Care Hospitals, a South India-based healthcare chain, is looking to raise around Rs 200 crore in a deal which could lead to partial or complete exit of some financial investors including Rakesh    Jhunjhunwala and Matrix Laboratories founder Nimmagadda Prasad.

Sources tracking the development said, Quality Care India Ltd (QCIL), the holding company for Hyderabad-based Care Group, could look at a significant minority stake sale of over 26% as part of the latest fundraising process. The investors, N Prasad, Rakesh Jhunjhunwala and UK-based emerging markets fund Ashmore together hold closer to 80% stake with the remaining 20% held by the management, who are not in favour of a sell-out leading to a loss of identity.

Cardiologists Dr. B Soma Raju (current chairman & MD) and Dr. N Krishna Reddy (current CEO) started Care Hospitals in 1997. It started as a single specialty cardiac hospital but has now expanded into a multi-specialty hospital chain with 10 hospitals and over 1,600 beds in cities like Hyderabad, Nagpur, Surat, Vizag, Secundarabad and Bhubhaneswar.

An email sent to Care Group did not elicit a response at the time of publication of this article. Prasad also did not reply to emails sent by VCCircle.

With the original promoter group of medical professionals unlikely to give up management rights straight away, it could look at private equity backed merger with another mid-sized or smaller hospital chain. In such a scenario, a PE fund will back a merger or an acquisition and take a controlling stake in the combined entity.

One source, who did not wish to be identified said, early discussions were underway for a possible deal on these lines. But it was too early to discuss details, he added.

There have been very few control deals by private equity investors in hospitals in India. For instance, Actis deal in Ahmedabad's Sterling Hospitals and India Value Fund backed DM Healthcare. This might be due to strategic players like Fortis Healthcare and Apollo Hospitals started consolidation plays early in this sector.

The other option was private equity fund taking out the stakes of some existing investors while infusing fresh capital as well. Prasad and Jhunjhunwala may open to paring stake or exiting the company as they have stayed invested for nearly five years, sources added. But for either of these of options to emerge, the PE funds should first strike a working relationship with the management and efforts in this direction are currently on. The broad contours of this dealmaking is still evolving, sources said.

Care has seen one round of secondary sale when India Value Fund, which invested in 2001 exited subsequently. Ashmore reportedly picked up 19% stake in the company for Rs 90 crore in 2008. 

Both Jhunjhunwala and Prasad have been active investors in privately held companies. Jhunjhunwala, who is known as one of the savviest investors in Indian stock markets, has invested in companies like Hungama and John Energy. Some of his companies like EPC player A2Z  Maintenance & Engineering Services and security services player Topsgroup are also planning IPOs. N Prasad has also invested in another healthcare firm, Asian Institute of Gastroenterology, besides companies like Bharati Cement and Telugu entertainment channel Maa TV.

A recent report by credit rating agency Crisil said that QCIL‘s revenues grew at a CAGR of 35% from FY06 to FY09. QCIL has a capex of Rs 85 crore in the next two years, primarily to increase hospital bed capacity and ramp up its pharmacy business.

To diversify its revenue base the firm has formed  subsidiaries for pharma business and for operating CARE Clinics respectively. The Care group reported a profit after tax of Rs 9.84 crore on operating income of Rs 328 crore for FY09.

The healthcare services sector has been increasingly attracting PE investments in India since last year. In the last 12 months, PE firms invested $388 million across 17 deals in healthcare services and equipment firms, according to VCCEdge, the financial research platform of VCCircle.

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