Indian healthcare continues to draw private equity interest

A recent survey shows private equity firms are keen to invest in the healthcare and life science sectors although concerns remain as to a lack of clarity in regulations, long gestation periods and a shortage of talent.

Private equity investors in India are keen increase their pace of investments in healthcare and life science companies, according to a Venture Intelligence study.

More than $2 billion has been invested in the healthcare and life sciences sector in India in the last five years, and 42 percent of private equity investors surveyed felt there was a strong opportunity in the sector in semi-urban and rural areas, according to the study.

Diagnostic services, medical devices and equipment, hospital chains and wellness products and services are among the industry segments popular among private equity investors.

“Given the fragmented nature of both the hospitals and pharmaceuticals sectors, investors also see potential for tapping into consolidation opportunities in partnership with growth-oriented entrepreneurs,” Arun Natarajan, chief executive officer of Venture Intelligence, said in a statement.

Natarajan added the healthcare and life science industries were not a very prominent sector for private equity investments during the bull phase in India public and private equity markets from 2005 to 2007. However, he expects about 20 percent of new private equity capital to be invested in the sector going forward. “A revival is clearly on the cards,” he said.

Although private equity firms are keen to tap into opportunities presented by the sector, they do have a few concerns relating to investments in the same. According to the survey, firms were troubled by long gestation periods, scalability and a shortage of relevant talent in the healthcare sector.

In the life sciences segment, investors are concerned about the high risk of failure, particularly in the case of new drug research and development, stiff competition both from within India and abroad and patent-related issues.

Firms also cited a lack of clarity in regulations and corporate governance standards as issues of concern.

Earlier this week, Nova Medical Centres, which is funded by New York-based private equity firm GTI Group, opened its first healthcare facility in Bangalore. GTI plans to invest about $50 million over the next two years to expand Nova’s chain of medical centres across the country.

In the first quarter of 2009, three private equity investments worth $39 million were made in the healthcare and life science space in India, according to ARC Financial Services, which provides advisory, research and consultancy services to financial services industry players such as investment banks, private equity firms, hedge funds and mutual funds.