Mumbai-based Thyrocare, promoted by A Velumani, is looking to raise $100 million through private equity to fund expansion, while Suburban Diagnostics, a regional player with seven labs in Mumbai, is in talks to raise anywhere between $8 million and $10 million, two people familiar with the development said. The largest player in the sector, Delhi-based SRL Diagnostics, which has 225 facilities across the country, is looking to expand further in South India, and may raise debt to acquire firms in that region.
The Indian diagnostics space is estimated to be around R10,000 crore, with organised labs comprising just 10% of this, giving more room for consolidation.
Diagnostics is a largely unorganised sector, but it is changing rapidly and is seeing consolidation, said Sanjeev K Chaudhry, MD, SRL Diagnostics, which recently changed its name from Super Religare Laboratories. The company, started 17 years ago, is promoted by Singh brothers Malvinder and Shivinder Singh of Fortis Healthcare. In 2010, it acquired Piramal Diagnostics to beef up its presence in Mumbai.
In July, SRL reportedly raised $67 million from NYLIM Jacob Ballas and International Finance Corporation, the third round of PE investment, after Avigo Capital Partners and Sabre Partners invested R150 crore in 2011. We are debt-free, giving us an option to borrow if required, to fund our acquisitions, Chaudhry said.
Driving the growth in the sector is an increasing awareness on quality of testing and costs. When much of the healthcare spend is out-of-pocket, there is a concern about over-spending and over-testing, said Ameera Shah, MD and CEO of Mumbai-based Metropolis Healthcare. Metropolis Healthcare is Mumbais largest and has over 100 labs at present. It can conduct close to 4,500 varieties of tests, some of them cost as high as R15,000 to R20,000.
Meanwhile, Gurgaon-based Dr Lals Pathlabs has entered Mumbai, and is aggressively setting up labs in the city. The firm aims to touch 150 labs across India by 2013.
It is a great sector to invest in, from the cash-flow angle, said Navroz Mahudawala, MD of Candle Partners, a boutique advisory firm. There is only limited capital involved, and the working capital cycle is good. Also, its a healthy margins business, and you get cash upfront.
The key to better margins in the business is in volumes. The value in pathology is that it is a volume game, and therein lies its economies of scale, said Shah. The volumes come from the reagents we use to do our testing, where we get significant supplier discounts.
SRL, for instance, has seven referral labs and 1,200 collection centres, and performs over 4,000 tests. Daily, on an average, the laboratory files across 30,000 to 40,000 specimens to its various referral labs.
Metropolis is planning to open 15 new labs all over India, especially in tier-II and tier-III towns, and spreading overseas into South Africa and new countries in the West Asia like Qatar. In 2010, PE firm Warburg Pincus invested $85 million in the firm, which saw ICICI Venture exit the company. We are now in a position to fund expansions and acquisitions internally, said Shah, adding that at any given point for time, they are evaluating ten potential deals, but is extremely selective in the process.
Sanjay Arora, CEO of Suburban Diagnostics, is looking to grow thrice in three years, and says the company is looking at an investor who will help it achieve that growth. The industry is trying to consolidate. A lot more of insurance driven systems will come in play in future, he said, adding that companies are also waiting for the right time to go public, and provide an exit opportunity for investors.
The industry is, however, in dire need of better regulations, feel the organised players. Be it the payment made to doctors by labs or the quality and veracity of the tests, the industry is ripe for regulation, they say. Of the 50,000 labs in India today, only 300 are accredited, said Chaudhry, stressing the need for more quality control.