111

Future of PE/VC/Angel Investment Areas in the Healthcare sector

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June 2016

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US$ 80 – 200 Billion Investment Going Into Healthcare

• Underpenetrated Market– 9 beds/10K pop. v/s global average of 29 beds/10k pop.

• Need For Infrastructure Buildout– Establish over 1.8 million beds

• Limited Avenues Of Financing– 50% from borrowings

– 15% from internal accruals

– 35% from fresh equity capital

• Increasing Participation of Private Sector– 75 % of the hospitals and 51 % of the hospital beds

– 60% of inpatient and 80 % of outpatients care

– 55 % of the medical institutions

– 80 % of all qualified doctors are in the private sector

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Increasing Attraction For PE Investors (1/2)

• Demand‐Supply Mismatch – Secular and segment wise mismatch

– East India’s healthcare infrastructure per capita is 1/3rd of India which itself is 1/3rd of the global average

• Counter Cyclical Characteristics– Inherent nature of a recession proof industry

• Rising Disposable Income – Per capita disposable income expected to increase by about 1.6 times by 2017 to around $2,300

per person

– %age of families counted as “high income” is expected to double by 2025, up from 20% in 2010

• Growing Corporatisation of Hospitals– Growth and expansion dominated by national and regional player with increased M&A activity

• Cross Pollination Of Best Practices– Corporatisation and Cross Border M&A helping adaptability and culture of best practices both

on clinical and non-clinical side

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Increasing Attraction For PE Investors

• Lower Establishment Costs– Cost per bed is amongst the lowest in the world, standing at c. US$ 70k/ bed for a tertiary care

facility

– Increasing prevalence of hybrid models of lease and operate shortens the operational lead time

– Shorter payback period and improvement in price control

• Strong And Improving Healthcare Eco System – World renowned generics pharma base

– Improving penetration of payers (Insurance) both in private and government sector

• Increasing Specialization– Differential models catering to different investment strategies for PE, right from multi speciality

hospitals to single speciality retail models

– Compartmentalising value chain like separating assets owners from equipment supplier to service provider to payer

– Improving penetration of payers (Insurance) both in private and government sector

• Attractive Exit Avenues– Strong IPO and secondary market increasing the certainty of exit/liquidity for investors

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Source: Bain PE report

PE Investors Invested US$ 23 Billion in 2015

7.4

17.1

14.1

4.5

9.5

14.8

10.211.8

15.2

22.9

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US$

bill

ion

Annual PE & VC Investment In India

India Focused PE Firms Carried Approximately US$11 Billion In Dry Powder in 2015, Up From Us$8 Billion In 2014

Total PE deal value in 2015 grew 51% y-o-y to US$ 22.9 billion, crossing 2007’s peak levels

Number of PE & VC deals in India have increased from 296 in 2006 to 1,049 in 2015 at a CAGR of 15%

Increased deal activity in 2015 is attributed to:

improving macroeconomic conditions, positive

changes in the exit environment and changes in

valuation expectations

Several government initiatives—such as the Startup India programme, tax regime rationalisation and Make in India—have encouraged investments

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Top 5 Sectors For PE Players In India

1.0 0.9

1.8

1.21.4

1.2 1.21.4 1.4 1.4

4.7

1.92.2

0.91.2

6.9

4.0 3.9

1.61.3

0

1

2

3

4

5

6

7

8

ConsumerTechnology

BFSI Real Estate Healthcare IT & ITES

US$

bill

ion

2012

2013

2014

2015

Healthcare Sector Is Among The Top 5 Invested Sectors By PE Investors

Source: Bain PE report

Increased secondary deal flow in healthcare delivery driving the growth of activity in Healthcare sector

Led by some large ticket e-commerce investments by leading PE and strategic investors

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9%14%

24%13%

4%

10%

7%9%

2% 6%3%

6%

14% 6%

6%

5%

4%

5%

10%16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

%,'05-'08 % ,'09-13

Allo

cati

on

To

A S

ecto

r (%

)

Others

Travel,Transport and Logistics

Consumer Goods

Telecommunications

Business and Consumer Services

Healthcare

Engineering and Construction

Financial Services

Real Estate

IT/ITES

Source: Mckinsey Indian Private equity report

And Has Seen A Continuous Interest From PE Investors Over the Last Decade

Investment in Healthcare Sector Has Tripled In The Last 5 Years (Ending 2013) as Compared To The Initial Five Years

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Expected Investment Activity Across Sectors

4.5 4.4 4.3 4.3 4.1

3.6 3.63.3 3.2 3.1 3.0 3.0 3.0

2.7 2.7

0.0

1.0

2.0

3.0

4.0

5.0

Hea

lth

care

Fin

anci

al s

erv

ices

Tech

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& IT

Serv

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Co

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etai

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anu

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ng

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astr

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ure

, uti

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mu

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Ave

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rat

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of

5

Average rating on a scale of 5, where 1=very unattractive; 5=very attractive

Funds Expect Healthcare To Get Maximum Investment Activity

Source: Bain Private Equity Survey 2016 (n=29)

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Breakdown of PE Healthcare Investment In India

Private Equity Investments In Healthcare Sector Touched A Record High Of US$ 1,584 million in 2015 (across 50 deals)

Pharmaceuticals49%

Hospitals18%

Diagnostic Services10%

Medical Device5%

CRO2%

Wellness 1%

Biotech1%

Other14%

Total Deal Value US$ 1,584 million

Source: PE trend Report 2016, Venture Intelligence

— Private Equity investments in Healthcare & Life Sciences sector touched a record high of US$1,584 million in 2015 (across 50 deals),

— a 65.56% higher than the US$ 957 million (across 55 deals) invested during the previous year.

— The surge was mainly driven by investment in pharmaceuticals companies which attracted investments worth US$ 778 million (across 14 deals)

Other Highlights:

— 6 investments of over $100 million (compared to just one investments in 2014)

— Pharma companies grab 48.7% of the investment pie at almost $778 million (across 14 deals)

— Private Equity exits in Healthcare & Life Sciences sector surged by 110.8% during the calendar year 2015 to US$ 684 million across 22 deals

— Public market sales and strategic sales resulted in approximately 82% of the exits by value

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Segment Trends & Top PE Investment

Pharmaceuticals

— Pharmaceuticals companies, which attracted 49.1% of the investment pie at almost US$ 778 million (across 14 deals) continued to attract a dominant share of the investor interest

— Hospitals emerged as the second favourite destination for PE investments in 2015 attracting US$ 291 million cross 5 transactions

— Diagnostics services companies were the third favourite sector among investors in 2015 attracting $154 million across 4 deals.

Source: PE trend Report 2016, Venture Intelligence

Diagnostics

Hospitals

Pharma Companies Grab 48.7% Of The Investment Pie At Almost US$778 million (across 14 deals)

Company Investors Investment Valuation (US$ Bn)

Sun Pharma Temasek US$ 294 Mn US$ 35 Bn

Mankind Pharma CapitalInternational

US$ 203 Mn US$ 1.8 Bn

GlenmarkPharma

Temasek US$ 151 Mn US$ 4.9 Bn

Manipal Health(Hospitals)

TPG Capital US$ 150 Mn US$ 0.6 Bn

MetropolisHealthcare(Diagnostic Chain)

Carlyle US$ 128 Mn US$ 0.34 Bn

Top PE InvestmentsSegment Trends Within Healthcare Investments In India

— The 6 investments of over US$100 million in value during 2015, which accounted for just 12% in terms of the deal volume, accounted for as much as 66% of the value pie during the year

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Shifting Gears In Investment Style

Increasing Buyouts

Quasi Strategic Approach

Value Creation Models in Investment

Classical Equity Structure

Clear Alignment On Exits With Strategic Sale As a Clear Option

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And Investment Areas

Single Speciality Models

Regional Plays

Specialised Service Model

Diagnostics

Speciality Pharma

Biosimilars

Drug Delivery Technologies

Virtual Companies

Speciality Diagnostics

Health IT

Medical Devices / Technology

Payer Models Including Insurance

Wearables