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Article Month: Jan 2009

Brazil, Russia, India and China "BRIC" has maintained active attention of Private Equity (PE) players in

multiple verticals for quite some time. However, current economic turmoil, business slow down, and

pessimism of economic revival in near future has resulted in tightening of investments from investor's

communities.

Interestingly one industry that surely is attracting safe and high returns on investment in the "BRIC" region is

"Healthcare".

Healthcare in BRIC region has experienced a robust growth in last couple of years and is predicted to

maintain buoyancy of "sustained high growth" in coming years.

The reasons for this robust growth and predicted consistency of high growth is due to:

1. Robust economic growth

2. Expansion of "the middle class" and increasing disposable income

3. An aging population and greater health awareness.

4. Government active impetus to this industry

5. Aggressive penetration of insurance.

6. Lower base and hence higher growth and returns potential.

China and India from BRIC have shown remarkable growth in last decade.

Going by the above reasons coupled with vast population (37% of world population!!) both countries have

become the most sought after destinations for investments in healthcare industry. While China has been

ahead of India, the investment community is getting bullish on India from long term investment perspective.

Revenues from the Indian healthcare sector account for 5.2 per cent of the GDP, making it the third largest

growth segment in India. (Pricewaterhousecoopers study)

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Jeremy J. Siegel (Prof. of Finance at Wharton-UPENN) and Mukund Krishnaswami (managing director of

Krilacon Group) re-affirm on the long term investment edge in India. Ajit Thakur (Broadline capital;NYC) has

set his eyes in Indian healthcare sector. According to him, India offers good long-term investment

possibilities.

Out of 40 richest people in India, 9 of them come from healthcare industry!

"Healthcare industry in India is capable of generating 10% net on sales and with a good capital to turnover

ratio of at least 4 could get a return on capital in excess of 25%" says suryanarayan (A leading healthcare

venture consultant, founder of medybiz and lifeken)

India's rapid growth has induced ‘health transition' in terms of shifting demographics, socio-economic

transformations and changes in disease patterns. The new found prosperity of many Indian households are

spurring demand for high-quality medical care, transforming the healthcare industry into a profitable industry.

Healthcare sector's growth in India will be driven by growing middle class, which can afford quality

healthcare. Over 150 million Indians have annual incomes of more than US$ 1,000, and many who work in

the business services sector earn as much as US$ 20,000 a year. It's estimated that most of India would be

"middle income group" by 2020. USD50 billion is projected as the investment required annually for next 20

years to meet this growing demand.(CII) . India needs to add 2 million beds to the existing 1.1 million by

2027, and requires immediate investments of US$ 82 billion as per the Technopak Advisors report.

Health insurance is one of the key drivers in increasing the quality healthcare access for the masses.

Currently only 10 per cent of the Indian population has health insurance. The Indian health insurance

business is growing at 50 per cent. The sector is projected to grow to USD 5.75 billion by 2010, according to

a study by the New Delhi-based PHD Chamber of Commerce and Industry. According to a report by

McKinsey on the Indian pharmaceutical and healthcare sector, one-fifth of India's population is likely to have

medical insurance by 2015, leading to an estimated increase in consumer spending on healthcare from USD

2,054 per household in 2005 to US$ 3,514 per household by 2015.

As per Technopak advisors, a US$ 35 billion healthcare industry in India, is expected to reach over US$ 75

billion by 2012 and US$ 150 billion by 2017.

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2006 attracted $379 million in healthcare industry. Thats 6.3 per cent of the total PE investment of $5.93

billion( Report from Technopak). Experts predict that access to PE would help the $35 billion domestic

healthcare sector grow at 15 per cent year-on-year.

While most of the investment community is investing in quite a wide spectrum of healthcare ecosystem,

there are some verticals that will see major investment convergence. These are:

• Hospitals

• Diagnostics

• Pharmaceuticals

• Medical Insurance (TPA)

• Retail

I foresee major investments to converge to Hospitals (primary-secondary-tertiary), diagnostics and medical

devices sectors. This is where the major opportunity exists.

In another article we will explore Indian hospitals and diagnostic industry. We will analyze potential major

investment possibilities.

I would like to invite your views on why hospitals and diagnostics would attract major investments in India?