Preet Matani is Managing Director (Healthcare Advisory) at PwC.
The Indian healthcare sector has witnessed a surge of deal activity in the past few years, covering various sub-segments such as healthcare services, diagnostics, healthtech, pharma, and medtech.
The sector has attracted around $3-4 billion worth of investments annually, with pharma and diagnostics leading the way.
The Indian healthcare market is estimated to be around $180 billion (FY25) and is poised to grow at a compounded annual growth rate of 10%, reaching around $1.50 trillion by FY47 with healthcare services accounting for 53% of the overall market.
Growing demand and consumption
The average lifespan of an Indian citizen is 70 years, up from 60 years in 1991, and this is expected to increase to around 75 years by 2050. The elderly population—those over 60—in India made up about 10.5% of the population in 2020 and this is predicted to grow to about 21% of the population by 2050.
The elderly population—those over 60—in India made up about 10.5% of the population in 2020 and this is predicted to grow to about 21% by 2050.
India’s income per person is estimated to grow by nearly 70% to $4,000 by 2030 from $2,450 in 2023 and is further estimated to continue to go up to $16,000 by 2050.
The government is also gradually changing from a provider to a payer role and driving the growth of services in the private sector. Non-communicable diseases account for two-thirds of the total mortality in India and is projected to account for an estimated 75% of the total mortality by 2030. This is expected to cause an economic loss of almost $4.58 trillion to the country between 2012 and 2030 .
Some of the major factors which are influencing the healthcare sector are:
• The rise of the organised sector: Consumers are demanding more quality services, which gives an edge to the organised players over the unorganised ones. Leading 20 organised players contribute to only around 5.5% of the total private hospital beds (around 67,000 beds) in India indicating an opportunity for the existing organized players to scale up.
• Shortage of quality beds: The impact of demonetisation, GST, and COVID-19 had slowed down the greenfield expansion of hospitals and created a gap between the supply and demand of quality beds in the leading hospitals.
• Digital transformation: Healthcare delivery has shifted to a hybrid mode where online and offline channels are integrated, and organisations are trying to implement digital transformation initiatives to engage with the customers across the value chain.
• Improvement in margins: Healthcare organisations have optimised their cost centres after the COVID-19 pandemic leading to better margins and ROCEs.(Return on Capital Employed)
• Feasibility of single speciality: The past two to three years have seen more deal activity in IVF, ophthalmology, oncology and the urology/nephrology specialisations proving that single specialty models can be viable and scalable.
• Focus on wellness: Healthcare organisations are not only providing curative services but also deliver preventive and wellness services and are building the healthcare ecosystem outside the hospital.
Increase in dealmaking and capital market activity
IPOs of leading hospital chains: Leading hospital and regional chains such as Medanta, Rainbow Children’s hospitals, Yatharth Hospitals and Jupiter hospital have successfully gone public in the past two years, indicating the potential of the healthcare sector for tapping the capital markets. This year, a few more healthcare providers like Dr Agarwal’s Eye, Indira IVF, Paras Healthcare and Manipal hospitals are preparing to go public as well.
The recent increase in the average deal size and large investments with controlling stake being picked up by private equity players is an example of the growing interest in the sector. Private equity players are increasingly taking the platform route to ramp up their investments and leading funds like Blackstone, Morgan Stanley and KKR have made their investments through this route. The sector has also seen good exits for the funds, with a median IRR of 21% for healthcare company exits in the last three years.
Broadening the canvas in 2025
Smaller cities offer new opportunities: The COVID-19 pandemic slowed down the movement from rural to urban areas and boosted the expansion of hospitals in smaller cities. Most tier 2 and tier 3 cities now have large corporate chains, so the real opportunities are in the cities with more than a million people. By 2030 India will have over 70 such urban cities and a population of around 600 million living in urban areas.
Health technology is ready for a revival: The funding winter hit the health tech startups hard particularly organisations which lacked a viable business model or were under scale at the time of the downturn. But now most healthtech companies are seeing a recovery and focusing on analytics, artificial intelligence and revenue cycle management.
Single-specialty and the continuum of care: Eye care, dialysis and mother and childcare have been the clear frontrunners in this space. New models of outpatient daycare chemotherapy centres, assisted and senior living, and home healthcare are expected to gain traction. The models have the advantage of being asset light, replicable and scalable which can lead to a higher return on investment.
Corporate hospitals are scaling up: Many large service providers have built a strong position in their regions based on their brand, clinical talent and technology. They are likely to consolidate their position with tuck in acquisitions in niche markets where they already have a strong presence.
Creating Indian Medtech global companies: One of the biggest winners of growth in the health services sector, both in the public and private sector, will be the MedTech companies. Though, at present, 70% of this market is dominated by multinationals, however, there is an increasing opportunity for local companies to scale up and tap into the Indian market as well as the global market.
Managing the next stage of growth: Competitive environment and scarcity of quality assets will require innovative dealmaking strategies. Given the abundance of dry powder dedicated to the sector, prudent capital allocation and a potential exit path will be needed.
Conclusion
The healthcare sector offers multiple options and opportunities for private equity players to tap into the growth opportunities which are available in the sector.
The huge supply and demand mismatch is expected to provide continued tailwinds. However, it is important to conduct rigorous due diligence to identify levers for EBIDTA enhancement and value creation. They also need to evaluate operational, technological and ESG parameters to ensure that there are no roadblocks to post-acquisition value creation. Onboarding the right management could go a long way in making the investments in the sector grow.
