Vijaya Diagnostic Centre plans to take PE route to raise Rs300 crore

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Mumbai: Hyderabad-based diagnostic chain Vijaya Diagnostic Centre Pvt. Ltd is looking to raise at least Rs.300 crore from private equity (PE) funds, as the company seeks to expand its network of diagnostic centers, said two people aware of the development.

“They (Vijaya Diagnostic Centre) have hired boutique investment banking firm Veda Corporate Advisors to help them raise funds. The company plans to sell a significant minority stake to PE funds and their plan is to raise at least Rs.300 crore. The fundraising plan is at a preliminary stage right now,” said one of the two people cited above, requesting anonymity as the talks are private.

The deal size can be larger if they get an attractive offer, he added.

Founded in 1981 by Dr Surendranath Reddy, the diagnostic chain today has almost 14 centres in Hyderabad, according to the company’s website. It also has centres in other cities such as Kolkata, Chennai, Warangal and Nizamabad.

Vijaya Diagnostic Centre provides a comprehensive range of diagnostic services spanning radiology, imaging, nuclear medicine, conventional and specialty lab services, and diagnostic cardiology.

The transaction will have both a primary and secondary share sale component, said the second person cited above. “The promoters are looking at selling part of their stake through this fund raise. The primary capital will go towards funding the expansion of the diagnostic chain, which wants to deepen its presence in Andhra Pradesh and Telangana and also spread to more regions.”

According to data from filings with the registrar of companies (RoC), the company reported a revenue of Rs.100 crore in 2013-14, compared with a revenue of Rs.81.19 crore in the previous year. In 2013-14, it reported a profit of Rs.9.87 crore, compared with a profit of Rs.7.5 crore in the previous year. The latest financial numbers were not available with RoC.

“We are not looking at an immediate fund-raising,” said Reddy, founder of Vijaya Diagnostic Centre.

Venkat Subramanyam, founder of Veda Corporate Advisors declined to comment on the development.

The fund-raising plans at Vijaya Diagnostic Centre come at a time when healthcare services are seeing strong interest from investors, both public and private. Recent initial public offerings (IPOs) of diagnostic chains have given successful partial exits to existing PE investors. PE funds WestBridge Capital and TA Associates sold part of their stake in Dr Lal PathLabs Ltd while CX Partners sold close to a 20% stake in Thyrocare Technologies Ltd in IPOs.

Since its IPO in December 2015, shares of Dr Lal PathLabs have jumped almost 67% from its sale price of Rs.550. On Tuesday, Dr Lal Pathlabs closed at Rs.922.30 apiece on BSE, down 1.05% from its previous close.

Thyrocare’s share price has risen 28% since its IPO in April, from its offer price of Rs.446. On Tuesday, Thyrocare stock gained 2.66% to close at Rs.571.

“Investors are being attracted to the sector given the shortage of healthcare infrastructure in the country and thus, the opportunity for businesses to scale up. We are far short of the actual needs, whether it is hospitals or diagnostics centres or other parameters such as the patient-to-doctor ratio,” said Manish Begrajka, executive director at investment banking firm Euromax Capital.

Several macro factors and behavioural changes are driving the sector’s growth.

“Awareness levels have grown significantly in the metro and larger cities. This has resulted in people spending more on preventive healthcare. Other factors such as increasing insurance penetration are also propelling the growth of diagnostic businesses,” said Begrajka.

The domestic diagnostic market in India, which is highly fragmented, is estimated at Rs.37,700 crore per year.

The business is expected to grow at a compound annual growth rate of 16-17% to reach Rs.60,100 crore by 2017-18, according to Crisil Ltd. Stand-alone diagnostic centres make up about 48% of the market, according to Crisil.