Healthcare is not just a sector, but a mission

The outlook remains steady for Indian hospital chains. In FY24, 10 percent revenue growth, 6 percent ARPOB growth, and 22 percent operating profit margin are expected. Private equity investments witnessed a healthy ramp-up with deals worth over ₹27,000 crore in the last two years. Return on capital employed has also improved from 6 percent in FY21, to 18 percent in FY22, to 16 percent in FY23, and is expected to remain at 14 percent in FY24.

Parallelly, the Indian healthcare and life sciences sector in H1 2023 reported an 85-percent increase in overall deal values, totaling over USD 4.4 billion compared to H1 2022. During Q2 2023, M&A activity saw 60 percent increase in deal volumes and 97 percent surge in value, with an average ticket size of USD 30 million, compared to USD 25 million in Q2 2022. PE activity recorded a 158-percent growth in deal value, raising the average ticket size from USD 32 million in Q2 2022 to USD 139 million in Q2 2023. Temasek Holdings’ 41-percent stake in Manipal Health Enterprises for USD 2 billion marked the largest fundraise in the sector in the last 13 years.

It is worth mentioning that a recent study, analyzing PE ownership of healthcare operators in the US, the first of its kind, revealed that PE ownership was most consistently associated with increases in costs to patients or payers, and with harmful impacts on quality. However, it is too early for a conclusive interpretation.

Shifting gears, the Union Health & Family Welfare Ministry has responded to the medical device industry concerns, postponed tabling the proposed Drugs, Medical Devices and Cosmetics Bill, 2023, in the recently concluded Parliament session, and agreed to constitute a fresh review committee.

The Indian medical equipment manufacturers had raised serious concerns. Ten associations representing indigenous manufacturers had written to the minister seeking his intervention. Permitting import of pre-owned medical devices and issuing manufacturing licenses to marketing companies is in direct conflict with Make in India program, they protested. It is regressive for the investors, indigenous manufacturers, patients and of course, for Atmanirbhar Bharat. And if implemented, the bill would likely lead to a supply chain crisis.

It has been a longstanding demand of the industry that there must be two separate laws on drugs and cosmetics, and medical devices, rather than clubbing them in a single one. This is in accordance with the recommendations made by the Parliamentary Standing Committee on Health and Family Welfare in its 146th report presented in Lok Sabha on August 4, 2023.

The government seems resolute in driving a meaningful change in the healthcare sector!