Dec 20Featured ArticleIssue

Healthcare Leader: Ramesh Kannan

Partner, Somerset Indus Capital Partners

Investments in the healthcare sector were hit hard during the lockdown due to COVID-19 pandemic. The initial days of lockdown led to zero investments. Hospitals bore the brunt as deal flow completely evaporated. The providers were very much focussed on optimising operations, cutting costs and preserving cash because the future was uncertain.Few months down the line, pharma, API, health tech, digital health, SaaS, insurance tech, injectables, health consumer tech/ diagnostics showed some signs of revival. While SaaS health consumer tech, digital health and health tech were the domain of VC’s and saw a substantial hike in deal-making in the second quarter of this year, other components were the domain of PEs. Some large deals happened which led to positive sentiment. Hospitals were impacted while diagnostics (thanks to Covid testing) saw a spurt in revenues and profits on one side and national players were looking at regional presence (in an organised fashion) on the other.Pharma was the biggest gainer as the entire sector did very well and deal flow was robust. There was an opportunity both within and outside the country and this catapulted the sector to newer opportunities. Added to the fact was significant interest in API’s thanks to the China problem and there was a lot of interest in deal-making. SaaS models saw an increase as capex was replaced by Opex and cost linked to end-use. This gave the sector a boost as more and more technology companies swung into action to capitalise on digital health and SaaS platforms. Also, consumables digitally were the favourite as providers wanted savings in purchases and dealing with a few instead of many.

This enabled a lot of companies to focus on creating models which helped providers to save and share.Digital health encompassing telemedicine, telecardiology, teleradiology, telepathology and teleICU found a lot of attraction and favour as it became the new norm of consulting. Investments started blossoming in the second quarter and both VC’s and PE’s were active with deal flows looking positive.Currently, things are far better in the third quarter as the pace of investments has gone up both with VC’s and PEs. Deal flow is looking good and many deals are likely to be closed in the fourth quarter of this financial year. The healthcare sector has bounced back and hopefully will be in the pre-COVID phase by the end of this calendar year or maximum first quarter of next year. The digital health sector is going to be big and operational finance compared to capital finance is going to play the roost. A lot of companies are bundling their products and services and customers are being offered payments with upfront concessions linked to earnings.The consumer health and consumer tech sector particularly in areas where services are being moved from showrooms to homes are doing very well. Particularly in the retail space, a lot of interest in companies which can meet the requirements of both products and services at home are facing an upside.

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Very clearly, in the new year, while hospitals on a larger scale (network hospitals) could see some action, the focus is going to be on the PE side for the pharma sector and health tech on the VC side. There is bound to be M&As flowing in the larger deal pipe. While the bigger players would like to consolidate, medium players would like to increase the size and scale so that they are found to be attractive by the larger players.There could be some deals on the health tech side which can result in some consolidation and increase in size and scale. SaaS is bound to see an increase in activity and spreading in different subsectors.

The home care sector which was much neglected initially is being favoured backed by the need from the elderly, expected mothers and newborn /children which will eventually lead to consolidation and growth. The healthcare sector is going to see an upside and digital health across sectors is going to play a very important role. The health insurance sector is going to get a very big boost and grow very fast. Digitisation is going to enhance value.Patient’s safety is of paramount importance. Development finance institutions, impact funds, NBFC’s, venture debt and structure debt etc. focussed on healthcare and its revival. Technology will play a very important role going forward as companies will leverage technologies to offer more. Manufacturing in India got a thumbs up which is a positive sign considering more than 80 per cent of our requirements are imported. Screening, prevention, remote care of infectious disease etc. will see a big boost. We shall all remember that quality is the focus and the key to success.

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