Healthcare

Sector appeal attracts funds, intensifies competition

Attracted by high growth rates and lucrative returns, smaller unlisted diagnostic players
have lately evinced high interest from PE funds, enabling them to quickly pivot models
and chase growth. At least 9 primary fund-raising deals have been sealed in just past 2-
3 quarters (table 1). These include players like: (i) Krsnaa which is developing a low-
priced shop-in-shop model; (ii) Healthians which is developing an asset-light
aggregator-like model; (iii) Core and iGenetic who are developing a focused high-end
diagnostics model; and (iv) strong regional players like Suraksha (table 2). Existing
hospital chains like Max India and Apollo Hospitals are also looking to leverage their
brands to scale up their diagnostics business beyond captive volumes. In addition,
corporate houses like Mankind and Dalmia are also seeding similar businesses.

Intensifying competition from PE and corporate house backed players

Attracted by high growth rates and lucrative returns, the domestic diagnostic sector has been
witnessing high interest from the private equity players. Low entry barriers, low capex
requirements and minimum regulatory supervision make the sector susceptible to new
competitors. In past 2-3 quarters, there have been at least 9 deals related to the diagnostic
service/ equipment providers. These include investments in regional players like Suburban
Diagnostics, Vijaya Diagnostics, Suraksha Diagnostics, Medall Healthcare, specialty diagnostic
start-ups like Core Diagnostics and iGenetic, and diagnostic start-ups working on new
business models like Krsnaa Diagnostics (shop-in-shop model), Healthians (asset-light
aggregator-like model), Airmed Pathlabs, etc. In addition, backed by corporate houses, a
number of new players have been cropping up like Pathkind Diagnostics and Thumbay Labs.
While these players will hasten the pace of shift from unorganised to organised, they will also
exert pressure on larger players who are trying to maintain high growth rates on a much
higher base than past.

Emergence of new business models

Increasing focus on PPP agreements
In recent times, several states including UP, Assam, HP, Gujarat, Maharashtra, among others,
have started engaging private players to provide diagnostic services at public hospitals under
the PPP (Public Private Partnership) mode. Although diagnostic players earn lower EBITDA
margin on such agreements, it continues to remain a lucrative proposition to expand due to
the low capital requirements and high volumes. Both pan-India large players as well as
smaller regional labs in the region have been focusing on such agreements to expand
operations. Among the larger players, SRL (currently has 3 PPP agreements) and Krsnaa
Diagnostics have shown keen interest to continue to focus on the PPP mode.

2 Edelweiss Securities Limited