Mumbai: Home-grown private equity firm Kedaara Capital Advisors Llp is in advanced talks to buy a stake in the Hyderabad-based diagnostics chain Vijaya Diagnostic Centre Pvt. Ltd for up to Rs350 crore, two people aware of the development said.
Founded in 1981 by Dr Surendranath Reddy, the chain has 14 centres in Hyderabad, according to the company’s website. It also has centres in cities such as Kolkata, Chennai, Warangal and Nizamabad.
Vijaya Diagnostic provides a comprehensive range of diagnostic services spanning radiology, imaging, nuclear medicine, conventional and specialty lab services and diagnostic cardiology.
“Kedaara Capital is in advanced stages of discussion with the company and is looking to invest around Rs300-350 crore. They have completed the due diligence. If the talks go through, the transaction will be closed in a month or two,” said one of the persons cited above, requesting anonymity as the talks are private.
The transaction will have both a primary and secondary share sale component, said the second person cited above, also requesting anonymity.
“The transaction is going to be mostly a secondary share sale by the promoters. There is also a small primary component, to fund the ongoing and future expansion plans of the company. Together, Kedaara will be picking up a significant minority stake in the firm,” the second person said. Investment banking company Veda Corporate Advisors Pvt. Ltd is managing the fundraise for Vijaya Diagnostic, he added.
Mint had reported in August that Vijaya Diagnostic was planning to raise at least Rs300 crore from PE funds.
According to data from filings with the registrar of companies (RoC), Vijaya Diagnostic reported revenue of Rs100 crore in 2013-14, compared with a revenue of Rs81.19 crore in the previous year.
In 2013-14, it reported a profit of Rs9.87 crore, compared with a profit of Rs7.5 crore the previous year.
The latest financial numbers were not available with the RoC.
“There is nothing to comment from our side as of now,” said Sunil Reddy, deputy managing director at Vijaya Diagnostic.
“We cannot comment on market rumours,” said Manish Kejriwal, founder and managing partner of Kedaara Capital.
Venkat Subramanyam, the founder of Veda Corporate Advisors, declined comment.
The fundraising talks come at a time when private equity interest has been high in the healthcare sector. Recent initial public offerings (IPOs) of diagnostic chains have given successful partial exits to their existing PE investors.
PE funds WestBridge Capital and TA Associates sold part of their stake in Dr Lal PathLabs Ltd while CX Partners sold close to a 20% stake in Thyrocare Technologies Ltd in IPOs.
Since its IPO in December 2015, shares of Dr Lal PathLabs have jumped almost 126% from its issue price of Rs550. On Monday, shares of the firm closed at Rs1,247.30 apiece on BSE, up 4.83% from its previous close.
Thyrocare’s share price has risen 42% since its IPO in April, from its offer price of Rs446. On Monday, the stock lost 0.35% to close at Rs634.35.
High growth rates, strong margins as well as various macroeconomic tailwinds are making the sector attractive for private equity investors.
“Revenue growth rates in the sector are around 20%. Operationally strong companies can easily have Ebitda (earnings before interest, taxes, depreciation and amortization) margins of anywhere between 25% and 30%. Also, diagnostic companies are generally debt-light companies. These operation metrics make the sector attractive for the PE investors,” said Narayan Shetkar, director at investment banking firm Singhi Advisors.
In addition, macroeconomic factors such as growing population, increase of lifestyle diseases and increased awareness of preventive healthcare services are aiding the growth of the sector.
“Buoyed by these tailwinds, tier II companies in the diagnostic sector, which are mostly regional in nature, have been trying to grow by expanding beyond their regions,” said Shetkar.
The domestic diagnostics market in India, which is highly fragmented, is estimated at Rs37,700 crore per year. The business is expected to grow at a compound annual growth rate (CAGR) of 16-17% to reach Rs60,100 crore by 2017-18, according to a report by Crisil Ltd.
Standalone diagnostic centres make up about 48% of the market, according to the Crisil report.