By AltG Research On Behalf Of Poornima Vardhan & Taponeel Mukherjee
The Indian healthcare industry might have 99 problems, but making headlines isn't one of them. In the latest news, Medi Assist, a third-party administration services company popularly known as TPA, has filed for an IPO valued at INR 1120 crore. In other recent headlines, Narayana Health, an affordable Indian Multi-specialty hospital group with a market cap of ~INR 25,000 Crores, has launched a Health Maintenance Organisation (HMO) called Narayana Health Insurance.
So while investments are surging in Indian Healthcare, marked by eye-catching valuation, investors are ignoring the first and only rule of private equity: "Purchase Price Matters" by paying a steep entry price for investments. In simpler terms, the price-to-earnings (P/E) multiple at entry is alarmingly high (think 30X revenue multiple!)- Simple But Fatal for generating any returns on the investments!
So, what's the key to achieving returns in India's healthcare sector? There are two main opportunities:
Invest early in high-growth areas of the future: For instance, seize opportunities in artificial intelligence (AI) and how technology will reshape the healthcare industry. From utilising AI to assess insurance claims to online travel agency (OTA) platforms for medical tourism, early investment in companies with clear cash flow strategies is crucial. Bessemer Partners exemplified this by investing in Medi Assist in 2011, at the inception of the TPA industry in India, reaping substantial returns in the current IPO.
Explore healthcare opportunities with low valuations: Identify special situations deal flow in the industry, by pinpointing proprietary opportunities available at low valuations. There are significant value creation opportunities for those willing to look at distressed assets and have the intellectual ability to manage these assets financially and operationally.
This mirrors the strategy employed by one of the greatest healthcare investors, Richard Rainwater, used to generate massive returns. From a $250,000 investment in 1987, HCA Healthcare Corporation has grown to become the largest healthcare services provider in the United States, owning and operating 340 hospitals, 125 outpatient centres, and 182 home health agencies, for revenues topping $ 17 billion in 1996.
Essentially, to make money in Indian Healthcare, you either wade into growth where few tread or play the distressed game.
While every TPA owner number will be on private equity investors' speed dial for the next 6 months, the real opportunity lies in identifying proprietary deals in liquid yet unexplored High-Growth Corners Of The Market and Executing with the speed and precision of an investor and an operator to Unlock Massive Hidden Value.
Disclaimer: In the article "2 Ways To Generating Market Beating Returns In India's Healthcare Sector Amidst IPO And Valuation Surge" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.