. Prathap C Reddy introduced the concept of corporate hospitals in India with his first Apollo Hospital in Chennai in 1983, after returning from the US as a successful medical doctor. He had to run from pillar to post to get various permissions and capital to run the business. He succeeded over the years; Apollo became India's largest integrated private hospital enterprise, now with a chain of 73 hospitals, 10,138 beds, over 10,000 doctors, 6,000 plus offline pharmacies, and a large retail healthcare network — all with revenues of over ₹19,000 crore in FY24.

In October 2023, US-based private equity Blackstone entered India’s healthcare scene by taking over Hyderabad-based Care Hospitals and KIMS in Kerala in twin transactions worth over $1 billion. The deal was done through Quality Care India (QCIL), in which Blackstone holds 72%, TPG around 24%, and others 4.2%. While the PE fund bought Care shares from Evercare, a platform of TPG Rise Funds bought KIMS stake from founder Dr. MI Sahadulla and other promoters. That transaction helped QCIL to become a major player in India's healthcare scene with 23 hospitals and over 4,000 beds in 11 cities.

On Friday, Dubai-based Indian billionaire Dr Azad Moopen promoted Aster DM Healthcare and QCIL announced their merger to form Aster DM Quality Care Limited, which will become one of the top three healthcare chains in India, along with Apollo and Manipal Hospitals in terms of bed capacity. The combined entity will have a network of 38 hospitals and 10,150 plus beds spread across 27 cities. Aster DM Quality Care Limited will have a combined portfolio of four leading brands: Aster DM, CARE Hospitals, KIMSHEALTH and Evercare. Dr. Azad Moopen will continue to lead the hospital chain in India. The enterprise value of the merged entity will be $5 billion (₹43,000 crore) and revenues of ₹7,314 crore. Dr Moopen and family will hold 24%, Blackstone 30.7% and the remaining 45.3% by the public and other shareholders.

Promoters monetising value

Experts say more than bringing in capital, established chains are teaming up with PE/VCs to monetise their assets. The latest Aster-QCI deal is a perfect example. Dr. Azad Moopen, who moved to the Middle East in the 1970s after graduating with a gold medal in medicine from Calicut Medical College in Kerala, went on to become one of the region’s leading healthcare providers.

In April, Dubai-based Dr Azad Moopen’s Aster DM Healthcare split its India and Middle East business. A consortium led by Fajr Capital, a sovereign-backed PE firm, acquired a 65% stake in Aster GCC (Middle East) for $907.6 million with the Moopen family retaining a 35% stake along with management and operational rights. The family continued to have a 41.8% stake in India operations. With the new deal with QCIL, Moopen has been able to cross the 10,000 beds mark almost two years earlier — equal to or more than Apollo's bed strength.

Bangalore-based Manipal Hospitals is one of India's renowned legacy hospitals. Now it is majority-owned by Singapore’s sovereign wealth fund Temasek, which increased its stake from 18% to 59% in March last year by investing nearly $2 billion. That was one of India’s largest PE deals that year. Temasek bought the stake mainly from primary investors such as TPG. With that deal, founder Ranjan Pai’s family holding in the chain reduced to a minority of 30% plus. Manipal is now expanding faster with the VC backing. In September last year, it acquired an 84% stake in Kolkata-based AMRI Hospitals owned by Emami Group for ₹2,500 crore. Earlier, it acquired Columbia Asia and Bangalore-based Vikram Hospitals. Now Manipal has 33 hospitals and over 9,500 beds.

If these are cases of large private equity and venture capital firms trying to support established hospital chains, the rise of Abhay Soi's Max Healthcare shows how PE/VCs helped a business restructuring expert to become one of India's leading healthcare barons — in less than a decade. The 50-year-old Abhay was a financial restructuring specialist with Arthur Andersen, EY and KPMG, before co-founding a $350 million special situations private equity (PE) fund. In 2010, he floated Radiant Life Care, which took over New Delhi’s BLK Hospital and Mumbai’s Nanavati Hospital. In 2017, KKR picked up a 49% stake in Radiant for $200 million. In June 2019, Radiant bought 49.7% shareholding of Max from Analjit Singh for ₹2,136 crore, the two merged to form Max Healthcare Institute. Now the market cap of Max is over ₹90,000 crore. FIIs and FPIs like the government of Singapore/GIC, GQG Partners and Blackrock own a majority stake in the company and the Soi-led promoter group held only a 23.74% stake as of March 31.

Money raining into healthcare.

More such big deals have happened in recent years. Grant Thornton Bharat’s deal tracker on healthcare says there were 39 deals in 2021, 42 in 2022 and 38 in 2023. Venture Intelligence data says in the first 11 months of 2024, the sector attracted $5.33 billion in investments in 57 deals. The value of these deals was $2 billion in 2021 and $5 billion in 2023. In the first week of April 2024, PE major General Atlantic bought Ujala Cygnus Healthcare Services, a Delhi-based multi-speciality chain owned by media group Amar Ujala. Gujarat-based Sterling Hospitals was to a consortium led by Arpwood Partners for an undisclosed sum. Canadian pension fund Ontario Teachers’ Pension Plan Board bought Sahyadri Hospitals, Maharashtra’s largest private hospital chain from Everstone Group in August 2022.

Single speciality AHH funded by TPG Growth and GIC was sold last year to Varian of California for $283 million. It also bought the Asian Institute of Nephrology & Urology, India’s largest urology & nephrology network with seven hospitals and 500 beds for ₹600 crore investments. In July 2023, BPEA EQT bought Indira IVF, the largest provider of fertility services in India, for $657 million. Singapore-based PE firm Quadria Capital invested $155 million in Maxivision Eye Hospital, around the same time. The chains are also expanding fast backed by venture capital and PE funds.

‘’Aster DM Healthcare plans to invest ₹1,000 crore to take bed tally in India to 6,600-plus in three years and scale up our labs and pharmacy business,” Dr Azad Moopen told Fortune India in July. The leader, Apollo Hospitals plans to invest ₹3,435 crore to add 2,860 beds by FY27. Fortis Healthcare, owned by Asia’s largest healthcare chain IHH Healthcare, plans to add 2,200 beds to the existing 4,034 (FY23). Abhay Soi's Max Healthcare plans to expand the number of beds by 2,740 in the next four years by investing ₹4,000 crore. Manipal is building four greenfield hospitals and is investing ₹1,500-1,600 crore in expansion.

What attracts PEs/VCs

The healthcare industry in India has grown at a CAGR of 10-12% over FY17-22 and the same rate of growth is expected to reach ₹8.60 lakh crore by FY27, according to a Crisil estimate.

Post-COVID, demand for healthcare services is increasing due to increased awareness of lifestyle treatments, a rise in medical tourism and widening health insurance coverage. Despite high GDP growth and a huge economy, Government investment in healthcare infrastructure and ecosystem is very low. Healthcare expenditure as a percentage of GDP was 3% in 2019 compared to 17% in the U.S. India has 14 beds per 10,000 people, as against the global average of 29. India has only 7.4 physicians per 10,000 people, whereas the global average is 16 physicians per 10,000 people. The share of public health expenditure is just 34%. Out-of-pocket healthcare expense is 55% compared with 11% in the U.S.

With such an opportunity and the world's largest population, India will continue to be a major destination for investment in healthcare.