Mumbai: Metropolis Healthcare Ltd, one of the three largest diagnostic chains in India, plans to sell shares in an initial public offering (IPO) to raise around 1,000 crore, seeking to tap investor interest in the healthcare sector.

The plan follows successful share sales in recent months by Dr Lal PathLabs Ltd and Thyrocare Technologies Ltd, which received robust investor demand.

An IPO would give existing private equity investor Carlyle Group an opportunity to make a part exit from Metropolis, whose promoters, the Shah family, will sell a small minority stake, said two people aware of the development.

The IPO size could be in the range of 1,000 crore, said one of the persons quoted above.

Metropolis competes with other leading diagnostic chains such as SRL Diagnostics Pvt. Ltd and Dr Lal PathLabs.

The Shah family—chairman Sushil Shah and his daughter Ameera Shah, managing director and chief executive officer—holds a 63% stake and Carlyle owns 37% in Metropolis.

In April last year, the Shah family acquired the 27% stake in Metropolis held by US-based private equity (PE) firm Warburg Pincus for 550 crore with the backing of KKR India, the local arm of PE firm KKR and Co.

The deal increased the family’s stake in the company to 63% from 36%.

In September, Carlyle Group purchased 37% stake in Metropolis from G.S.K. Velu, former promoter of Metropolis Healthcare, for an undisclosed amount.

Although Carlyle didn’t disclose the deal size, it was in the range of 850-900 crore, Mint reported in September.

“Metropolis management has started initial discussions with a few investment banks, including Kotak Mahindra Capital Co. Ltd and it’s premature to discuss the enterprise valuation," said the first person.

Ameera Shah and a Carlyle spokesperson declined to comment. An email sent to a Kotak Mahindra spokesperson on Wednesday did not elicit any response.

Metropolis conducts over 30 million medical tests a year through 20,000 laboratories, hospitals and nursing homes, and 200,000 consultants. It has 130 laboratories in India and six other emerging markets, 750 collection centres and at least 3,500 employees.

Dr Lal PathLabs had a market cap of 7,005 crore while Thyrocare had a market cap of 3,057 crore on Wednesday.

“If compared with other two listed entities, Metropolis can look at a valuation of anywhere between 5,000 crore and 6,000 crore," said the second person.

The recent IPOs of diagnostic chains have given successful partial exits to existing PE investors.

PE funds WestBridge Capital and TA Associates sold part of their stake in Dr Lal PathLabs while CX Partners sold close to a 20% stake in Thyrocare Technologies in the IPOs.

Since its IPO, shares of Dr Lal PathLabs have jumped almost 54% from its sale price of 550. On Wednesday, Dr Lal Pathlabs Ltd closed at 846.70 on the BSE, up 0.5% from its previous close.

Thyrocare’s share price has risen 27.6% since its IPO, from its offer price of 446. On Wednesday, Thyrocare shares fell 1.7% to close at 569.10.

“The shortage of healthcare infrastructure in the country is one of the factors that makes the sector attractive," said Hitesh Sharma, national leader (life sciences), EY India. “The healthcare ecosystem in India—whether it’s hospitals or diagnostic centres—is far short of what the actual need is. In fact, the country even falls behind most of its neighbours in several parameters such as number of healthcare professionals per thousand people," he said.

The market opportunity is huge for diagnostics businesses and several macro factors and behavioural changes are driving the sector’s growth, said Sharma.

“In the metro and larger cities, awareness levels have grown significantly, leading to increasing spending on preventive healthcare. Also, increasing insurance penetration is another factor that’s driving growth. As the population gets more educated and mature and as a country as we go up the per capita income ladder, these behaviours will increase," he said.

The domestic diagnostic market in India, which is highly fragmented, is estimated at 37,700 crore per year.

The business is expected to grow at a compounded annual growth rate of 16-17% to reach 60,100 crore by 2017-18, according to Crisil Ltd. Standalone diagnostic centres hold about 48% of the market, according to Crisil.

reghu.b@livemint.com

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