Trivitron promoters to raise $100 million by diluting stake

Written by MG Arun | Mumbai | Updated: May 1 2012, 09:00am hrs
Promoters of India's largest home-bred medical diagnostic equipment company, Trivitron Healthcare, will sell more stake in the company to raise $100 million from private equity funds to purchase cardiology imaging companies and expand its manufacturing park in Chennai, GSK Velu, managing director of the company, said.

Velu, who started the company in 1997 and owns 80% stake, has appointed investment banker Kotak Mahindra Bank to value the Chennai-based company.

We will dilute further stake, but at this point I cannot divulge how much since we have appointed Kotak Investment Bank to do a valuation of the company, Velu told FE in an interaction. A decision on this will be taken by July. PE firms HSBC Private Equity and ePlanet Capital, which had purchased 20% stake in Trivitron in 2007 for roughly $11 million, are now looking to exit.

Trivitron wants to acquire at least two companies in the medical technologies space, and estimates that the company will need to spend $10-$20 million for each of the acquisitions. The idea is to bring the technology innovations of the acquired companies to India, customise it for the Indian market as well as emerging countries like South East Asia and China, Velu said.

Consultants said that growing healthcare delivery services through hospitals, clinics and diagnostics centres are driving medical technologies business in India. Healthcare in India is still at an infancy stage, offering much scope for growth, says Sujay Shetty, director and India leader-pharma & life sciences at consulting firm PricewaterhouseCoopers. Also driving growth are greater government spend, higher private sector investment, disease burden and improved health insurance scenario. He adds: The sector has a potential to grow to $14 billion by 2020, he adds. In the Union Budget presented last week, the government has hiked healthcare spending by 14%, from R26,897 crore to R30,702 crore, According to an analysis done by NIPER Ahmedabad, of the entire medical technology sector in India, medical equipment (like imaging and other lab equipment) comprises 55%, medical implants (like stents, bone implants) 25%, and medical disposables (surgical masks, syringes), 20%.

But the bane for the industry is the differential import tariffs that make imported finished products cheaper than manufacturing at home using imported components. The eco-system in India is still not very good, says Velu, whose firm had revenues of R500 crore in the fiscal 2011-12. "We import 80% of the components that go into manufacturing our products, but today, today the components and raw materials cost more than finished products.

The government is trying to fix these anomalies, but the process is very slow, he adds, lamenting the absence of a separate central department for medical devices, which would have taken up the industry's case. The company has a portfolio of 700 products, of which 300 are made in India, and the rest imported.

PwC's Shetty agrees. The diagnostics and medical technologies space is very import-oriented, says he. The barriers to entry are low, so it is easier to import products than maufacture.

Despite these anomalies, the sector has seen investments from multinationals in India. US company 3M, for instance, has manufacturing facilites at Ahmedabad, Bangalore, Pune and Pondicherry. BD (Becton, Dickinson and Company), also US based, has a manufacturing plant at Bawal, Haryana with a capacity to make over a billion disposable needles and syringes.

Dutch firm Philips Healthcare, Germany's Siemens and GE Healthcare of the US have strong bases in the Indian market for several years now.

Trivitron's Velu, who has dabbled in the medical technologies segment ever since graduating from BITS Pilani in 1987, has also tried to foster manufacturing locally, and encouraged foreign partners from Japan, Italy and Spain to set up base at the Trivitron Corporate Park, a 25-acre facility in Chennai. The $100 million that we intend to raise will suffice us for the next three years, he says. Trivitron is targeting to grow to R1,500 crore by 2015, and more than $1 billion (around R5,200 crore) by 2020. Velu's also hold a 40% stake in Mumbai-based pathology chain Metropolis Helathcare, of which he is vice-chairman. His company also has two joint ventures with Apollo Hospitals, one for dental care centres, and the other for dialysis centres.

The medical technology sector thrives on innovations, which are also critical for creating affordable products. Medical technology innovation requires a vibrant and participative ecosystem comprising patients, medical centres, universities, medical technology industry, health insurance companies and government, said a PwC study released in 2010. All the stakeholders in the ecosystem have to act in concert for sustained growth of medical technology industry and to benefit the patients.

Indian medical technologies sector is growing at 15% annually, but we are still dwarfed by China, which is still six times its size, says Velu. What is holding us back is access and affordability.