Deal focus: Riding the wave in India single-speciality hospitals

Private equity investment in India’s healthcare services space appears to be on a one-way track. It didn’t crack the USD 1bn mark until 2020 but exceeded USD 1.7bn in both 2021 and 2022. The record is likely to be broken again in 2023 with USD 3.1bn deployed in 2023 to date.

During this period, hospital valuations have crept up from EBITDA multiples in the early teens to the late teens and early 20s, according to Vishal Bali (pictured), executive chairman of TPG Capital and GIC-backed hospital platform Asia Healthcare Holdings.

“Investors see [Indian hospitals] as an almost evergreen investment because there is so much demand chasing healthcare services, and India has macro issues in healthcare. We’re the diabetes capital of the world, which is reflected in other chronic conditions increasing,” Bali said.

“I’ve been watching this sector, and frankly, I’ve not seen a cyclical effect here at all. If you look at the last decade, in this region, the multiples haven’t come off at all.”

Last week, AHH acquired an approximately 70% stake in Asian Institute of Nephrology & Urology (AINU) for about USD 72.2m, a transaction quintessential of the boom.

AINU exemplifies an evolution whereby specialist doctors in general hospitals have, like investors, identified a supply-demand gap and struck out on their own with single-speciality offerings.

The company has become a national leader in its niche but remains constrained by the practical and financial difficulties of scaling a chain. Lower-tier cities are increasingly of interest in terms of expansion. Sourcing relevant talent is the key bottleneck but not insurmountable.

This has always been the game plan for AHH. The platform was launched in 2016 specifically to take control positions – usually north of 70% – in single-speciality hospitals early in their growth curve.

Its best proof-of-concept to date is its first deal, Cancer Treatment Services International (CSIS), which was expanded from a single location in Hyderabad in 2016 to 11 with six under construction by the time it was sold to US radiology player Varian Medical Systems for USD 283m in 2019.

Nephrology and urology are not exactly cancer, however. AINU will be a scaling challenge in the sense that it is the only hospital of its kind in India, limiting M&A options. The company currently has seven locations across four states – a head start that provided AHH comfort – and hopes to double that footprint in the next five years.

“More often than not, when we find these companies, they are just in one city. So you have to take a macro bet on whether it can play a broader region,” Bali said. “But this company has already done that, even though it’s still early-stage. That’s what truly excited me about it initially.”

Some potential expansion cities have been identified but nothing is in stone yet. New locations will likely be greenfield projects, although there is scope for brownfield work in the form of nondescript shell buildings that can be outfitted to suit purpose.

AHH plans to put in place several senior executives and tap what it perceives as a robust pipeline of qualified urology and nephrology graduates in tier-one and tier-two cities. The trump card in attracting talent is arguably technological leadership. AINU is recognised as a leader in robotic urology surgery, having completed more than 1,000 procedures using robots.

“That’s the company’s edge – super clinical acumen, great technology on the back and front end in the way clinicians are trained and the way the entire system runs,” Bali said. “That’s the great foundation on which we can grow and scale.”

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• Topics
• South Asia
• Healthcare
• Buyouts
• India
• TPG Capital
• GIC Private