After eye care, dialysis chains seem to be the next target of private equity investors looking to bet on the Indian healthcare space.

NephroLife Care (India) Pvt Ltd, a renal disease management chain, has raised $25 million from New Enterprise Associates (NEA) and DaVita, Inc., one of the largest kidney care companies in the USA. The deal comes soon after Bessemer Venture Partners has backed Hyderabad-based Nephroplus, another dialysis chain which plans to open 100 centres.

There is also Alliance Medicorp India, a JV between Apollo Hospitals and GSK Velu’s Trivitron, which operates both dental and dialysis centres. Alliance is also looking to raise Rs 60 crore in PE funding. Fortis Healthcare also said last month that it was planning to open 50 dialysis centres by investing over Rs 30 crore.

“Nephrology is clearly one of the single specialty themes and an attractive sub-segment in the healthcare chain. Scale and margins are good, and you can cater to a large demography,” said Shiraz Bugwadia, managing director at the investment bank o3 Capital. “The size of the Indian dialysis services market is estimated at Rs 480 crore with haemodialysis accounting for 77 per cent of the market. The dialysis market in India is primarily restricted to metros,” said a note from o3 Capital, adding that 95 per cent of the haemodialysis machines are in hospitals.

According to NephroLife MD and founder Shriram Vijayakumar, India adds about 5 lakh new kidneys patients every year of whom not more than 5 per cent get dialysis. And entry of players like DaVita, Inc. in the Indian market only illustrates future potential. DaVita, one of the world’s largest kidney care companies, had revenues of $6.47 billion, with a net income of $406 million in 2010.

Ben Mathias, executive director at New Enterprise Associates (India), said that the venture firm had a long relationship with DaVita and decided to partner with it during India entry (NEA’s John Nehra, a Partner based out of Baltimore, has been on DaVita board since 2000). NEA and DaVita then jointly decided to invest in NephroLife.

The deal is one of the rare transactions where a strategic and a private equity investor are joining hands to back an Indian entrepreneur. Another such deal took place when private equity firm Peepul Capital partnered with Europe’s largest loyalty programme player Payback GmbH to buy a majority stake in India’s largest loyalty card provider i-mint.

NephroLife was founded in June 2009 by Shriram Vijayakumar, who had worked as a consultant and was CEO at NU Hospitals. During the initial stage, the company raised $3 million from ROI Capital, a family office run by former Barclays Capital MD Dev Kumar Roy.

The company currently operates 10 centres in cities like Bangalore, Hyderabad, Chennai, Pondicherry, Tumkur and Hosur. While it operates large, standalone facilities in metros, NephroLife plans to increase its presence in tier II and tier III cities. In smaller towns, it operates through satellites as they help keep the operational costs lower.

Of the currently operational centres, six are located within hospitals while the remaining are standalone units. The company plans to cover 20 locations by 2012 and another 50 by 2015, according to Vijayakumar. While the current focus is on southern India, it is now effectively looking at northern (Delhi) and western India (Ahmedabad and Pune).

NephroLife’s standalone centres will have a capacity of 20-25 beds, with pick-up and drop facilities and IPTV for patients during the treatment. They will also feature dieticians and psychologists to help patients. While NephroLife’s Vijayakumar did not disclose the cost per centre, the biggest investment for the company is real estate.

“While margins in nephrology are similar to eye care and dental chains, return on capital tends to be a little lower, given the relatively larger real estate component involved,” added Bugwadia. In the past one year, eye care chains like Medfort Hospitals (TVS Capital, ePlanet Capital), Centre For Sight (Matrix Partners) and Eye-Q-Vision (Song Investment, Nexus, Helion) have also raised funding.

NEA, too, has invested in Nova Medical, a multi-specialty day-care surgical chain. Healthcare is one of the three main focus areas for NEA, which has $11 billion under management.

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