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Mumbai: Hyderabad-based super-specialty hospital chain Krishna Institute of Medical Sciences Ltd (KIMS Hospitals) is planning to go public and has initiated talks with investment banks for an initial public offering (IPO), said two people aware of the development.

The plan for an IPO, which could see the company raise up to 600 crore, has been in the works for the past few months, said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.

“The management has been meeting with bankers over the last two-three months. They are planning an IPO, the size of which could be around 500-600 crore, but they are yet to mandate banks for managing the process," he said, adding that the IPO is expected be a calendar 2017 event.

The hospital chain’s share-sale plans come at a time when the IPO market is picking up and market investors have shown a keen interest in the public issues of healthcare services firms.

Last year, 21 firms raised 13,614 crore through the IPO route, while so far this calendar year, nine firms have raised 5,941.7 crore from their initial share sales.

Since December, four healthcare services firms have tapped the primary markets to fund their expansion plans and provide an exit to their private equity investors. Collectively, these firms—Dr Lal Pathlabs Ltd, Narayana Hrudayalaya Ltd, HealthCare Global Enterprises Ltd and Thyrocare Technologies Ltd—have raised almost 2,375 crore.

Apart from the share sale of Healthcare Global, the other three IPOs witnessed strong demand from investors. The issues of Thyrocare, Dr Lal Pathlabs and Narayana Hrudayalaya were subscribed 73, 33 and 8 times, respectively. Investors have also been rewarded with strong listing-day gains.

Other healthcare services firms such as Aster DM Healthcare and New Delhi-based Centre for Sight, too, have announced intentions to go public. Limited penetration of quality healthcare services and few healthcare companies to choose from in the listed space are some of the reasons driving investor appetite, say experts.

“There is a shortage of healthcare infrastructure in the country. We are not only behind the western countries in terms of important standards such as bed-to-patient ratio, but also behind our neighbouring countries. So, from a growth perspective, investors can see a long-term demand visibility and, hence, any well-managed hospital asset will see interest from investors," said Hitesh Sharma, partner and national leader-life sciences at auditing and consulting firm EY.

According to a September report by industry body FICCI and consulting firm KPMG, the healthcare services sector is projected to continue on its growth path, with an estimated market size of $280 billion by 2020. The growth will be led by the private sector, which caters to 70% of out-patient and 60% of in-patient services, the report added.

Additionally, the fact that there are very few healthcare companies to choose from in the listed space is pushing demand, Sharma added.

KIMS, which was started in 1996, today has almost 1,800 beds across five super-specialty hospitals in the states of Telangana and Andhra Pradesh. The five hospitals are located in the cities of Hyderabad, Nellore, Kondapur, Rajahmundry and Srikakulam.

Private equity firm ICICI Venture, an investor in KIMS Hospitals, will look at selling part of its stake in the company through the public offer, said the second person cited above, also requesting anonymity.

ICICI Venture held a 28% stake in the firm as of 31 March 2015. The private equity fund had picked up the stake in 2014 by investing around 220 crore.

ICICI Venture declined to comment. Several emails and calls to Dr B. Bhaskar Rao, managing director and chief executive of KIMS Hospitals, went unanswered.

For ICICI Venture, this will be the third IPO of a portfolio firm in recent times. In February, its portfolio firm Teamlease Services went public in an IPO that saw the company raise 423 crore. Adlabs Entertainment Ltd, another portfolio firm, listed on the stock exchanges last year.

The primary objective of the IPO is to raise capital to fund the hospital chain’s operations and growth plans, the second person added. “They are looking at raising the money to fund organic growth and to invest in technology," he said.

According to the company’s filings with the registrar of companies, KIMS Hospitals’ revenue grew to 409.6 crore in financial year 2014-15, from 353.6 crore the previous year.

The hospital chain reported a profit of 11.4 crore in 2014-15, compared with 6.8 crore the previous year.

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