Source: Economic Times

 

Large private equity buyout funds along with a few global hospitals and daycare chains are in separate early stage discussions to buy a majority stake in Vasan Healthcare Pvt Ltd, India’s largest network of eye care hospitals, as its three existing financial investors revive plans for an exit.

The transaction may also see Vasan’s founder promoter selling out or paring his stake significantly, leading to a potential change of management control, said multiple people with knowledge of the matter…

A Mumbai-based domestic investment bank has already been roped in to facilitate the transaction, which could see valuations cross over $1 billion on the back of a huge demand-supply gap in a country where 80% of blindness is avoidable, as per World Health Organization data. In 2012, a WHO report stated that India has an estimated 12 million blind people and additional 456 million people who require vision correction.

In the recent past, the company had explored several fund-raising options such as an IPO and as recently as late last year, Vasan’s investors were in informal discussions with a few global players such as Parkway Holdings, Southeast Asia’s largest healthcare provider, its Malaysian parent Integrated Healthcare Holdings and a South African chain for a potential transaction, though nothing came of these. Now for the first time, a formal process is expected to start within the next few weeks.

Although the exact shareholding is still not clear, once converted on a fully diluted basis, the funds could own 45-51% in the company, with GIC having a lion’s share, said sources in the know. Healthcare entrepreneur AM Arun, who launched the first Vasan eye clinic unit in Trichy in 2002 and is currently chairman and managing director, owns the rest. Karti Chidambaram, son of former finance minister P Chidambaram, used to own a 5% stake in Vasan through one of his investment entities.  According to one of the investors in the company, he has ceased to hold a stake and resigned from the board in 2013.

Vasan’s Arun, GIC’s India spokesperson and VT Bharadwaj, MD of Sequoia Capital and a board member of Vasan, did not respond to email queries from ET till the time of going to press. Calls to Arun’s mobile were also unanswered. KP Balaraj, co-founder and MD, WestBridge Advisors Pvt. Ltd, and also a board member in Vasan, declined to comment.

Profitable growth

Chennai headquartered Vasan Healthcare, with roots in the pharmacy business since 1947, currently has more than 175 speciality eye care and 30 dental centres nationwide. However, the southern states still remain the most important market. It has also expanded its geographical footprint to Dubai and claims to be the largest such eye care chain around the world.

The company has also started growing inorganically. It bought Jothi Eye Care Centre in Puducherry, North Bengal Eye Centre in Siliguri (West Bengal), Shekar Nethralaya and Vijay Nethralaya in Bangalore and Grover Eye and ENT Hospital in Chandigarh.

In FY14, the company clocked Rs 750 revenue and Rs 180 crore ebitda while in the next fiscal it is aiming a Rs 350 crore ebitda on Rs 1,000-1,100 crore top line. The company is expecting a valuation of Rs 7,000 crore or 20 times FY15 ebitda, which most consider a significant premium.

“Within the single speciality healthcare segment, high quality scaled assets tend to trade around the mid teen range on a one-year forward ebitda basis. We have yet to see sustained interest from overseas strategic players in this segment and hence the audience for such large deals will remain limited for the time being,” said Shiraz Bugwadia, MD with investment bank o3 Capital, and a pharma and healthcare specialist.

Some however are not fully convinced. “The company is the largest player in its space without a doubt. But many would question its growth or numbers. Sometimes they don’t add up,” said a Bangalore based consultant.

Clear vision

The eye-care segment has seen the emergence of not-for-profit companies such as Aravind Eye Care and Sankara Nethralaya, which provide services at very little cost or free. These two companies have gained both size and critical mass along with a clutch of private companies such as Vasan, New Delhi Centre for Sight and Eye-Q, all of which are PE backed.

PE players have especially been lapping up investment opportunities in the local specialty healthcare delivery segments such as eye, dental and women and children with several small-sized transactions.

These asset-light business models, though still at a nascent stage in their evolution, offer investors an alternative to asset-heavy hospitals that tend to guzzle cash. The ebitda margins of such specialty chains like eye care tend to be at least 5-10% higher than other single-specialty and multispecialty players, feel some analysts.

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