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The sector has been attracting interest from investors. Yash Birla Group recently picked up 51% in Kerala Vaidyashala.

Indian Ayurveda is turning a sexy business for dealmakers. The business is set for a major consolidation as two major players, Kerala Ayuveda Ltd (KAL) and Arya Vaidya Pharmacy (AVP), are combining to form arguably the world's biggest ayurveda firm. The Coimbatore-based AVP, the larger of the two, is a privately held firm while KAL is a listed firm in which serial entrepreneur Ramesh Vangal, the former head of Seagram and PepsiCo in India, holds more than 61% stake.

Following the deal buzz, KAL closed at Rs 42.40 on Monday, up by 4.95%, with a market capitalisation of nearly Rs 45 crore.

The board of Kerala Ayurveda has "approved the execution of the expression of interest" between two firms, it said in a filing. KAL also has a Singapore subsidiary, Nutraveda Pte Ltd, which focuses on marketing ayurvedic products globally.

Interestingly, the 61.52%  promoter shareholding in KAL - held by Mauritius based Katra Holdings Ltd - is pledged as security for a loan of $2.5 million taken from Evolvence India Holdings plc, in June 2007. The amount was to be paid back by September 2007. The loan, which was personally guaranteed by Vangal, was not, however, paid back, and has now accumulated $1.11 million as interest and penalty. Evolvence has initiated proceedings to recover the principal and the interest owed together with costs.

AVP has around 50 clinics and hospitals. It has over 400 ayurvedic formulations and sells these through  100 distributors.

The wellness services market, presently estimated at Rs 11,000 crore, would sustain an annual growth rate of about 30-35% for the next five years, according to a recent study by FICCI and Ernst & Young. Areas like alternative therapies and ayurveda treatments are expected to grow by as much as 30%.

The sector has been attracting interest from investors and conglomerates alike. Yash Birla Group, a part of the Birla clan, picked up a 51% stake in Kerala Vaidyashala, a leading ayurvedic therapy
chain, in January this year. Renamed Birla Kerala Vaidyashala, it now plans to open 200 centres, which would include owned as well as franchisee based.

Also, last year Acumen Fund invested Rs 4.5 crore in Kochi-based Kerala First Health Services Pvt Ltd, which runs the AyurVAID Hospitals.