 "Health care companies lining up a series of IPOs")
Aster DM Healthcare, a Dubai-based multi-speciality hospital founded by Azad Moopen, has appointed merchant bankers to raise Rs 1,200 crore. Next to hit the markets could be three PE-funded diagnostics chains - Thyrocare, Metropolis and Dr Lal Pathlabs, or HealthCare Global.
According to investment banking sources, Thyrocare, which is looking to raise Rs 500 crore through an IPO, would be the first to hit the market and that it has already given the mandate to Edelweiss. Dr Lal Pathlabs and Metropolis are also both looking to raise Rs 300-350 crore through, say investment bankers.
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Bengaluru-based oncology chain HealthCare Global is another firm that could hit the market in the next four to six months. Three merchant bankers, Edelweiss, Anand Rathi and Kotak Mahindra are in the fray to bag the mandate, say bankers.
"We are at a cusp where public market valuations in health care are higher than what you can get in the private equity market," says Asish Mohapatra, director, Matrix Partners India. However, the situation might not last long.
Besides, PEs who had put in money in these firms are at the end of their investment horizon and need to make exits. The stock market run makes it a favourable time to look for exits.
There's also a paucity of listed assets, says Sohil Chand, managing director of Norwest Ventures, which has invested in Thyrocare. "The options for a public market investor to play in health care are limited," he said. Apollo Hospitals and Fortis Hospitals are the only large listed assets; other larger assets have stayed away from the market. There are three other listed firms - Lotus Eyecare, Kovai Medical Centre and Fortis Malar - but analysts say they are more micro-caps with concentrated risks.
Large multi-speciality hospitals that have not tapped the market yet include Max Healthcare, Manipal Hospitals, Narayana Hrudayalaya, Aster DM Healthcare, HealthCare Global and Yashoda Hospital. Single speciality chains looking to raise money through IPO includes Dr Lal Pathlabs, Thyrocare and Metropolis (diagnostics); Vasan Eye Care, Centre for Sight, Dr Agarwal's Eye Hospital (ophthalmology), Shalby Hospitals (orthopaedic), HealthCare Global (oncology), and Cloudnine (infant care).
Many of these single speciality hospitals have achieved scale through PE funding. They need to go for the next round of fund-raising and provide exits to PE investors who are at the end of their investment horizon. Many of these hospitals are category leaders and are attractive for investors as these are financially different than multi-speciality hospitals.
These single-speciality chains have a wide network of hospitals, are much more 'retail(ish)' as an investor puts it, are less dependent on medical insurance, and rely on out-of-pocket expenses. They are not capital-intensive - you need Rs 150-200 crore for a 200-bed hospital but only Rs 4-5 crore per centre for a speciality chain. So, the asset turn is higher but the scale and earnings before interest, taxes, depreciation, and amortisation (Ebitda) is lower.
For instance, a Thyrocare makes an Ebitda of Rs 75-80 crore (40 per cent Ebitda margin) on a top line of Rs 200 crore, while Apollo Hospitals makes an Ebitda of Rs 80 crore (margin of 16 per cent) on a top line of Rs 5,000 crore. The stocks of Apollo and Fortis have run up 20-30 per cent this year; and Apollo is trading 18 times its one-year forward Ebitda, up 25 per cent from 15 times a few months ago.
Merchant bankers are pitching for valuations of 15-18 times one-year forward Ebitda, while companies could attract a valuation of 13-15 times one-year forward Ebitda in the PE market. "This phase won't last for long, and the gap would start narrowing down," says Mohapatra of Matrix Partners.
Many of these hospitals have been in the PE market to raise money, but deals have not happened. Now, many promoters would be hoping to get better valuations in the public market. "An IPO can help build a brand, which is crucial in a consumer business," says Chand of Norwest Ventures.
"It is not just FIIs (foreign institutional investors) who are interested but there's a lot of interest from domestic investors - mutual funds, insurance companies and retail investors," adds Chand.
Healthcare accounts for five to seven per cent of the GDP, but it is nowhere in market-cap terms, he points out. The sector is attractive for investors as it provides secular demand and growth, low penetration, is recession-proof, and most crucially, is starting to corporatise, which makes the organised players attractive.