Delhi based private equity firm CX Partners is understood to be in the fray for an investment in Thyrocare Technologies, a Mumbai-based diagnostics player. The investment firm has issued a term sheet and that it is highly likely that a deal would come through, sources close to the development told VCCircle.

When contacted, Ajay Relan, Founder & Managing Partner, CX Partners, denied any such development.

Thyrocare, one of the top players in India’s Rs15,000-crore diagnostics services market, has been on the block for an year now, said investment bankers and industry sources, on conditions of anonymity.  

The company, which has apparently received interest from various private equity and foreign diagnostics companies in the past, has failed to close a deal owing to mismatch in valuation expectations between the promoter and potential investors, said investment banking sources, who did not wish to be identified. Talks have till now centered around a majority stake sale or a complete sellout by the promoter, A Velumani, who may be looking to pursue other business interests.  

On a query whether CX Partners is close to investing in Thyrocare, promoter and chief executive A. Velumani, said, in an e-mail response, “This is not true.”

Since it is not a strategy for CX Partners, a growth equity firm which essentially takes minority bets into companies, to buy majority or a controlling stake, speculation is rife that it may team up with other PE firms for a controlling stake bid, said a banker familiar with the development, but not involved in the stake sale.

Thyrocare’s management, according to a banker, is valuing the company at around Rs 600-650 crore, seeking around 10 times the revenue it earned in the year ended 31 March 2009. According to an analyst with a Mumbai-based broking firm, “10x revenue for a diagnostic company is on the higher side.”  

From a macro perspective, the diagnostics industry is riding high on secular themes such as growing awareness of wellness, healthcare penetration and rising disposable incomes. But, the space is equally beset with challenges such as equipment costs, talent crunch and so on.

Thyrocare follows a centralised laboratory (single location) testing model with a nationwide franchise network for fast-track sample collection and result delivery. Velumani, a scientist-turned entrepreneur, established Thyrocare in 1996 after resigning from Bhabha Atomic Research Centre, Mumbai.

Thyrocare, which was started as a thyroid testing laboratory, now caters to critical diagnostics services related to growth metabolism, cancer, infectious diseases and infertility. An analyst says, "Thyrocare is not niche. It is specialised," adding that the opportunity can be huge if it is bundled with more options.

In one of the biggest deals in diagnostics space this year, private equity major Warburg Pincus invested $85 million (Rs 392 crore) in India's largest diagnostic laboratories chain Metropolis Healthcare Limited paving a way for an exit for ICICI Venture. Warburg Pincus' investment was a combination of both a primary investment to fuel the company's growth and a secondary transaction to buy ICICI Venture's stake.

Other deals include TA Associates Advisory Pvt. Ltd infusing $35 million into Dr. Pathlabs Pvt. Ltd early this year and Elbit Medical Diagnostics raising money from Biotechnology Venture Capital Fund in 2006.

Recently, Ajay Piramal-led Piramal Diagnostics, part of Piramal Healthcare Ltd, said, it was on the lookout for multiple regional acquisitions to expand its network. Other national players like Super Religare Laboratories (SRL), owned by the former Ranbaxy promoters, Metropolis, Dr Lal’s Laboratory and Max Healthcare have also bared their intentions to grow inorganically.

Founded in 2009, CX Partners has invested $25.71 million investment in NTL Electronics India Ltd (electrical components & equipment), an undisclosed amount in Convexity Solutions Pvt. Ltd. (investment banking & brokerage) and $33.74 million in Monnet Ispat & Energy Ltd. (steel manufacturing).

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