Olympus picks up minority stake in DM Healthcare

Mumbai: Olympus Capital Asia Investments Ltd, a Hong Kong-based private equity (PE) firm, has invested $100 million (around ₹ 500 crore) in Dubai-headquartered DM Healthcare Pvt. Ltd, which will use the money to expand its operations in India.

The PE firm, with close to $1.5 billion under management, has invested some $400 million in India.

“There are limited number of established private hospitals in India while there are just two listed players,” said Gaurav Malik, managing director of Olympus Capital. “The biggest issue with investing in the healthcare sector in India is that there is a high greenfield risk but DM Healthcare has an established track record and that is what attracted us. They already have two operating hospitals and are looking to acquire one.”

DM Healthcare, which reported revenue of more than ₹ 1,200 crore in 2011, has a big presence in West Asia. The transaction took six months to close. Veda Corporate Advisors Pvt. Ltd was the exclusive adviser to DM Healthcare.

The transaction is a combination of primary investment by Olympus into DM Healthcare and purchase of a part of PE firm India Value Fund’s (IVF) stake in the company. IVF invested ₹ 175 crore in the company in 2008.

“The funds will be utilized for setting up a medical city in Kochi,” said Azad Moopen, chairman of DM Healthcare.

In India, DM Healthcare has over 900 hospital beds, primarily in tier II and tier III cities. It is setting up a large hospital with complex and specialized care facilities in Kochi, Kerala. The project is expected to commence operations in 2013 and the outlay for the first phase will be around ₹ 500 crore. In addition, DM Healthcare will set up new projects and partner with smaller hospitals across other tier II and III cities in India, with a target of having close to 3,000 beds by 2015.

“India contributes to about 20% of our total revenue and over the next five years we intend to increase the business here to make India a major contributor,” said Moopen.

In 2007, Apax Partners had invested $104 million in Apollo Hospitals Enterprise Ltd. According to Muralidharan Nair, head of the healthcare practice at consultant Ernst and Young, PE firms are looking to back a specific model such as speciality healthcare.

“While for the long term the prospect of investment in healthcare is good, in the interim the current cash flow is reflective of the current reality and the biggest challenge is that scaling up is very difficult,” said Nair.“There haven’t been many success stories of scaled projects.”

In 2011, $320 million was invested in the healthcare sector across 26 transactions, according to data from VCCEdge, a financial research platform. In 2010, $1.7 billion was invested in the sector across 41 deals. Some of the large investments include $37 million invested in NephroPlus by Bessemer Venture Partners India; $30 million invested in HealthCare Global Enterprises Ltd by PremjiInvest and India Build-Out Fund-I; $27 million invested in Vivimed Labs Ltd by Kitara Capital Pvt. Ltd, and NYLIM Jacob Ballas India Fund III.

shraddha.n@livemint.com