The industry has raised $1.14 billion across 67 deals in 2013 alone, according to data provided by audit and consultancy firm Grant Thornton.
PE firms have been keen on investing in the industry because of its traditional popularity as a defensive sector.
There is no doubt that pharmaceuticals and healthcare are recession-proof. Unlike in most developed countries, over 70% of the healthcare delivery in India is handled by the private sector, said GSK Velu, founder of
medical devices manufacturer Trivitron Healthcare.
Even in countries like China and the US, pharmaceuticals and healthcare are the first choice for private equity firms. Velus company has seen multiple rounds of PE funding with the latest one by India Value Fund Advisors.
Many companies in this space are export-oriented and not dependent on the local market. The spread across different geographies makes them more attractive, said Shailendra Ghaste, managing director at investment banking firm IDFC Capital.
According to Bloomberg data, the BSE Healthcare index has given returns of 22.3%, while the Sensex has returned just 8.6% so far this calendar year.
PE investments in healthcare have grown over 26% from the last year and the number of deals has almost doubled.
The biggest deal of 2013 involved PE firm KKR, which invested $200 million in Gland Pharma followed by IFCs $100-million investment in Fortis Healthcare.
The pharmaceuticals and healthcare sector has the so-called growth drivers in place, said Mahesh Chhabria, partner at PE firm Actis. The firm invested $48 million in Symbiotec Pharmalab this year.
The fact that you can get necessary approvals and sell your drugs in any part of the world gives it a natural hedge against currency volatility, he said. Actis is keen on investing in pharmaceutical firms, diagnostic chains, pathology labs and day care centres.
However, this story is not without its rough patches.
Getting approvals from the government on deals is a major challenge sometimes, Ghaste of IDFC Capital said.
One has to consistently perform on quality and control to meet regulatory standards globally. Also, the investor should be aware of the frequent changes in regulations and pricing policies as that can affect the bottomline, said Chhabria of Actis.
Though investor interest is huge, the investment is coming only at growth stage and not earlier, which involves higher risk. But possibilities for further investments are huge, concluded Velu of Trivitron Healthcare.