A rising middle-class and an aging population have boosted demand for private medical services across Asia, which in turn, is seeing massive consolidation and heightened deal activity in the healthcare sector.
Luxembourg-based CVC manages 188 billion of assets and is also owner of the Gujarat Titans’ IPL franchise, international rugby union, Women’s Tennis Association and top football properties such as Spain’s La Liga or consumer brands like Lipton Teas, Peruvian cash management company Hermes, among others. It owns around 60.41% stake in HCG.
BS Ajai Kumar, an oncologist-turned-entrepreneur and founder of HCG, and his family members own about 11% stake in the company.
The US PE fund bought a controlling stake in HCG in June 2020 for about Rs 1,049 crore by buying new shares and convertible warrants. It acquired more shares later through a mandatory open offer.
As on February 18, CVC stake in HCG would be worth around Rs 3,236 crore. The deal would involve an open offer for an additional 26% of the company. The current market value of the hospital chain is Rs 5,357.38 crore. A recent report by brokerage firm Jefferies also highlighted that CVC’s investment in the cancer hospital chain has increased 2.7 times in less than three years.In the past one month, the HCG stock is up 10% as the sale gathers momentum.CVC Capital is working with two Wall Street advisors for the sale that has been launched in recent weeks. The official sale process was launched recently.
Ajai Kumar told ET that he is not looking to sell his stake and exit.
“There is no intention to exit. I have founded and built HCG, and am committed to the cause of serving cancer patients,” said Ajai Kumar, executive chairman of HCG.
EQT declined to comment. CVC, TPG and KKR were not available for comment.
Both these funds are involved in the biggest hospital deals involving private equity (PE) investors in India. While KKR had one of its big pay days exiting Max Healthcare in what was the largest block deal in the Indian stock market history, TPG has backed several hospital chains but its largest bet has been Manipal. Last year, TPG, an investor in Manipal since 2015, chose to fully exit Ranjan Pai’s hospital chain by selling its stake to Temasek, but it also decided to reinvest in Manipal via a new fund, albeit with a smaller holding.
Even EQT that has traditionally been overweight on tech and BPO deals has been doubling down on healthcare. In 2022, EQT bought Hyderabad-headquartered super specialty hospital AIG (Asian Institute of Gastroenterology), pipping TPG. Last September, it acquired 60-65% of Indira IVF for $650-700 million, the largest provider of fertility services in India and also among the top five globally in terms of annual in-vitro fertilisation (IVF) cycles, for a billion-dollar valuation, in a headline-grabbing deal.
HCG has 1,926 operational beds, of which nearly three-fourths belong to matured hospitals and the rest from the new ones. The company is spending Rs 132 crore on capex on two hospitals — Ahmedabad (Rs 106 crore) and Whitefield, Bengaluru (Rs 25 crore).
Founded in 2005, HCG now operates 22 cancer hospitals and three multispecialty hospitals across India. The network also includes one cancer care centre in Kenya.
The debt-fuelled expansion and Covid-19 pandemic that disrupted cancer care services have massively dented the company’s financial performance, particularly in FY21.
Cancer care infrastructure, especially facilities to offer radiation therapy, are expensive.
The timely equity infusion by CVC and the appointment of Raj Gore as CEO in February 2021, who prioritised operational efficiency, cost optimisation and rationalisation of bed capacities, have helped HCG to get back in the pink of health.
Operating Profit, Revenue
HCG revenues grew 13% year-on-year (YoY) in the nine months ended December 31 to Rs 1,417.5 crore. It has an earnings before interest, tax, depreciation and amortisation (ebitda) margin of 17.3% in the same period.
The company said it is striving to achieve 20% ebitda margin and revenue growth above the market growth rate of 10-11%. The net debt stood at Rs 367 crore as on December 2023.
The consolidated revenue grew by 21% during FY23 on the back of increased admissions and procedures performed. The momentum was sustained in H1FY24, with the company reporting growth of 14.5% on Yo-Y basis.
While in absolute terms, the profit before depreciation, interest and tax (PBDIT) of the company grew but PBDIT margins improved marginally from 17.06% in FY22 to 17.60% in FY23 as increasing share of low-margin medical oncology and continuing losses in some of the new centres like south Mumbai and Kolkata limited margin gains. Nevertheless, these new centres have been witnessing increasing footfalls and are likely to turnaround in the near term.
HCGEL is firmly placed to tap the increasing demand for cancer treatment, which would continue to drive the revenue growth, said CARE Ratings in a recent credit note.
HCG has also been looking to acquire cancer hospitals. In FY24 alone, HCG announced acquisitions of 120-bed Nagpur Cancer Hospital and Research Institute and 100-bed SRJ CBCC Cancer Hospital in Indore, giving the hospital chain a firm footing in central India and south India.
Analysts believe its dominant presence in cancer care treatment is driven by strong brand equity and superior quality of service along with partnership with other established medical professionals. The company also operates seven IVF fertility centres under the brand ‘Milann’ through its wholly owned subsidiary, BACC Healthcare Private Limited (BACC).
EQT may subsequently explore merging it with Indira if it emerges as the successful bidder.
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