Health care remains hot PE option, FMCG disappoints

The Indian health care sector is turning out to be a hot investment destination for private equity (PE) and venture capital (VC) investors across the globe. The past month, December 2013, has seen large PE investments in Gland Pharma, Medanta Medicity and Emcure Pharmaceuticals with three global PE giants - KKR, Carlyle and Bain Capital - investing $200 million, $158 million, and $114 million in the companies, respectively.

Sujay Kotak, assistant vice-president at Mumbai-based boutique investment bank Singhi Advisors, said: "The sector once again substantiated the fact that it is a defensive bet for investors. It was probably the only sector that provided a decent exit, worth $500 million, to the investors."

In the past three years, PE / VC investments in health care has grown about 300 per cent in India. While there were 39 deals worth $312 million in the Indian healthcare sector in 2011 and 65 deals worth $1 billion in 2012, the deal size soared as high as $1.2 billion in 2013, according to VCCEdge data.

A recent Bain & Company report said: "Growth in India's health care sector has its roots in a number of factors, from ever-rising demand to government support. It is a vibrant space and one that holds many attractions for both promoters and investors."

The Indian health care market is pegged at $78 billion, growing at an average rate of 11 per cent from 2008 through 2012. According to the World Bank's 2010 estimates, India's per capita spend on health care is $50, trailing China's $221, the UK's $3,500 and the US' $8,400. India's distribution of hospital beds, too, is lower. While India has nine beds for 10,000 people, China has 42 beds, the UK has 33, the US has 30 and Brazil has 24 beds.

"Numerous factors influenced this activity - from favourable macroeconomic factors to bold and brave strategic initiatives - supported by conducive financing conditions and stronger corporate coffers. While a weak rupee and significant upside in the emerging markets continue to attract global PE funds towards India, large amounts of uninvested capital and pressure from global investors are driving fund manager to hunt for good deals in the Indian pharma and healthcare industry," said Kotak of Singhi Advisors.

However, PE/VC deals in the fast-moving consumer goods (FMCG) sector came down by 50 per cent in 2013. Against deals worth $483 million in 2012, year 2013 saw $244 million worth of deals.

Saloni Nagia of Technopak Advisors said, "Most FMCG companies' valuations have become very high and expectations of owners of such companies have become high and, hence, PE players are unwilling to invest since they may not be able to generate their desired returns."

Year 2013 has not seen any major PE deals in the FMCG sector like those witnessed in 2012 such as Temasek's $135-million investment in Godrej Consumer Products, Actis' $125-million in Vidyut Metallics and GIC's $96-million fund infusion in Marico.