India Value Fund in talks to pick up stake in Narayana Healthcare

Dr Devi Shetty-promoted healthcare chain in talks with PE funds for low-cost hospitals

India Value Fund Advisors (IVFA), one of India's largest private equity fund with $1.2 billion worth of funds raised, is understood to be in varied stages of discussions with Narayana Healthcare to invest up to $40 million to expand the scope of a new business model which the healthcare chain is looking to expand. Narayana Healthcare, the Bangalore-based healthcare chain founded by Dr Devi Shetty, has recently forayed into low-cost healthcare chains to expand in the tier -II & tier-III towns and the fresh funding is expected to fuel this business.

Dr Devi Shetty, speaking to Business Standard, said, they are looking to raise funds for this business, and which is drawing a lot of interest from various private equity funds. "Our first such project in Mysore has got a good response and we are looking at a string of such hospitals in the North-East to expand. We are spinning off this business into a separate subsidiary and we may raise resources in this arm," Dr Shetty explained.

He, however, declined to name the PE funds he is in discussions with, stating that there are at least more than a dozen PE funds who have shown interest. IVFA could not be reached for their perspectives on their interest in Narayana Healthcare.

Narayana Healthcare presently has 6,000 beds across 17 hospitals present in 13 locations within the country. The group has already established its presence in Bangalore, Kolkata, Ahmedabad, Hyderabad, Jaipur, Raipur, Jamshedpur, Guwahati, Mysore, Dharwad, Kolar, Shimoga and Davangere besides in the process of setting up presence in Cayman Islands and exploring options to expand in Africa as well.

As and when Narayana Healthcare firms up plans for this fund raise, this will be the second PE funding which this reputed healthcare chain will be raising after it raised a handsome $100 million from JP Morgan and AIG (now Pinebridge) during late 2007. It is understood that Narayana Healthcare is also working on providing a decent exit for these two investors. Investment bankers also indicated that the fresh funding which Narayana Healthcare is raising may also be structured into a primary and secondary investment providing a part exit for the earlier investors. "At some time, the investors have to exit and we are working with them on this. But there is no immediate hurry," Dr Shetty added.

It is understood that Narayana Healthcare has managed to bring down the cost of putting up a bed at just under Rs 20 lakh for the low-cost model as against a normal cost of upwards of Rs 35 lakh per bed. Termed as Low Cost Surgical Hospital Model, typically modelled as 300-bedded surgical hospitals, located primarily in Tier II and Tier III cities, the hospitals will be built with pre-fabricated structure with minimal RCC construction. The hospitals will be primarily of ground floor construction thereby reducing construction costs and will have maximum utilization of natural daylight.

If IVFA manages to clinch to this transaction with Narayana Healthcare, it will be another major healthcare chain investment after its commitment of as much as $180 million into Bangalore-based Manipal Healthcare Group besides the earlier investments in other chains including DM Healthcare, CARE Hospitals. IVFA is currently investing from its fourth fund with a corpus of $600 million.