Global Hospitals likely to dilute promoter stake to raise funds

Global Hospitals likely to dilute promoter stake to raise funds

Mumbai: Hyderabad-headquartered Global Hospitals Group may dilute promoter stake to raise $75-100 million (around Rs375-500 crore) to fund expansion and is in talks with private equity investors, said three people close to the fund-raising process, including an investor who looked at the deal.

“They are looking for funds as they are overstretched financially due to the projects under way," said one of the three people. All three declined to be named.

In 2007, the firm acquired Chennai-based Sri Kanchi Kamakoti Sankara Hospital for Rs257 crore in an all-cash deal, to be paid in tranches. The hospital chain, which has Everstone Capital as an investor, earned revenue of about Rs350 crore last year.

“Valuation is an issue. Debts are high and earnings are not helping at this moment," said another of the three people, who is a private equity investor and has considered investing in the company. According to him, Global Hospitals needs funds to pay back debt and back its expansion plans.

“I don’t know exactly (about the fund-raising plans) as I don’t go for financial meetings," Ravindra Karanjekar, founder and group medical director, Global Hospitals, said over phone. “Our chief financial officer (Badri Krishnaswami) and chairman (K. Ravindranath) take care of this."

Krishnaswami did not answer repeated calls and did not respond to questions texted to his phone, saying he was in a meeting.

Healthcare is expected to be the biggest driver of private equity (PE) and merger and acquisition (M&A) deals this year, according to Grant Thornton. According to an annual survey released in February by the accounting and consulting firm, pharma and manufacturing are the most promising sectors for 2012—both in terms of domestic and cross-border deal activity.

PE investments are expected to focus on pharma, healthcare and biotech, followed by manufacturing and BFSI (banking, financial services and insurance), the report stated.

Mergers and acquisitions and PE deals in the healthcare sector are already looking up this year.

Till date, PE investors have infused $260 million in seven healthcare firms. PE firms invested $319.8 million in 26 healthcare deals in 2011, compared with $1.68 billion across 41 deals in 2010, according to VCCEdge, which tracks investment activity.

Health is a large underserved market and that is its biggest attraction, said K.P. Balaraj, co-founder and managing director of WestBridge Advisors Pvt. Ltd, an investment firm, which invests in both public and private companies. WestBridge is an investor in specialized healthcare firms like Dr Lal PathLabs Pvt. Ltd and Vasan Healthcare Pvt. Ltd.

Balaraj said unless valuations are rationalized, generating high returns is difficult in healthcare. “The challenges are that hospital chains like businesses tend to be capital-intensive, take long to break even and valuation expectations are high. Companies are seeking 12 to 15 times of ebitda. At these levels it’s difficult for investors to make 3x or 4x returns on investments," he said, adding they would like to invest in specialized, niche offerings. “A lot of VC/PE capital will go in the niche, specialized play, while increasingly more infra funds may look at backing hospital chains."

Ebitda, or earnings before interest, taxes, depreciation and amortization have been subtracted, is a key indicator of a company’s profitability.

PE investors like Mukul Gulati, managing director, Zephyr Peacock India, agreed healthcare is attractive as national brands are yet to be created in smaller cities. Further, exits are not expected to be an issue for investors.

“In healthcare, exits are not an issue as big brands are very acquisitive. These companies would like to take over an established business than starting all over again in a new segment or geography. For M&A, healthcare is one of the better places," he said.

Zephyr Peacock is also scouting for investment opportunities in the health ancillaries space including information technology for healthcare.

deepti.c@livemint.com

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